Mumbai continued to remain the most expensive housing market in India and its Equated Monthly Instalment (EMI) to income ratio rose from 52% in 2021 to 55% in the first half of 2023, according to an assessment by Knight Frank India’s Affordability Index data released on Wednesday. On the other end of the spectrum, Ahmedabad remained the most affordable housing market with a ratio of 23%.
The Affordability Index in Mumbai, which now stands at 55%, used to be 93% in 2010 and has seen a steady improvement over the decade, especially during the pandemic when the Reserve Bank of India (RBI) had cut Repo rates to decadal lows. To address rising inflation, the central bank has since January 2022 raised the Repo rate by 250 basis points, impacting affordability and increased the EMI load by 14.4% since then. This year, the RBI has refrained from raising the rates in three consecutive monetary policy meetings, keeping the interest rates for home loans stable.
The Affordability Index tries to calculate the proportion of income that a household requires to fund the monthly EMI of a housing unit in a particular city. The values are derived assuming the home loan tenure to be 20 years, loan to value ratio of 80%, a fixed housing unit area and a median housing price in that city. So, a Knight Frank Affordability index level of 40% for a city implies that on an average, households in that city need to spend 40% of their income to fund the EMI of housing loan. An EMI/Income ratio over 50% is considered unaffordable as it is the limit beyond which banks rarely underwrite a mortgage, the report said.
Knight Frank noted that affordability index witnessed steady improvement from 2010 to 2021 across the eight cities of India especially during the pandemic when the RBI cut repo rates to decadal lows. "The central bank has raised the REPO rate by 250 bps since then to address growing inflation. This has impacted affordability by an average of 2.5 per cent across cities and increased the EMI load by 14.4 per cent since then