The 225 BPS cumulative increase in repo rate in 2022 and the consequent increase in home-loan rates, along with increase in residential prices caused the decline in affordability
Home affordability declined in 2022 compared to 2021 but remained above the pre-Covid level of 2019 amid rising interest rate scenario, a study by Knight Frank India showed. The Affordability Index 2022 compiled by the Knight Frank noted that home buying affordability levels in Indian markets have declined in 2022 compared to 2021.
The 225 BPS cumulative increase in repo rate in 2022 and the consequent increase in home-loan rates, along with increase in residential prices caused the decline in affordability. However, while affordability levels in 2022 have worsened compared to 2021, they remain significantly better the pre-pandemic levels in 2019, Knight Franks India said.
“All markets, except Mumbai, are recorded to be well below the threshold of comfortable affordability set at 50 per cent ratio. Ahmedabad emerged the most affordable housing market in the country with an affordability ratio of 22 per cent followed by Kolkata and Pune at 25 per cent each in 2022. Mumbai was the only one that recorded higher than threshold affordability ratio at 53 per cent. Affordability levels in Mumbai has improved the most since 2011,” according to Knight Frank.
Knight Frank's proprietary Affordability Index, which tracks the EMI (Equated Monthly Installment) to total income ratio for an average household, has shown a marginal worsening in affordability levels for the first time in 10 years in 2022.
Affordability levels had improved even during the pandemic impacted years of 2020 and 2021 as residential price growth was subdued and the government aggressively cut policy rates to increase liquidity in the highly stressed economic environment.
“Despite the rise in REPO rate by 225 BPS in 2022 and the increase in home prices, home affordability has only marginally reduced by 100 to 200 BPS in major cities. The severity of the impact of rise in home loan rates and in prices on the affordability index has been cushioned by a rise in incomes and growth in GDP, helping the residential market maintain its momentum. This augurs well for the industry as it had been hoping for a turn around for a while. For the new year, we hope this sales momentum will continue as we expect factors like GDP growth and inflation to remain stable,” said Shishir Baijal, chairman and managing director, Knight Frank India.