Home affordability improves across India’s property markets, Ahmedabad leads

A steady increase in income levels, driven by a robust economy, coupled with relatively stable interest rates has helped improve home affordability across India’s major property markets in 2024. The favourable economic environment has empowered more individuals and families to buy residential properties, making homeownership increasingly accessible.

Homebuyers’ affordability level--measured as Equated Monthly Instalment (EMI) to income ratio for an average household---has strengthened in seven markets out of eight cities with an exception of Bengaluru.

The southern city has witnessed a marginal drop in affordability, while Ahmedabad, Pune, and Kolkata have emerged as the most affordable property markets, showed a Knight Frank India analysis.

“Affordability plays a crucial role in sustaining homebuyer demand and driving sales, which significantly contribute to the country’s economic growth. While property prices have seen a considerable rise, the steady increase in income levels has helped individuals maintain the financial confidence needed to invest in properties. As incomes grow and the economy strengthens, end-users are more inclined to make long-term financial commitments toward asset creation,” said Shishir Baijal, CMD, Knight Frank India.

For Ahmedabad, the affordability ratio stood at 20%, followed by Pune at 23% and Kolkata at 24%.

"A remarkable blend of policy support, vibrant economic growth, and infrastructure development has positioned Ahmedabad as a leading real estate destination. The Gujarat government's robust policies for land use and FSI, coupled with recent FSI incentives for green buildings, showcase its progressive approach. With no land barriers, Ahmedabad is expanding in all directions, backed by commendable infrastructure initiatives. The city’s vibrant economic outlook, driven by industrial growth, a flourishing SME sector, and strategic investments, adds to its appeal,” said Jaxay Shah, Founder & CMD, Savvy Group.

According to Shah, combined with a high quality of life, ample power availability, seamless connectivity, and expanding Metro networks, Ahmedabad is emerging as a preferred choice for both residential and commercial growth.

Mumbai is the only city to exceed the affordability threshold, standing marginally higher at 50%, albeit affordability in the country’s most expensive market has improved since 2023. In Mumbai, the affordability index has improved by 17%, moving from 67% in 2019 to 50% in 2024.

According to Baijal, with the RBI projecting a healthy 6.6% growth in Indian economy for 2024-25 and a stable interest rate environment, affordability levels are expected to continue supporting homebuyer demand in 2025.

Affordability has reduced in Bengaluru, albeit marginally, compared to last year with households now expected to pay 27% of towards home purchases up from 26% in 2023. This is largely due to the sharp rise in residential prices over the past year.

While affordability has come down marginally for the southern city, it is still well within the affordability threshold of 50%, over which the residential market is deemed unaffordable. The enduring shift in homebuyers' preferences and sentiments since the pandemic has kept demand resilient and the residential market buoyant.

Housing demand has grown at an annualised rate of 23% since 2020 and has scaled multi-year highs in 2024. The stable interest rate scenario is likely to persist in the near term, as India's economy remains on a healthy growth trajectory.

Home affordability witnessed steady improvement from 2010 to 2021 across the eight leading cities of India, especially during the pandemic when the RBI reduced the policy repo rate to decadal lows.

However, the Reserve Bank of India had raised the repo rate by 250 basis points over nine months starting May 2022 to tackle high inflation, thus affecting affordability across cities in 2022.

Since February 2023, the central bank has kept the repo rate unchanged, while income levels have witnessed healthy growth that has helped offset rising home prices supporting affordability.