Introduction:

In a nation as diverse as India, the quest for affordable housing has been a constant endeavor for many. The real estate market's dynamics are ever-changing, influenced by factors like economic conditions, interest rates, and housing demand. According to the Knight Frank Affordability Index, 2023 has witnessed interesting trends, with Ahmedabad emerging as the most affordable housing market among major cities.

Ahmedabad Takes the Lead:

The Affordability Index, a key metric in evaluating the proportion of income required to fund monthly home loan installments (EMIs), revealed that Ahmedabad achieved an impressive affordability ratio of 21% in 2023. This means that on average, households in Ahmedabad spend only 21% of their income to meet EMIs. This makes Ahmedabad a promising destination for those aspiring to own a home without breaking the bank.

Pune and Kolkata Follow Closely:

Pune and Kolkata secured the second position on the affordability chart in 2023, each boasting a 24% affordability ratio. Kolkata, in particular, demonstrated noteworthy improvement, with a 1% increase from 2022 and an impressive 8% surge from the pre-pandemic year of 2019. This suggests a positive trend in housing affordability over the years.

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Chennai's Improved Affordability:

Chennai secured the fourth position with an affordability ratio of 25% in 2023, showing a 2% improvement from the previous year. Despite the challenges posed by the pandemic, the city's housing market has demonstrated resilience, enhancing affordability levels for potential homebuyers.

Mumbai's Affordability Challenges:

Mumbai, being the most expensive residential market in India, remains beyond the affordability threshold of 50%, a level at which banks are hesitant to underwrite mortgages. However, there is a silver lining as Mumbai witnessed a 2% improvement in its affordability index in 2023, dropping from 53% in 2022 to 51%. This marks a significant 16% improvement from the affordability levels recorded in 2019.

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Hyderabad, NCR, and Bengaluru: Affordability Perspectives:

Hyderabad maintained its position as the second most expensive residential market with an unchanged affordability index of 30% in both 2023 and 2022. The National Capital Region (NCR) witnessed an improvement, reaching 27% in 2023 from 29% in 2022. Bengaluru, while being the fourth most expensive market, showed a marginal 1% improvement in its affordability index from the previous year. 

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Looking Ahead to 2024:

Knight Frank India anticipates a further improvement in housing affordability in 2024. Projected moderation in inflation and an expected downward trend in interest rates are key factors contributing to this optimism. Shishir Baijal, Chairman & Managing Director of Knight Frank India, expressed confidence in the potential enhancement of affordability, especially if the Reserve Bank of India (RBI) decides to lower the repo rate later in 2024.

Methodology and Assumptions:

Methodology:

The Knight Frank Affordability Index serves as a metric indicating the percentage of a household's income required to cover the monthly installment (EMI) of a housing unit in a specific city. For instance, if the Knight Frank Affordability Index for a city stands at 40%, it means that, on average, households in that city need to allocate 40% of their income to cover the EMI for a housing loan. Any EMI/Income ratio surpassing 50% is deemed unaffordable, as it exceeds the threshold at which banks typically hesitate to underwrite mortgages.

Assumptions:

1. EMI, Housing Unit Size, and Price per Square Foot: These parameters represent averages at the city level.

2. Loan Tenure: Fixed at 20 years.

3. Loan-to-Value Ratio: Set at 80%.

4. Home Loan Interest Rate: Calculated based on the Median MCLR of all scheduled commercial banks, with a 40 basis points spread.

5. Area of Housing Unit: House sizes remain constant for each city over the years but may differ across different cities, accounting for the average size preferences in each locality.

6. Housing Price: Reflects the median housing price for the specific city under consideration.

Conclusion:

The pursuit of affordable housing in India has seen notable developments in 2023, with Ahmedabad leading the way in affordability. As we look ahead to 2024, the prospects seem promising, with anticipated improvements in inflation and potential reductions in interest rates. These factors, coupled with the insights from the Knight Frank Affordability Index, provide a comprehensive overview for prospective homebuyers seeking to make informed decisions in India's dynamic real estate landscape. 

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