Home Affordability in India at Decadal Low In 2021
Indian property markets are at their decadal best in terms of housing affordability, wherein all cities, barring Mumbai, were recorded as being well below the threshold of affordability set at 50% ratio, property advisory Knight Frank said in its ‘Affordability Index 2021’. Ahmedabad emerged the most affordable housing market in the country, with an affordability ratio of 20% followed by Pune and Chennai at 24% and 25% respectively in 2021. Mumbai was the only city that recorded higher than threshold affordability ratio at 53%, but it has improved the most since 2011. Knight Frank said the ‘Affordability Index’, which tracks the equated monthly installment (EMI) to total income ratio for an average household, has shown a meaningful improvement in affordability since 2010. Despite the pandemic since early 2020, which created disruptions in household income, housing affordability has only improved. Decline in house prices and multi-decade low home loan interest rates have helped improve affordability in 2021. The Index captures movement in property prices, home loan interest rate and average household income to determine buyers’ ability to purchase a house in a given city. Since banks underwrite home loans when the EMI to income ratio is below 50%, existing income and average ticket-size metrics across seven of eight markets make it possible for a homebuyer to easily finance their home purchase. “Over the last decade housing market has undergone a structural transformation on both demand as well as supply side. This has made the environment for home buying relatively attractive and safe. However, the key catalyst remained the - affordability, which has witnessed gradual improvement since 2015. For most part of the last 5-6 years residential prices corrected leading to better affordability, however, the recent reduction in home loan interest rate to below 6.5% has been a deciding factor in the significant improvement in home affordability in the last 24 months. No doubt it has taken a pandemic for the market to turn the corner and lift homebuyer sentiment, which is now evident across the country," said Shishir Baijal, chairman and managing director, Knight Frank India. “This is, therefore, a great time for potential buyers to purchase a home given that all factors, in terms of regulatory environment, the pricing as well as home loan rates are conducive. We believe a combination of best affordability levels and a pick-up in economy will serve as key catalysts for the country’s housing market next year," Baijal added.
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