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Ahmedabad emerges as India’s most affordable city for homebuyers, according to the latest Affordability Index published by leading real estate consultancy Knight Frank. This index presents a detailed comparison between monthly instalment payments (EMI) and the average household income across major Indian cities.
In the first half of 2023, Ahmedabad reported the lowest ratio among India’s top eight cities at 23 percent. This percentage represents the proportion of a household's income allocated toward EMI payments. Following closely are Pune and Kolkata, both registering a ratio of 26 percent.
In stark contrast, Mumbai, the financial capital of India, is identified as the least affordable city in the country, with a staggering 55 percent ratio. Hyderabad and the National Capital Region (NCR) are next in line, displaying ratios of 31 and 30 percent, respectively.
This trend arises in the wake of significant monetary policy changes. Since May of the previous year, the Reserve Bank of India (RBI) has increased the benchmark repo rate by 250 basis points as a strategic measure to combat rising inflation.
Knight Frank’s data reveal the repercussions of this policy change, showing an average impact of a 2.5 percent decrease in affordability across cities, and an increased EMI burden by 14.4 percent since the RBI's action. Despite this tightened monetary policy, housing demand in India has persisted remarkably and continues to sustain at the multi-year highs observed in early 2023.
The report further unveils a shift in the sales pattern across different pricing categories. Homes priced between Rs 50 lakh and Rs 1 crore, and those priced above Rs 1 crore have shown stronger sales performance relative to the overall market. In contrast, properties priced under Rs 50 lakh are experiencing a declining trend in sales.
Knight Frank emphasized that potential homebuyers in the under Rs 50 lakh category are typically more reliant on home loans, making them highly sensitive to interest rate hikes—a major factor depressing demand within this segment.
In conclusion, the Knight Frank Affordability Index illustrates the resilience of India's housing market amidst tightening monetary policy, with Ahmedabad leading as the most affordable city for homebuyers. However, as the RBI manoeuvres to control inflation through potential further rate hikes, this stability might face significant tests, highlighting the need for vigilant monitoring of the market’s response to these macroeconomic changes.
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