Affordability Index 2021 - Ratio in NCR improves to 28% in 2021; Ahmedabad emerges most affordable housing market: Study

Indian markets have emerged at their decadal best in terms of housing affordability, an annual proprietary study 'the Affordability Index 2021' by Knight Frank revealed.

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. The affordability ratio in NCR improved from 38% in 2020 to 28% in 2021. Similarly, the affordability ratio in Bengaluru improved from 57% in 2012 to 26% in 2021.

All markets, except Mumbai, are recorded to be well below the threshold of affordability set at 50% ratio. Mumbai was the only one that recorded higher than threshold affordability ratio at 53%, however, it has improved the most since 2011.

Knight Frank's proprietary Affordability Index, which tracks the EMI (Equated Monthly Installment) to total income ratio for an average household, has shown a meaningful improvement in affordability since 2010.

Despite the pandemic period since early 2020, which has created disruptions in household incomes, housing affordability has further improved. Decline in house prices and multi-decade low home loan interest rates have helped improve housing affordability in 2021.

Shishir Baijal, Chairman and Managing Director, Knight Frank India said, “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."

He further added: "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."

"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," mentioned Baijal.

The Knight Frank Affordability Index captures movement in key constituents like property prices, home loan interest rate and average household income to determine the buyers’ ability to purchase a house. Since banks underwrite home loans when the EMI to Income is under 50%, on that account, existing income and average ticket-size metrics across seven out of eight markets make it possible for a homebuyer to easily finance their home purchase.