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Home affordability at its decadal best: Report

Indian real estate markets are at their decadal best in terms of housing affordability, says property advisory Knight Frank in its report titled ‘Affordability Index 2021.’ All markets, except Mumbai, are recorded to be well below the threshold of affordability set at 50% ratio, according to its latest report.

According to the report, Ahmedabad is 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 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 Instalment) 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.

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.

The Knight Frank Affordability Index indicates the proportion of income that a household requires, to fund the monthly instalment (EMI) of a housing unit in a particular city. So, a Knight Frank Affordability index level of 40% for a city implies that on an average, households in that city need to spend 40% of their income to fund the EMI of housing loan for that unit. An EMI/ Income ratio over 50% is considered unaffordable as it is the limit beyond which banks rarely underwrite a mortgage.

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