Interest rate cuts boost House purchase affordability of homebuyers in H1 2025: Knight Frank India

United News of India

5 hours ago

Hyderabad, June 24 (UNI) House purchase affordability of homebuyers has improved in H1 2025 as the RBI slashed the repo rate by 100 bps during the period, according to Knight Frank India, in its proprietary report, Affordability Index.
According to the Affordability Index, Ahmedabad is the most affordable housing market among the top eight cities, with a ratio of 18 percent, followed by Pune at 22 percent and Kolkata at 23 percent while Mumbai was the least affordable city with an affordability level of 48 percent.
However, it is noteworthy that the market has breached the 50 percent mark for the first time in the history of the index.
Knight Frank India's Affordability Index, which tracks the EMI (Equated Monthly Instalment) to income ratio for an average household, witnessed steady improvement from 2010 to 2021 across the eight leading cities of India especially during the pandemic when the Reserve Bank of India (RBI) cut policy repo rate (REPO) to decadal lows.
The central bank subsequently raised the REPO rate by 250 bps in a space of nine months starting May 2022 to address high inflation which caused stress on affordability levels.
However, with inflation worries subsiding and economic growth regaining focus, the RBI slashed the REPO rate by 100 bps since February 2025.
Shishir Baijal, Chairman and Managing Director, Knight Frank India said: "Affordability plays a critical role in maintaining homebuyer demand and sustaining sales momentum, both of which are vital contributors to the broader economy. As incomes grow and the economy gains strength, financial confidence among end-users improves, motivating them to commit to long-term investments such as home ownership. Given the RBI's healthy 6.5 percent GDP growth estimate for FY 2026 and a favourable interest rate scenario, affordability levels are expected to be supportive of homebuyer demand in 2025.'
While the Indian economy is not insulated from the volatile geopolitical and economic environment, it continues to enjoy a relatively favourable economic growth and inflation environment. This has supported income growth and enabled lower interest rates which have in turn helped improve affordability despite the increase in residential prices.
Incidentally, affordability levels are now at their best since the pandemic and are significantly better than the levels seen at the end of 2024, just before the first rate cut announced in February 2025.
In Mumbai, the affordability index level improved by over 2 percentage points, moving from 50 percent in 2024 to 48 percent in H1 2025.
This is the first time in the history of the index that Mumbai has come below the threshold of 50 percent mark which is considered the outer point of affordability.
Mumbai's market which has always been above the threshold has now become more affordable due to the reduced home loan rates.
Affordability levels have marginally worsened in NCR during the same period with households now needing to pay 28 per cent of their income for acquiring an average property in the city instead of 27 per cent in 2023.
This can be attributed to the steep increase in residential prices which have eclipsed the impact of the interest rate cuts in the NCR.
The RBIs neutral stance and intent to keep interest rates stable is expected to sustain affordability levels in the near term.
The interest rate cut and CRR reduction in H1 2025 have significantly enhanced liquidity in India's financial system by unlocking substantial funds for lending and reducing the cost of borrowing.
This infusion of liquidity should spur credit expansion and benefit both developers and urban homebuyers, thereby providing a boost to the broader real estate market.
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