Home purchases turn more affordable after RBI rate cuts: Report
According to the Knight Frank Affordability Index, Ahmedabad is the most affordable housing market among the top eight cities, with a ratio of 18 per cent, followed by Pune at 22 per cent and Kolkata at 23 per cent.
Mumbai was the least affordable city with a ratio of 48 per cent. However, the city's affordability index level improved by over 2 percentage points, moving from 50 per cent in 2024 to 48 per cent in H1 2025.
"This is the first time in the history of the index that Mumbai has come below the threshold of the 50 per cent 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," the report said.
Affordability levels have marginally worsened in the National Capital Region 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, according to the report.
Knight Frank India's Affordability Index is based on the EMI (Equated Monthly Instalment) to income ratio for an average household.
Shishir Baijal, Chairman and Managing Director, Knight Frank India, said, "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 per cent 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, the report added.
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