Whalesbook
Housing Affordability Sees Significant Improvement Across India
Homebuyer affordability in India's major urban centers has experienced a notable uplift in 2025. This positive trend stems from rising household incomes combined with lower financing costs, driven by the Reserve Bank of India's monetary policy. The central bank's reduction of 125 basis points in its repo rate has effectively lowered home loan interest rates, enhancing prospective buyers' purchasing power.
Key Cities Benefit from Economic Tailwinds
Cities like Mumbai, Ahmedabad, Pune, and Kolkata are demonstrating improved affordability, according to Knight Frank India's Index. Mumbai hit a historic milestone, with its EMI-to-income ratio falling to 47%, below the 50% threshold for the first time. Ahmedabad leads as the most affordable with an 18% ratio, followed by Pune and Kolkata at 22%. Bengaluru, Hyderabad, and Chennai have also maintained or enhanced affordability due to steady income growth and supportive financing.
Delhi-NCR Faces Affordability Challenges
Conversely, Delhi-NCR is the sole major market showing a slight affordability deterioration, with a 28% EMI-to-income ratio. This dip is attributed to a sharp increase in weighted average home prices, particularly within the premium market segments.
Expert Analysis on Market Drivers
Shishir Baijal, International Partner and CMD at Knight Frank India, noted that income levels have grown faster than other parameters. This, coupled with decreasing interest rates, has significantly strengthened home affordability. He stated that rising incomes and economic momentum boost end-users' financial confidence, encouraging longer-term asset creation commitments.
Future Outlook and Market Sustainability
With the Reserve Bank of India projecting 7.3% GDP growth for FY2026 and a benign interest rate environment, affordability levels are expected to support homebuyer demand throughout 2026. Analysts anticipate this trend will underpin sustained residential sales, especially in high-growth metro markets where property is a preferred long-term investment.
Historical Context of Affordability Trends
Affordability in India's top cities improved steadily from 2010-2021, strengthening during the pandemic with RBI rate cuts. Inflation in 2022 led to a 250-basis-point repo rate hike, temporarily denting affordability. Since rate stability in early 2023 and 2025 reductions, affordability has rebounded across most major centers.
Impact
Improved homebuyer affordability positively impacts India's real estate sector, expected to drive demand through 2026. This benefits developers, construction companies, and banks providing home loans, indicating a healthy market supported by economic growth and favorable policy.
Impact rating: 7/10
Difficult Terms Explained
Repo Rate: Interest rate at which RBI lends to commercial banks; lower rates mean cheaper borrowing for consumers.
Basis Points: Unit for small percentage changes; 1 bp = 0.01%.
EMI-to-Income Ratio: Proportion of monthly income for home loan EMI; lower ratio signifies better affordability.
Weighted Average Home Prices: Average price calculation considering property volume/value at different price points for a nuanced market view.