Housing affordability in H1 CY25 improves as RBI cuts interest rate: Report

Ahmedabad is the most affordable housing market and Mumbai the least: Knight Frank

Homes in eight Indian cities became cheaper in the first half of the calendar year 2025 (H1 CY25) as the Reserve Bank of India (RBI) cut the repo rate by 100 basis points, said a real estate consultancy’s report on Tuesday.

 

According to Knight Frank’s affordability index, Ahmedabad is the most affordable housing market at a ratio of 18 per cent. It is followed by Pune (22 per cent) and Kolkata (23 per cent). The index tracks the share of an average household's income required to fund the monthly equated monthly instalment of a housing unit in a city.

 

Mumbai is the least affordable city, with an affordability level of 48 per cent, but the market has fallen below the 50 per cent mark for the first time in the index’s history. 

 

Affordability levels in the eight cities are lowest since the pandemic and significantly better than the end of 2024, just before the first rate cut announced in February 2025. Affordability in the national capital region dipped: Households have to pay 28 per cent of their income for acquiring an average property, compared to 27 per cent in 2023.

 

The index improved from 2010 to 2021, particularly during the pandemic when the RBI cut the repo rate. The central bank subsequently raised the rate by 250 bps in a space of nine months starting in May 2022 to address high inflation, which caused stress on affordability levels. As inflation moderated and economic growth picked up, the RBI slashed the rate by 100 bps starting February 2025. 

 

"Affordability plays a critical role in maintaining homebuyer demand and sustaining sales momentum, both of which are vital contributors to the broader economy,” said Shishir Baijal, chairman and managing director, Knight Frank India.

 

“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 FY26 and a favourable interest rate scenario, affordability levels are expected to be supportive of homebuyer demand in 2025,” he said.

 

According to Knight Frank, while the Indian economy is not insulated from global events, it continues to enjoy a relatively favourable environment. This has supported income growth and enabled lower interest rates, which have in turn helped improve affordability despite the increase in residential prices.