Improved affordability pushes home sales in India to a new peak in 2023

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Homes in India have become more affordable in 2023 as compared to 2022 and this was witnessed in the sales figures of the year. According to reports released on Thursday, the affordability index, a ratio of equated monthly instalments to income, improved in India and the sales in the top seven cities touched an all-time high of 476,530 units. It was 31 per cent higher than 364,870 units in 2022. 

According to Knight Frank India's Affordability Index, home affordability across cities also significantly improved since the pre-pandemic year of 2019. An EMI/Income ratio of over 50 per cent is considered unaffordable.

According to Knight Frank, Mumbai is the only "unaffordable" city with an affordability of 51 per cent. This indicates that, on average, a household in Mumbai needs to spend 51 per cent of its household income to pay EMI for housing loans. However, Anarock's data showed that Mumbai Metropolitan Region (MMR) registered the highest home sales in India in 2023 at 153,870 units, 40 per cent higher than 109,730 units in 2022.

Hyderabad is the second most expensive residential market in the country. The city's affordability index remained unchanged at 30 per cent for 2023 as well as 2022. This was mainly due to a sharp 11 per cent rise in home prices in the city. However, despite being expensive, the city witnessed a 30 per cent jump in sales to 61,715 units.

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The National Capital Region (NCR) is the third most expensive city in the country for buying a home. Its affordability has improved to 27 per cent in 2023 from 29 per cent in 2022 but the sales jumped by a lower 3 per cent to 64,625 units as compared to 63,710 units in 2022.

Ahmedabad continues to remain the most affordable housing market in the country, with an affordability ratio of 21 per cent. It is followed by Kolkata and Pune at 24 per cent each. In all these cities, the affordability has improved from 2022. In Ahmedabad, the affordability ratio was 22 per cent last year. In Kolkata and Pune, it was 25 per cent each.

Home sales in Kolkata and Pune jumped 9 per cent and 52 per cent, respectively.

Chennai, which improved in affordability, also witnessed a steep 34 per cent jump in sales to 21,630 units in 2023 from 16,100 units last year. This was despite a 12 per cent jump in home prices in the city. 

In 2024, experts suggest that home affordability, as well as sales, are expected to improve further on the back of cooling inflation and the likelihood of lower interest rates.

"Inflation in India has more or less stabilised, and further hikes in the lending rate seem less than likely. The Indian economy remains bullish, and this directly correlates to residential demand," said Anuj Puri, chairman of Anarock Group.

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"Anticipating stable gross domestic product growth and moderation in inflation in 2024-25, affordability is expected to strengthen," added Shishir Baijal, chairman and managing director of Knight Frank India.

"Further, if the RBI decides to lower the repo rate later in 2024 as is widely expected leading to a reduction in home loan interest rates, the affordability of homes in 2024 could see a noteworthy enhancement, providing a comprehensive boost to the sector," Baijal said.