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.
Ahmedabad is the most affordable housing market among the top eight cities, with a ratio of 18%, followed by Pune at 22% and Kolkata at 23%. Mumbai was the least affordable city with an affordability level of 48%, however, it is noteworthy that the market has breached 50% mark for the first time in history of the index.
Knight Frank India, in its proprietary report, Affordability Index, cited that house purchase affordability of homebuyers has improved in H1 2025 as the RBI slashed the repo rate by 100 bps during the period.
In Mumbai, the affordability index level improved by over 2 percentage points, moving from 50% in 2024 to 48% in H1 2025. This is the first time in the history of the index that Mumbai has come below the threshold of 50% mark which is considered 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% of their income for acquiring an average property in the city instead of 27% 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.
