Buying a home? Mumbai to reach close to optimal affordability level in 2025

The interplay between property price, income and home loan interest rates influences the ability of a household to afford a home purchase.

Mumbai is on its way to reaching close to optimal affordability levels in 2025. The market has come a long way from its time a decade ago when its household income could not guarantee even a full, individual home purchase. It is likely to see its affordability improve in 2024 as well on the back of anticipated interest rate cuts, said real estate consultancy firm JLL in its annual report for the year.

 

Delhi NCR and South markets to see affordability levels improve y-o-y but below peak values

 

The rate of price hikes in the four aforementioned markets has surpassed the household income growth by a significant margin. "Despite factoring in the interest rate reduction over 2024 and 2025 and amid healthy economic activity supporting further income improvement, Home Purchase Affordability Index (HPAI) levels are likely improve for both years but remain lower than peak values. Three-year best affordability levels likely to prevail in Hyderabad and Chennai in 2025," noted the report.

 

HPAI is the ratio of the average household income to the eligible household income. Eligible household income is defined as the minimum income that a household should earn in order to qualify for a home loan on a 1,000 sq ft apartment at the prevailing market price. 

 

• A value of 100 means that a household has exactly enough income to qualify for the loan
•  A value less than 100 implies that an average household does not have enough income to qualify for a housing loan
• A value of more than 100 implies that an average household has more than enough income to qualify for the home loan

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JLL Home Purchase Affordability Index (HPAI) signifies whether a household earning an average annual income (at an overall city level) is eligible for a housing loan on a property in the city, at the prevailing market price

 

Kolkata remains the most affordable residential market in India among the top seven cities and will maintain its status through 2024 and 2025, said JLL. It will likely hit new affordability peaks next year. Pune along with Mumbai with moderate price hikes over the next year and impending rate cuts are likely to be near their best affordability levels by next year, bringing renewed cheer for homebuyers.

 

While affordability showed a year on year decline for the first time in 2022, the stronger price hikes in 2023 amid stagnant interest rates further worsened affordability levels in the year, albeit cushioned slightly by a healthy growth in household incomes. 2024 is likely to end with a similar trend of y-o-y dip in affordability levels for markets like Delhi NCR and Bengaluru, despite optimism of marginal interest rate cut of 15 bps. Other markets are likely to see

better affordability levels y-o-y and even compared to 2022 levels. If the potential interest rate cut does not materialize, affordability levels will be lowest since 2021 peaks. This indicates the strong impact of interest rates on affordability levels.

 

"We expect that a marginal interest rate reduction of 15 bps by year-end will positively impact affordability across all residential markets, except Bengaluru and Delhi where residential price hikes over 2024 are unlikely to allow a reversal in dipping affordability levels. Another possible rate cut through 2025 is likely to improve affordability levels in 2025 on a y-o-y basis for all cities. This is expected to keep the residential market on track as it continues on its growth," said Samanthan Das,  Chief Economist and Executive Director at JLL.   

JLL anticipate that better affordability levels will prevail across all markets by 2025 with a combined 50 bps repo rate cut over the period as macroeconomic indicators support the RBI’s call to action with its change in stance to neutral.

 

 A moderate price growth and mostly sustained growth in projected household income will also act as cushions and support the improvement in overall affordability levels in 2025, indicating that the conducive period for home purchases over the next 12 months is nigh.