Kolkata Remains India’s Most Affordable Housing Market, Rate Cuts to Enhance Affordability

The residential property market in India is set to witness significant improvements in affordability, with Kolkata retaining its position as the most affordable major housing market. According to the latest Home Purchase Affordability Index (HPAI) report by JLL, the anticipated interest rate cuts in the coming months could optimize home affordability across key real estate markets, including Mumbai and Pune, by 2025.

While many cities are expected to see improvements in affordability, Kolkata stands out. The city’s affordability levels are predicted to rise to new peaks, driven by relatively stable property prices and income growth. As the housing market recovers from the effects of the pandemic, Kolkata has proven resilient, maintaining its attractiveness for homebuyers due to lower average home prices compared to other metropolitan areas.

By 2025, Mumbai and Pune are expected to approach optimal affordability levels, where household incomes will align with home loan eligibility criteria, allowing more buyers to enter the market. However, Delhi NCR and Bengaluru may lag in reaching their affordability peaks, despite year-over-year improvements. These cities will see positive changes, but they are likely to remain below the affordability levels reached during the peak years of 2021. A key factor behind this positive shift is the anticipated rate cut by the Reserve Bank of India (RBI). After a prolonged period of high interest rates, a 50-basis point reduction in the repo rate is expected within the next year. This will be a game-changer for the residential market, offering homebuyers a window of opportunity to enter the market at more affordable terms. The reduction in borrowing costs is expected to increase home loan eligibility, thus enhancing affordability for prospective buyers.

The report further notes that despite property prices having recovered faster than household income in recent years, the expected rate cuts, coupled with moderating price growth and continued income growth, are likely to support the ongoing positive momentum in the market. Homebuyer sentiment is expected to remain strong, even with continued price hikes, as affordability improves in the coming months. Moreover, residential sales are expected to touch 305,000-310,000 units in 2024, a significant increase compared to previous years. This robust sales outlook is driven by sustained demand for homeownership, with new launches expected to cater to the growing needs of the market. By 2025, the market could see further growth, with sales potentially reaching 340,000-350,000 units.

Cities like Hyderabad and Bengaluru have witnessed significant price growth in recent years, with Hyderabad leading the pack with a 132% increase in property prices since 2011. Meanwhile, cities such as Mumbai and Pune have seen impressive income growth, helping offset the effects of rising prices. Despite some regional differences, the overarching trend is clear: the residential market across India is set to continue its upward trajectory, supported by economic growth, sustained income increases, and improved affordability conditions. This promises a long and resilient runway for homebuyers, with the prospect of better affordability across most markets in the next 12-18 months.