Have Home Purchases Become More Affordable After RBI Rate Cuts?

Mumbai, June 24 (NationPress) The affordability for homebuyers has seen a positive shift in the first half of 2025, thanks to the RBI's decision to cut the repo rate by 100 basis points, as reported by real estate consultancy firm Knight Frank India.

As per the Knight Frank Affordability Index, Ahmedabad ranks as the most budget-friendly housing market among the top eight cities, with a ratio of 18 percent, while Pune follows at 22 percent and Kolkata at 23 percent.

In contrast, Mumbai holds the title of the least affordable city, standing at 48 percent. However, its affordability index has improved by over 2 percentage points, decreasing from 50 percent in 2024 to 48 percent in the first half of 2025.

"This marks the first instance in the history of the index where Mumbai has dipped below the 50 percent threshold, a significant marker of affordability. The city's housing market, which traditionally remained above this threshold, has become more accessible due to lower home loan rates," the report states.

Conversely, the affordability levels in the National Capital Region (NCR) have slightly deteriorated, with households now needing to allocate 28 percent of their income for purchasing an average property, up from 27 percent in 2023. This shift is primarily due to the sharp rise in residential prices, which have overshadowed the effects of interest rate cuts in the NCR, according to the report.

The Knight Frank India's Affordability Index is formulated based on the EMI (Equated Monthly Instalment) to income ratio for an average household.

Shishir Baijal, Chairman and Managing Director of Knight Frank India, stated, "As incomes rise and the economy strengthens, financial confidence among end-users improves, compelling them to invest in long-term assets like home ownership. With the RBI projecting a robust 6.5 percent GDP growth for FY 2026 and a favorable interest rate environment, it is anticipated that affordability levels will enhance homebuyer demand in 2025."

While the Indian economy is not immune to the unpredictable geopolitical and economic landscape, it continues to experience a relatively positive growth and inflation climate. This has facilitated income growth and allowed for lower interest rates, thus improving affordability despite the escalation in residential prices.

Notably, affordability levels are currently at their highest since the pandemic, significantly surpassing the figures recorded at the close of 2024, just prior to the inaugural rate cut announced in February 2025, the report concluded.