Rate cuts may help optimize home affordability, Kolkata most affordable market

Most real estate markets across the country, especially Mumbai and Pune are expected to approach optimal affordability levels by 2025 with a projected interest rate cut on the horizon, while Kolkata is set to maintain its status as the most affordable market, potentially hitting new peaks, according to JLL’s Home Purchase Affordability Index (HPAI).
It noted that all cities are anticipated to see improved affordability levels by 2025, except for Delhi NCR and Bengaluru.
Mumbai and Pune are predicted to be near peak affordability levels which means that their qualifying income level is sufficient or near sufficient to make a household eligible for a home loan based on city’s average home prices and household incomes by 2025. Kolkata is expected to hit new affordability peaks by 2025, maintaining its status as India’s most affordable major residential market.
Delhi NCR and southern markets like Bengaluru, Hyderabad, and Chennai are likely to see improved affordability levels on a YOY basis as well, although remaining below their peak values, it noted.
Residential prices have recovered strongly and at a slightly faster pace than annual household income increase over the past 2-3 years, impacting affordability levels with interest rates remaining, the report said.
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With 2011 as the base year, Hyderabad leads in price growth with a 132% increase, followed by Bengaluru at 116% and Delhi NCR at 98%. On the income front, Mumbai has seen the highest growth at 189%, with Pune and Hyderabad following at 173% and 163%, respectively, over the same period.
The residential market is currently experiencing a sustained bull run, driven by evolving homeownership dynamics. This momentum has led to consecutive peaks in sales and an acceleration in project launches. Residential sales are expected to reach an impressive 305,000-310,000 units in 2024, with further growth expected in 2025, potentially creating a new peak at 340,000-350,000 units.
A key factor in this positive outlook is the anticipated shift in monetary policy. The Reserve Bank of India (RBI) has recently changed its stance from withdrawal of accommodation to neutral, setting the stage for a potential rate cut cycle. While a rate cut by end-2024 may not materialise, a total of 50 bps repo rate reduction and a complementary interest rate decline cycling through the economy over the next 12 months is a possibility, JLL said. These cuts are expected to function as a catalyst improving affordability levels and supporting the continued momentum in the residential market, it noted.
“While domestic economic forecasts indicate some softness in growth, India is still projected to be the best-performing large economy globally, supporting household income growth. JLL’s HPAI shows that while 2021 saw peak affordability across all markets, rising prices and sticky interest rates caused affordability levels to dip through 2022 and 2023,” said Samantak Das, Chief Economist and Head of Research & REIS, India, JLL.
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“The anticipated interest rate reduction, combined with moderate price growth and sustained income increases, are expected to create a conducive environment for home purchases over the next 12-18 months with affordability levels set to improve to their best since 2022 for all cities, barring Bengaluru and Delhi NCR. Even in these two cities, affordability will be better than 2023 levels. This will maintain buoyancy in homebuyer behaviour with market activity expected to have a long and resilient runway, even with continued price growth going forward,” he said.
“The residential real estate market is experiencing a robust bull run, driven by shifting homeownership dynamics and resilient demand despite double-digit price growth and elevated interest rates. The market’s upward trajectory has continued, seemingly unaffected by the northward turn in interest rates. Looking ahead, the combination of healthy income growth, potential interest rate reductions, and moderating price growth is expected to improve affordability levels over the next 12 months,” said Siva Krishnan, Senior Managing Director (Chennai & Coimbatore), Head – Residential Services, India, JLL