Where to buy a budget house? Here are 5 most affordable cities in India in 2023

Despite higher interest rates on home loans and consequently reducing housing affordability across the leading cities in India this year, Ahmedabad emerged as the most affordable housing property market in the country. With a 23 per cent ratio of Equated Monthly Instalment (EMI) to income for an average household ratio, Ahmedabad is the most affordable housing market among the top eight cities, showed Knight Frank India's Affordability Index for 2023. With a 26 per cent ratio, Kolkata and Pune came next in the chart of the most affordable housing market in India.

Housing affordability saw a steady improvement from 2010 to 2021 across the eight leading cities of India, even during the Covid-19 pandemic, when the Reserve Bank of India (RBI) cut repo rates to decadal lows, the data showed. However, things changed after the Russia-Ukraine war started last year which pushed global inflation due to supply chain disruptions. To fight inflation, the RBI hiked repo rates by 250 basis points (bps) between May 2022 to February 2023, which resulted in a rise in interest rates of home loans as well.

"This has impacted affordability by an average of 2.5 per cent across cities and increased the EMI load by 14.4 per cent since then. However, demand has remained unimpaired and has sustained at the multi-year highs seen in H1 2023," Knight Frank said.

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Mumbai least affordable among top cities: Knight Frank report
The EMI to income ratio or affordability ratio is calculated as what part of average income level goes towards paying home loan EMIs. Lower the ratio more affordable the city is. This ratio in all markets, except Mumbai, is way less than 50 per cent, which is considered to be the threshold for comfortable affordability, according to the Knight Frank India's Affordability Index. However, for Mumbai, the EMI to income ratio jumped to 55 per cent in H1, 2023 from 53 per cent in 2022. In the NCR region, the EMI to income ratio was much lower though it increased to 30 per cent in H1, 2023 from 29 per cent in 2022. In Bengaluru, the affordability ratio rose to 28 per cent in H1, 2023 from 27 per cent, the data showed.

Source: Knight Frank India │ Note: For H1 2023, affordability and income levels are calculated keeping all variables constant, except for the interest rate.

Methodology: The Knight Frank Affordability Index indicates the proportion of income that a household requires, to fund the monthly instalment (EMI) of a housing unit in a particular city. So, a Knight Frank Affordability index level of 40% for a city implies that on an average, households in that city need to spend 40% of their income to fund the EMI of housing loan for that unit. An EMI/Income ratio over 50% is considered unaffordable as it is the limit beyond which banks rarely underwrite a mortgage.

Assumptions: 1) EMI, housing unit size and price/ sq ft represent city-level averages.2) EMI: Loan Tenure – 20 years

Loan to Value – 80%

Home loan interest rate - Average home loan rates

3) Area of housing unit: House size is fixed for each city across the years, but varies within different cities taking into account the average size preference for each city.

4) Housing Price: Median housing price for that city


The overall demand for housing has remained high, but the underlying components of this demand have changed significantly. The mid-and-premium segments (homes priced between Rs 50 lakh and Rs 1 crore, and above Rs 1 crore, respectively) have consistently outperformed the overall market, while sales in the under Rs 50 lakh ticket size category have declined, the report mentioned. Homebuyers in the affordable segment are more sensitive to rate hikes than those who are in the mid-and-premium segment. This is because homebuyers in the affordable segment have a higher dependence on home loans, and a rate hike will increase their monthly EMI payments. This has been a significant factor in suppressing demand in the affordable segment, it added. "Notably, sales in the mid-segment now comfortably exceed that of the affordable segment while those in the premium segment are catching up fast," the report said.

Commenting on this, Shishir Baijal, Chairman and Managing Director, of Knight Frank India said, "The mid-and-premium segments in the residential market have been consistently outperforming and points to a significant shift in the market’s underlying fabric. However, the 250 bps increase in policy rates has reduced affordability across markets by 2.5 per cent on average. And, while the market has remained strong thus far, further interest rate increases could put pressure on homebuyer ability and sentiments."