Buying home in Hyderabad most expensive in country, next only to Mumbai

Hyderabad has now turned into the most expensive city after Mumbai while pushing New Delhi to the third position

Hyderabad: Hyderabad has now turned into the most expensive city after Mumbai while pushing New Delhi to the third position. In its annual proprietary study, the Affordability Index 2022, Knight Frank noted that the home buying affordability level in the city has declined this year compared to 2021.

According to the study, the 225 basis points cumulative increase in repo rate and the consequent increase in home-loan rates, along with an increase in residential prices caused the decline in affordability. However, it remained significantly better than the pre-pandemic levels, said the study.

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From 53 per cent in 2011, the home purchase affordability index improved to 34 per cent in 2019. With the advent of the pandemic in early 2020, the affordability index further improved to 28 per cent in 2021. It currently stands at 30 per cent.

The affordability index indicates the proportion of income that a household requires to fund the monthly instalment (EMI) of a housing unit in the city. So, a 30 per cent index level indicates that the average household in Hyderabad spends 30 per cent of their income to fund the EMI of housing loan for that unit.

The report mentions that except for Mumbai, which recorded a 53 per cent affordability ratio in 2022, all other cities recorded well below the threshold of affordability set of a 50 per cent ratio.

Ahmedabad emerged as the most affordable housing market in the country with an affordability ratio of 22 per cent followed by Kolkata and Pune at 25 per cent each in 2022.

On a pan-India basis, home affordability worsened marginally for the first time in 10 years in 2022. Affordability levels improved even during the pandemic-impacted years of 2020 and 2021 as residential price growth was subdued and the government aggressively cut policy rates to increase liquidity in the highly stressed economic environment.

The Knight Frank Affordability Index captures movement in key constituents like property prices, home loan interest rates and average household income to determine the buyers’ ability to purchase a house.

Since banks underwrite home loans when the EMI to Income is below 50 per cent, on that account, existing income and average ticket-size metrics across seven out of eight markets make it possible for a home buyer to easily finance their home purchase.

Shishir Baijal, chairman and managing director, Knight Frank India, said, “Despite the rise in repo rate by 225 BPS in 2022 and the increase in home prices, home affordability has only marginally reduced by 100 to 200 BPS in major cities. The severity of the impact of the rise in home loan rates and prices on the affordability index has been cushioned by a rise in incomes and growths in GDP, helping the residential market maintain its momentum.”

He added, “this augurs well for the industry as it had been hoping for a turnaround for a while. For the new year, we hope this sales momentum will continue as we expect factors like GDP growth and inflation to remain stable.”