Mumbai’s Affordability Milestone: A New Dawn for Homebuyers by 2025

The Journey Towards Homeownership

Buying a home is a dream for many, and Mumbai—a city known for its sky-high property prices—is making remarkable strides toward affordability. By 2025, the financial capital of India is expected to come tantalizingly close to achieving optimal affordability levels, a significant improvement from a decade ago when most households struggled to qualify for a home loan.

This transformative trend is driven by a delicate interplay of property prices, household income, and home loan interest rates. As we step into 2024, anticipated interest rate cuts are set to ease the financial strain, making homeownership more accessible for Mumbai residents, according to JLL's latest annual report.

Understanding Affordability: The Home Purchase Affordability Index (HPAI)

At the core of this transition lies the Home Purchase Affordability Index (HPAI). This critical metric measures whether the average household income is sufficient to qualify for a home loan for a 1,000 sq. ft. apartment at current market rates.

• A value of 100 signifies just enough income to secure the loan.
• Below 100 implies an income shortfall.
• Above 100 suggests that households earn more than required to qualify for a loan.

JLL's data indicates that affordability levels in Mumbai are poised to improve in 2024, marking a hopeful turn for homebuyers.

Delhi NCR and Southern Markets: A Mixed Outlook

While Mumbai’s affordability prospects shine, markets like Delhi NCR and South Indian cities are set for a different trajectory. Household income growth has struggled to keep pace with property price hikes, leading to a dip in affordability. Even with projected interest rate reductions, affordability in these regions is unlikely to return to peak levels.

Yet, cities like Hyderabad and Chennai offer a silver lining. By 2025, these cities are expected to record their best affordability levels in three years, buoyed by steady income growth and moderate price hikes.

India’s Most Affordable Market: Kolkata

Amid the shifting dynamics of affordability, Kolkata retains its crown as India’s most affordable residential market. This eastern metropolis is expected to achieve new peaks in affordability through 2025, offering a beacon of hope for first-time buyers.

Similarly, Pune, along with Mumbai, is likely to benefit from moderate price increases and reduced interest rates, making it an attractive destination for prospective homebuyers.

2024: A Pivotal Year for Affordability

Despite a challenging 2023, marked by stagnant interest rates and strong price hikes, 2024 holds promise. A potential 15 bps interest rate cut could improve affordability in most markets, barring Delhi NCR and Bengaluru, where aggressive price hikes might offset the gains. If rate cuts fall short of expectations, affordability could reach its lowest since 2021.

A Brighter Future in 2025

The year 2025 is set to bring relief across all major markets, thanks to a projected 50 bps reduction in repo rates. With a supportive macroeconomic environment, the residential market is expected to stay on a growth trajectory. Moderate price growth and sustained household income improvements will bolster affordability, creating a conducive atmosphere for homebuyers.

Final Thoughts: The Road Ahead

The next 12 months herald a pivotal period for home purchases, with Mumbai leading the charge toward affordability. Prospective buyers in cities like Kolkata, Pune, Hyderabad, and Chennai also have reason to celebrate as markets gear up for a more accessible future.