India’s housing market is expected to see a significant shift in affordability by 2025, driven by a projected cumulative 50-basis-point cut in interest rates over the next few months, which is anticipated to make home ownership more accessible for buyers, showed a JLL India study.
Affordability in the housing market has declined year-on-year since 2022 due to price increases and stagnant interest rates. However, most markets are projected to witness improved affordability by 2025, with the exception of Delhi NCR and Bengaluru.
According to JLL’s Home Purchase Affordability Index (HPAI), Mumbai and Pune are likely to approach optimal affordability levels by 2025, while Kolkata is expected to remain the most affordable market, potentially reaching new highs.
The residential market is currently experiencing a sustained growth phase 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 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 India said. These cuts are expected to function as a catalyst improving affordability levels and supporting the continued momentum in the residential market.
Mumbai and Pune are projected to approach near-peak affordability levels by 2025, while Kolkata is expected to maintain its status as India’s most affordable market among the major cities, potentially hitting new affordability peaks. Meanwhile, Delhi NCR and southern markets like Bengaluru, Hyderabad, and Chennai are likely to see improved affordability levels on a year-on-year basis as well, although remaining below their peak values.
“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…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,” said Samantak Das, Chief Economist and Head of Research & REIS, India, JLL.
Even in Bengaluru and Delhi NCR, according to him, 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.
“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, paving the way for sustained market activity and continued strong performance in India’s residential real estate sector in the medium term,” said Siva Krishnan, Senior Managing Director (Chennai & Coimbatore), Head – Residential Services, India. JLL.
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.
