India’s residential real estate market is expected to experience a significant shift in affordability by 2025, with key cities like Mumbai and Pune set to approach optimal affordability levels. This improvement is primarily driven by anticipated interest rate cuts and a steady increase in household incomes. JLL’s latest Home Purchase Affordability Index (HPAI) reveals that while affordability has declined in recent years due to rising prices and stagnant interest rates, most major markets are expected to see a positive change in 2025, with Kolkata remaining India’s most affordable market.
Affordability Improvements on the Horizon
The affordability outlook for India’s residential market is promising. With the Reserve Bank of India (RBI) signaling a shift towards a neutral stance on monetary policy, a potential rate cut of 50 basis points over the next 12 months is expected to enhance affordability. This, combined with moderate price growth and rising household incomes, will support an improvement in affordability levels across the country’s key real estate markets.
JLL’s HPAI predicts that Mumbai and Pune will approach near-optimal affordability by 2025, meaning that the average household income in these cities will be sufficient to qualify for home loans based on the prevailing property prices. Kolkata, on the other hand, is expected to maintain its lead as the most affordable major city, potentially reaching new affordability peaks.
While Delhi NCR and southern cities like Bengaluru, Hyderabad, and Chennai are also set to see improved affordability, they are likely to remain below their peak affordability levels. However, even these cities will experience better affordability than in previous years.
Record Residential Sales Expected
The anticipated improvements in affordability come at a time of strong growth in India’s residential market. Residential sales are forecast to reach 305,000-310,000 units in 2024, and further growth is expected in 2025, potentially pushing sales to a new peak of 340,000-350,000 units. This surge in sales reflects a growing demand for housing, driven by evolving homeownership dynamics and rising household incomes.
Despite the challenges posed by higher property prices and interest rates in recent years, the market remains resilient, with a sustained bull run driven by strong homebuyer demand. The expected interest rate cuts, alongside moderating price growth and continued income increases, are poised to further fuel the market’s momentum over the next 12-18 months.
Factors Driving Affordability Shifts
JLL’s Chief Economist, Dr. Samantak Das, explains that while the overall economic outlook remains soft, India is still projected to be one of the best-performing large economies globally, supporting steady growth in household incomes. He notes that in 2021, affordability across all major markets reached peak levels. However, rising property prices and persistent interest rates caused affordability to dip in 2022 and 2023. With the anticipated interest rate cuts and moderate price growth, affordability levels are expected to improve to their best since 2022, creating a favorable environment for homebuyers.
The report also highlights the significant growth in real estate prices over the past decade. Hyderabad leads with a 132% price increase since 2011, followed by Bengaluru at 116%, and Delhi NCR at 98%. On the income front, Mumbai has experienced the highest growth, with a 189% increase in household incomes over the same period.
Future Outlook for the Market
Looking ahead, Siva Krishnan, Senior Managing Director at JLL, notes that the combination of strong income growth, potential interest rate reductions, and moderating price growth is expected to improve affordability across India’s key markets. This will ensure continued activity in the residential market, with sustained demand despite ongoing price increases.
JLL’s HPAI will continue to be a vital tool for aligning homebuyers’ affordability with suitable property offerings, ensuring that market demand remains resilient and responsive to economic shifts. The report emphasizes that strategic policy interventions, along with continued improvements in household incomes, will be critical in sustaining demand elasticity in India’s residential real estate market.
Conclusion
India’s residential real estate sector is on track to see improved affordability by 2025, driven by expected interest rate cuts and rising incomes. While cities like Mumbai and Pune are expected to approach optimal affordability, Kolkata is set to maintain its position as the most affordable major market. As residential sales continue to climb, India’s housing market is poised for a resilient and robust future, ensuring strong performance even in the face of rising prices.
