Ahmedabad is the most affordable housing market among eight major cities while Mumbai is unaffordable due to the high EMI to total income ratio, according to Knight Frank. According to Knight Frank’s Affordability Index 2021 report released on Wednesday, Indian markets are at their decadal best in terms of housing affordability.

The decline in house prices and multi-decade low home loan interest rates have helped improve housing affordability in 2021, it added. The affordability index indicates the proportion of income that a household requires, to fund the equated monthly instalment (EMI) of a housing unit in a particular city.

So, the index level of 40 per cent for a city implies that on average, households in that city need to spend 40 per cent of their income to fund the EMI of housing loan for that unit.

An EMI to total income ratio over 50 per cent is considered unaffordable. Knight Frank said that the affordability ratio in Delhi-NCR improved maximum, from 38 per cent in 2020 to 28 per cent in 2021.

“All markets, except Mumbai, are recorded to be well below the threshold of affordability set at 50 per cent ratio,” it said. Ahmedabad emerged as the most affordable housing market in the country with an affordability ratio of 20 per cent followed by Pune at 24 per cent in 2021.

Mumbai’s affordability ratio stood at 53 per cent. But, the city’s affordability has improved the most since 2011. The affordability index of Hyderabad stood at 29 per cent and Bengaluru 26 per cent.

Both Chennai and Kolkata scored 25 per cent. The index captures movement in key constituents like property prices, home loan interest rate and average household income to determine the buyers’ ability to purchase a house. Banks underwrite home loans when the EMI to Income is under 50 per cent.