Homebuyers gain as RBI's repo cuts improve housing affordability in H1 2025

Housing affordability across India’s major cities improved in the first half of 2025, following the Reserve Bank of India’s (RBI) cumulative reduction of 100 basis points in the repo rate.

The move has resulted in better equated monthly instalments (EMI)-to-income ratios in seven of the eight leading housing markets in the country, with financial conditions turning more favourable for end-users, showed data from Knight Frank India’s Affordability Index.

According to the index, Ahmedabad remained the most affordable housing market among the top eight Indian cities, with an affordability ratio of 18%, followed by Pune at 22% and Kolkata at 23%.

Mumbai, the most expensive residential market in India, showed a notable improvement, with affordability rising from 50% in 2024 to 48% in the first half of 2025. This is the first time the city has dipped below the 50% threshold since the inception of the index, which is considered the outer limit of affordability.

Knight Frank India’s Affordability Index, which tracks the ratio of EMIs to household income, had shown steady improvement between 2010 and 2021, particularly during the pandemic when the RBI cut the repo rate to multi-year lows. However, the central bank raised the repo rate by 250 basis points starting May 2022 over a span of nine months to control inflation, which adversely affected affordability.

With inflation now easing and focus shifting back to growth, the RBI has cut the repo rate by 100 basis points since February 2025, enhancing affordability levels across key markets.

“Affordability plays a critical role in maintaining homebuyer demand and sustaining sales momentum, both of which are vital contributors to the broader economy. As incomes grow and the economy gains strength, financial confidence among end-users improves, motivating them to commit to long-term investments such as home ownership. Given the RBI’s healthy 6.5% GDP growth estimate for FY 2026 and a favourable interest rate scenario, affordability levels are expected to be supportive of homebuyer demand in 2025,” said Shishir Baijal, CMD, Knight Frank India.

The improvement in affordability is also supported by sustained income growth and a stable inflation environment. While residential prices have increased across markets, lower borrowing costs have helped offset some of the pressure, bringing affordability to its best levels since the pandemic. Compared to end-2024, conditions have improved considerably.

Mumbai’s affordability gain of over 2 percentage points marks a historic shift, making it slightly more accessible for potential homebuyers. In contrast, NCR saw a marginal dip in affordability, with the ratio rising from 27% in 2023 to 28%, primarily due to sharp price increases that outweighed the benefits of rate cuts.

The RBI’s neutral policy stance, combined with the CRR reduction in H1 2025, has increased liquidity in the banking system, encouraging lending and reducing borrowing costs. These developments are expected to support demand in the residential market, benefiting both homebuyers and developers in the near term.