India's Most Expensive, Cheapest Cities To Live In Ranked. See Here

Ahmedabad is the most affordable Indian city to live in according to a new report released by Knight Frank India - a leading property consultant.

The affordability index released by Knight Frank measures living affordability based on the EMIs a resident in that city has to pay if they get a house with a home loan divided by the total income of an average household in that city.

The Knight Frank Affordability Index indicates the proportion of income that a household requires, to fund the monthly installment (EMI) of a housing unit in a particular city. So, a Knight Frank Affordability index level of 40% for a city implies that on average, households in that city need to spend 40% of their income to fund the EMI of housing loan for that unit.

An EMI/Income ratio over 50% is considered unaffordable as it is the limit beyond which banks rarely underwrite a mortgage.

The most expensive housing market is Mumbai.

For Mumbai, the home loan EMI to income ratio is a whopping 55%, meaning that an average household has to pay more than half of its income on home loan EMIs if they have to get a house on loan.

Next, Hyderabad is the second most expensive city with an EMI-to-income ratio of 31%.

At the third spot, it's the Delhi National Capital region where you have to shell out 30% of your income for home loan EMIs.

Karnataka's Bengaluru and Tamil Nadu's Chennai share the next spot with an EMI to income ratio of 28%. Next, it's Pune in Maharashtra where an average household has to pay 26% of their income on home loan EMIs. The rate is the same for Kolkata in West Bengal.

And in the end, the most affordable Indian city to live in is Ahmedabad in Gujarat where an average household needs to pay 23% of its income for home loan EMIs. This index has assumed a loan term of 20 years, a loan-to-value ratio of 80%and a fixed house size across cities.

Over the last one year, living in these cities has only become more expensive. These EMI-to-income ratios across cities have gone up around 1-2 percentage points, because the Reserve Bank of India has hiked its key lending rate by 250 basis points since last year. This increased the EMI load across cities by an average of 14.4% since then.

The worst impacted category has been houses that cost less than Rs 50 lakh. Sales in this category have gone down, according to the report. That's because the report says Homebuyers in this segment have a much higher dependence on home loans and are therefore more sensitive to rate hikes compared to the mid and premium segment, so they can no longer afford home loans with higher EMIs, so many of them are not able to afford buying houses.

But on the other side, the demand for the mid and premium segment has been consistently outperforming. The sales for houses costing 50 lakh to 1 crore in these has gone up to around 59,000 units this year, while the sale for premium houses costing over 1 crore has gone up to 47,000 this year.

And overall, the residential demand is at a multi-year high, according to the report, while clearly, the lower and middle-income groups are suffering.

Shishir Baijal, Chairman and Managing Director, Knight Frank India said, "The RBI's extremely capable handling of the inflationary scenario has inspired confidence in the country's economic environment. This is also reflected in the residential demand which is at a multi-year high and office demand which has remained resilient even as office markets globally have been struggling.

The mid and premium segments in the residential market have been consistently outperforming and points to a significant shift in the market's underlying fabric. However, the 250 bps increase in policy rates has reduced affordability across markets by 2.5% on average. And, while the market has remained strong thus far, further interest rate increases could put pressure on homebuyer ability and sentiments."