Projected Rate Cuts and Income Growth to Enhance Homeownership Prospects

The Indian residential real estate market is set for a significant transformation as affordability levels across major cities are predicted to improve by 2025. This shift is largely driven by anticipated interest rate cuts, sustained income growth, and moderating price increases, according to the latest Home Purchase Affordability Index (HPAI) by JLL.

Residential sales are expected to climb to new heights, with projections of 305,000–310,000 units in 2024 and 340,000–350,000 units in 2025. However, the affordability landscape varies across cities, with Mumbai, Pune, and Kolkata emerging as key beneficiaries.

Kolkata: The Most Affordable City

Kolkata remains India’s most affordable major residential market, with new affordability peaks anticipated by 2025. Despite rising prices, the city has consistently offered attractive homebuying opportunities, maintaining its edge over other metro markets.

Mumbai and Pune are also on track to achieve near-optimal affordability levels by 2025. These cities are expected to benefit significantly from the projected rate cuts and improving household incomes, making them increasingly accessible to homebuyers.

Affordability Trends in Other Cities

Southern markets such as Bengaluru, Hyderabad, and Chennai, along with Delhi NCR, are expected to see incremental improvements in affordability. However, they are unlikely to return to their peak affordability levels in the near term.

“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. Rising incomes, combined with anticipated rate cuts, are set to enhance home affordability across cities, barring a few exceptions like Bengaluru and Delhi NCR,” said Dr. Samantak Das, Chief Economist and Head of Research & REIS, India, JLL.

The Role of Interest Rate Cuts

A crucial factor influencing affordability is the Reserve Bank of India’s (RBI) monetary policy. The central bank has recently shifted its stance to neutral, raising hopes of a 50 basis point reduction in repo rates over the next 12 months. These cuts are expected to trigger lower interest rates for home loans, acting as a catalyst for improving affordability and boosting residential demand.

“Despite double-digit price growth and elevated interest rates in recent years, the market has shown remarkable resilience,” said Siva Krishnan, Senior Managing Director at JLL. “The combination of rate cuts, income growth, and moderating price trends will provide a conducive environment for sustained market activity and strong performance.”

Key Drivers of the Market’s Bull Run

Income Growth: Cities like Mumbai have witnessed a 189% rise in household incomes since 2011, followed by Pune and Hyderabad at 173% and 163%, respectively.

Price Growth: Hyderabad has led the charge with a 132% increase in residential prices since 2011, followed by Bengaluru (116%) and Delhi NCR (98%).

Strong Demand: Shifting homeownership dynamics have fueled demand, even amid rising prices and stagnant interest rates.

Future Outlook

The residential real estate sector is on an upward trajectory, with sales hitting new peaks annually. JLL’s HPAI underscores the importance of aligning affordability levels with market trends through policy interventions and steady income growth.

As affordability improves over the next 12 months, supported by potential rate cuts and healthy economic fundamentals, India’s residential real estate market is well-positioned to maintain its robust growth trajectory.