Budget homes have become unaffordable post-Covid-19 pandemic in the country, as home loan interest rates have skyrocketed, making EMI payments difficult for many people, says a recent report by property consultant Anarock Group.
The equated monthly instalments (EMIs) of home loans in the affordable housing segment have increased significantly. Unlike other housing segments, affordable housing has not yet recovered from the pandemic blow. The report says developers have reduced the supply of affordable homes as there aren’t many buyers.
Floating interest rates of home loans have gone up from 6.7 per cent in 2021 to 9.15 per cent now for a loan of up to Rs 30 lakh, indicating such loans have become expensive.
The increase in loan interest rates coincides with the Reserve Bank of India’s (RBI) repo rate hikes, which rose 250 basis points or 2.5 per cent post Covid.
Prashant Thakur, regional director and head of research at Anarock Group, says, “Home loan borrowers who were paying an EMI of approx. INR 22,700 in July 2021 are now paying approx. INR 27,300 today, an increase of approx. INR 4,600 per month. This 20% increase in the EMI has resulted in a jump of approx. INR 11 lakh in the overall interest component - from approx. INR 24.5 lakh interest payable in 2021 to approx. INR 35.5 lakh today.”
The report explains this point with an example. If a buyer wants to purchase a property worth less than Rs 40 lakh and borrows a home loan of Rs 30 lakh for 20 years, the interest component stands at around Rs 24.5 lakh or a total repayment amount of around Rs 54.5 lakh at 6.7 per cent interest rate. In this case, the interest amount is less than the principal amount of Rs 30 lakh.
But as the home loan interest reaches 9.15 per cent, the total repayment amount becomes around Rs 65.5 lakh, where the interest component is approximately Rs 35.5 lakh, and the principal is around Rs 30 lakh. It reflects that in a 20-year loan, the interest amount is more than the principal amount.
The interest payable has increased by about Rs 11 lakh from around Rs 24.5 lakh in 2021 to roughly Rs 35.5 lakh. Also, the loan structuring is such that the payment in the initial years goes to the interest part, and higher payments towards the principal amount start later. It means the buyer has to wait longer ‘to build equity and own more of the home’. The report says that selling the property will be less beneficial as less principal amount has been paid.
The report emphasises that the interest amount should not exceed the principal amount. The study called for a “focused policy intervention” to stop further slowdown in the affordable housing segment, which, it says, is not good for borrowers and the overall housing market.
According to the report, affordable home sales declined from 31 per cent in the first half year of 2022 to around 20 per cent in the same period in 2023 from the total share of home sales.
In the top seven cities, the report finds that approximately 2.29 lakh units were sold in H1, 2023, where around 20 per cent, or about 46,650 units, were in the affordable homes segment. Compared to this, around 1.84 lakh units were sold in H1 2022, where approximately 31 per cent, or around 57,060 units, were in the affordable housing category.
The report says the government must make affordable homes affordable in the real sense to fulfil its vision of “housing for all”. It highlights a shortage of around 11.2 million units in urban housing, with houses of less than Rs 40 lakh accounting for “80 per cent of the shortfall”.
