EMIs Of Homebuyers Rise Over 20 Per Cent In Two Years In Affordable Housing Segment

In the top 7 Indian cities, affordable housing segment's share in the overall housing supply in H1 2023 plunged to 18 per cent, against 23 per cent in H1 2022

The share of affordable housing in overall sales in H1 2023 shrunk to 20 per cent, an 11 per cent decrease against the corresponding period in 2022.

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Affordable housing in India suffered the most due to the Covid-19 pandemic, and unlike the other segments, has not recovered in the past two years. With buyers of this segment increasingly desisting from purchase decisions, affordable housing sales are languishing, and developers have accordingly curtailed its supply, a latest survey by Anarock Group said. According to their report, the share of affordable housing in overall sales in H1 2023 shrunk to 20 per cent, an 11 per cent decrease against the corresponding period in 2022.

In the top 7 Indian cities, this segment's share in the overall housing supply in H1 2023 plunged to 18 per cent, against 23 per cent in H1 2022. The mounting desolation is not helped by the fact that affordable home buyers have been paying almost 20 per cent more in their EMIs over the past two years. The floating interest rates for home loans up to Rs 30 lakh have jumped up from 6.7 per cent in mid-2021 to nearly 9.15 per cent today.

Prashant Thakur, regional director and head, research, Anarock Group, said, "Home loan borrowers who were paying an EMI of Rs 22,700 in July 2021 are now paying Rs 27,300 today, an increase of Rs 4,600 per month. This 20 per cent increase in the EMI has resulted in a jump of Rs 11 lakh in the overall interest component - from Rs 24.5 lakh interest payable in 2021 to Rs 35.5 lakh today."

The total interest payable over a 20-year tenure is now more than the principal amount. If a buyer seeks to buy a property worth less than Rs 40 lakh, factoring in the LTV (Loan to value) ratio, the total borrowed amount is Rs 30 lakh for a tenure of 20 years. In this scenario, the buyer would have paid an EMI of Rs 22,700 in 2021, when the interest rates stood at 6.7 per cent.

"At this rate, the total repayment to the bank was Rs 54.5 lakh, of which the interest component was Rs 24.5 lakh, less than the total principal amount,” Thakur added.

Home loans are structured such that the payments in the early years are mostly interest. When more of their payment is going to interest rather than principal, it will take longer for home buyers to build equity and own more of the home. It also means that they have a reduced opportunity to benefit from appreciation if they sell the property, because less principal has been paid off.

Sales numbers across the top 7 cities can improve which has consistently been falling ever since the pandemic. According to latest Anarock Research, the total sales share of affordable homes went down to by 20 per cent in H1 2023, against 31 per cent in the corresponding period in 2022.