The share of
affordable housing in overall sales in first half of 2023 shrunk to approximately 20 percent, an 11 percent decrease against the corresponding period in 2022, a recent report by ANAROCK said. Likewise, in the top 7 cities, this segment's share in the overall housing supply in the first half of the year plunged to 18 percent, against 23 percent in first half of 2022.
The mounting desolation is not helped by the fact that
affordable home buyers have been paying almost 20 percent more in their EMIs over the last two years. The floating interest rates for home loans up to Rs 30 lakh have jumped up from 6.7 percent in mid-2021 to nearly 9.15 percent today, the report said.
Prashant Thakur, Regional Director & Head – Research, ANAROCK Group, said, “Home loan borrowers who were paying an EMI of approximately 22,700 in July 2021 are now paying approximately Rs 27,300 today - an increase of approximately Rs 4,600 per month. This 20 percent increase in the EMI has resulted in a jump of approximately Rs 11 lakh in the overall interest component - from approximately Rs 24.5 lakh interest payable in 2021 to approximately 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 <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 approximately 6.7 percent.
“At this rate, the total repayment to the bank was around Rs 54.5 lakh, of which the interest component was around Rs 24.5 lakh - less than the total principal amount,” said Thakur.
“Today, when home loan interest rates hover at around 9.15 percent, this buyer's EMI is approximately Rs 27,300. The total repayment to the bank at this rate is now around Rs 65.5 lakh, of which the interest component will be around Rs 35.5 lakh - more than the total principal amount.”
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 approximately 20 percent in first half of 2023, against 31 percent in the corresponding period in 2022.
Of approximately 2.29 lakh units sold across the top 7 cities in the first half of 2023, just 20 percent or around 46,650 units were affordable homes. Back in the first half of 2022, of around 1.84 lakh units sold, over 31 percent or around 57,060 units were in the affordable category.
