As EMIs increase by more than 20%, affordable housing becomes unaffordable: Anarock Report

According to a recent research by real estate expert Anarock Group, inexpensive houses have become unaffordable in the aftermath of the Covid-19 outbreak in the nation as home loan interest rates have increased, making EMI payments challenging for many individuals.

Home loan equated monthly payments (EMIs) in the affordable housing category have dramatically risen. Affordable housing has not yet fully recovered from the pandemic impact, in contrast to other housing categories. According to the survey, since there aren’t enough purchasers, developers have decreased the availability of inexpensive houses.

 

Home loans’ floating interest rates have increased from 6.7% in 2021 to 9.15% in the present for loans up to Rs 30 lakh, suggesting that they have gotten more costly.

 

The Reserve Bank of India (RBI) repo rate rises, which increased by 250 basis points or 2.5% after Covid, and the rise in loan interest rates are related.

 

“Home loan borrowers who were paying an EMI of approximately INR 22,700 in July 2021 are now paying approximately INR 27,300 today, an increase of approximately INR 4,600 per month,” claims Prashant Thakur, regional director and head of research at Anarock Group. The entire interest component has increased by about INR 11 lakh as a consequence of the 20% rise in the EMI, going from an estimated INR 24.5 lakh interest due in 2021 to an estimated INR 35.5 lakh now.

 

The report uses an illustration to clarify this idea. The interest component is around Rs 24.5 lakh, or a total payback amount of approximately Rs 54.5 lakh at a 6.7% interest rate, if a buyer intends to buy a house worth less than Rs 40 lakh and takes out a home loan of Rs 30 lakh for 20 years. In this instance, the interest payment is lower than the Rs. 30 lakh principle.

 

However, when the interest rate on a house loan hits 9.15 percent, the total payback amount rises to around Rs 65.5 lakh, of which the principle is about Rs 30 lakh and the interest component is about Rs 35.5 lakh. It shows that the interest component of a 20-year loan is more than the component of the principle.

 

From around Rs 24.5 lakh in 2021 to approximately Rs 35.5 lakh in 2018, the interest due has grown by almost Rs 11 lakh. Additionally, the loan is structured such that lower payments toward the principle amount start later and bigger payments are made to the interest portion in the first years. In order to “build equity and own more of the home,” the buyer must wait longer. According to the study, selling the home will be less advantageous since less principle has been paid.

 

The study makes clear that the interest rate shouldn’t be higher than the principal. The report recommended “focused policy intervention” to halt the affordable housing segment’s continued decline, which is bad for borrowers and the housing market as a whole, it claims.

 

The research states that the percentage of affordable house sales in overall home sales decreased from 31% in the first half of 2022 to around 20% in the same period of 2023.

 

According to the research, 2.29 lakh units were sold in the top seven cities in H1 2023, of which 20%, or around 46,650 units, were in the affordable housing sector. In contrast to this, 1.84 lakh units were sold in the first half of 2022, with 57,060 of those units, or around 31%, falling within the affordable housing category.

 

According to the research, in order to achieve its goal of “housing for all,” the government must make inexpensive dwellings really affordable. It emphasizes a deficit of 11.2 million housing units in metropolitan areas, with homes priced under Rs 40 lakh making up “80% of the shortfall.”