Home loan customers’ EMIs spike by 20%, sharp rise in interest component

As a result, the overall interest amount on a Rs 30 lakh loan has gone up by around Rs 11 lakh in the period – from Rs 24.5 lakh in 2021 to around Rs 35.5 lakh as of now. The total loan repayment including interest and principal will now come to around Rs 65.5 lakh. In the residential real estate market, affordable housing suffered the greatest impact of the Covid-19 pandemic, and unlike the other segments, has not recovered in the last two years, it said.

“With buyers of this segment increasingly desisting from purchase decisions, affordable housing sales are languishing, and developers have accordingly curtailed its supply,” Anarock said.

Total interest payable for a tenure of 20 years now exceeds the principal amount. The rise in home loan rates follows the 250 basis points hike in Repo rate by the Reserve Bank of India (RBI) since March 2022.
The report said the share of affordable housing in overall sales in the first half of 2023 shrunk to around 20 per cent, an 11 per cent decrease against the corresponding period in the year-ago period. Likewise, in the top seven cities, this segment’s share in the overall housing supply in in the first six months of 2023 plunged to 18 per cent against 23 per cent of 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 last two years,” it said. The floating interest rates for home loans up to Rs 30 lakh have jumped from 6.7 per cent in mid-2021 to nearly 9.15 per cent as of now.

Prashant Thakur, Regional Director & Head – Research, Anarock Group, said, “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 R 22,700 in 2021, when the interest rates stood at 6.7 per cent. “At this rate, the total repayment to the bank was around Rs 54.5 lakh, of which the interest component was Rs 24.5 lakh – less than the total principal amount.”

“Today, when home loan interest rates hover at around 9.15 per cent, this buyer’s EMI is 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,” he said.

Home loans are structured in such a way 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, Thakur said.

It is not a good sign for either individual borrowers or the broader housing market if interest on home loans exceeds principal. “This would need to be addressed in the next Union Budget or even earlier via a focused policy intervention, so that the affordable housing segment is not derailed further,” he said.

Sales numbers across the top 7 cities has consistently been falling ever since the pandemic. According to latest Anarock Research, the total sales share of affordable homes went down to around 20 per cent in H1 2023, against 31 per cent in the corresponding period in 2022. Of around 2.29 lakh units sold across the top 7 cities in H1 2023, just 20 per cent or 46,650 units were affordable homes. Back in H1 2022, of 1.84 lakh units sold, over 31 per cent or 57,060 units were in the affordable category.

However, the residential real estate is certainly headed towards a brighter future and it is evident from the kind of growth the segment has been witnessing over the last 3 years, analysts said. “The post pandemic recovery has gained momentum and now we can say that the growth reached some kind of stability. One of the reasons is definitely our country’s economic stability and proactive policies that is giving confidence to the developers in their expansion plans,” said Bhavesh Kothari, Founder & CEO, Property First.

According to Navin Dhanuka, MD & CEO, Aris Unitern RE Solutions, demand, for all kinds of housing is on the rise, but the demand is mainly for the mid segment, luxury and upper luxury apartments. “Also, given the erratic rise in material costs and availability of skilled labour, it is getting more and more unaffordable for developers to launch products in the affordable segment. Also, the affordable segment is for the first home buyers. There is a need for more launches in this segment and the state governments will have to provide concessions on stamp duty, GST and premium / approval costs to make them viable,” Dhanuka said.