Affordable housing takes a beating amid high interest rates

Bengaluru Demand revival is unlikely in the affordable housing segment in the upcoming festive season owing to high interest rate regime, which has less scope for easing down given the current inflationary environment.

According to experts, affordable housing sales are not likely to recover in the coming quarters as the Reserve Bank of India (RBI) is expected to hold Repo rate owing to high inflation rate. The consumer price index (CPI) inflation surged to 7.44 per cent in July on the back of pricey food items.

“Affordable housing sales are not expected to recover in the Bengaluru market unless interest rate inches down. Most developers are not launching new projects in this segment. Rather, new launches are coming up in the luxury housing segment,” said a mid-level executive at a Bengaluru-based developer who is not authorised to speak to the media.

Over the last six months, affording housing sales has taken a beating owing to high interest rates in the country. According to real estate consultancy firm- Anarock, out of around 2.29 lakh units sold across the top seven cities in the first half (January-June) of 2023, affordable housing- which is priced below Rs40 lakh- comprised a mere 20 per cent share, or around 46,650 units.

“The total sales share of this (affordable housing) erstwhile poster-boy segment is down to around 20 per cent in H1 of 2023, against 31 per cent in the corresponding period in 2022. Of about 2.29 lakh units sold across the top seven cities in H1 2023, just 20 per cent were affordable homes,” Anuj Puri, Chairman of Anarock Group said.

While Hyderabad saw the least number of affordable homes with sales of around 720 units, Bengaluru saw sales of 3,270 units during the first half of this year.

Such fall in primarily driven by the rapid increase in interest rates in the last one year. This has increased the EMI (equated monthly installment) burden of buyers.

Home loan borrowers who were paying an EMI of around Rs 22,700 in July 2021 are now paying about Rs 27,300 today, an increase of around Rs 4,600 per month, an Anarock study showed. This was calculated on a home loan amount up to Rs 30 lakh.

The floating home loan rates up to Rs30 lakh has increased to about 9.15 per cent now from 6.7 per cent from two year ago. Against this backdrop, home launches in the affordable segment shrunk in recent quarters.