Repeated hikes in prime lending rates and inflation in key raw materials prices have begun to put additional burden on homebuyers, reducing their affordability and raising concerns of a slide in demand for residential homes.
Data from global property consultants Knight Frank shows, as home loan interest rates are rising steadily homebuyers are now incurring significantly higher EMIs (equated monthly instalments) compared to last year. This has resulted in reduced affordability among homebuyers.
As per its analyses, affordability of homebuyers in cities like Mumbai, Hyderabad and Delhi-NCR are again inching closer to the pre-pandemic levels. In the largest residential real estate market Mumbai, the ratio between average EMIs versus income levels have rose to 57 per cent at the end of September – from 53 per cent in 2020 and 2021. In the second largest property market, the National Capital Region of Delhi this ratio has rose to 30 per cent from 26 per cent in 2020 and 28 per cent in 2021.
In the third largest market Bengaluru, the jump has been similar – by four percentage points – from 24 per cent in 2020 to 28 per cent now. Affordability across key markets, however, continue to remain lower than pre-COVID levels of 2019.
Graphic: Pragati Srivastava
Notably, this increase is only due to the hike in home loan interest rates by various banks and NBFCs (non-baking financial companies) till September. The recent hike announced by the Reserve Bank of India in the tune of 50 basis points are yet to be passed on by the banks to the full extent, which will increase home loan EMIs further.
Additionally, the rise in cost of construction materials like steel, cement, aluminium and copper have led realtors to hike prices of their properties by 5-10 per cent.
According to Shishir Baijal, Chairman and Managing Director, Knight Frank India, the home affordability, due to the rise in median loan rates has worsened in 2022. “Affordability has worsened by 2 percentage points across cities since the rate cycle changed. The 0.95 per cent cumulative increase in median home loan rate will impact affordability of homebuyers and thus their purchase decisions as well,” he said.
