Rising home loan rates hit buyers

Hyderabad: After almost a decade, the real estate sector was able to stabilise its property prices in 2019 with home loan rates going down and the purchasing power of buyers growing. However, in the last two quarters, the affordability index, which tracks EMI to income ratio, has gone down marginally all thanks to the recent […]

Hyderabad: After almost a decade, the real estate sector was able to stabilise its property prices in 2019 with home loan rates going down and the purchasing power of buyers growing. However, in the last two quarters, the affordability index, which tracks EMI to income ratio, has gone down marginally all thanks to the recent rise in home loan rates post two consecutive hikes in repo rates by RBI.

The rising rates is hitting not just buyer sentiment but also impacting developers’ intent to construct new properties and also the sales. A recent study on affordability index for the first half of 2022 mentioned that all markets in India are seeing a decline in affordability due to the recent rise in home loan rates as a result of the 90 bps rise in Repo Rates.

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Knight Frank’s proprietary Affordability Index, which tracks the EMI to income ratio for an average household, witnessed steady improvement from 2010 to 2021 across the eight major cities especially during the pandemic when the Reserve Bank of India cut the Repo Rates to decadal lows.

“However, with two consecutive REPO rate hikes, the cumulative 90 bps rate hikes by RBI has decreased home purchase affordability on an average by 2 per cent across markets and increased EMI load by 6.97 per cent,” the study says.

Many reports also point out that the repo rate hike has also come in at a time when the prices of property across cities has also gone up significantly over the past few years. Developers and builders are looking at recovering the loss the sector incurred during the pandemic period of 2020 and 2021 – to some extent.

Hyderabad market

The study by Knight Frank India points out that Hyderabad is the second most expensive residential market in the country. From 47 per cent in 2010, the home purchase affordability index had improved to 33 per cent in 2019 – a positive sign for property buyers and sellers. In addition, the advent of the pandemic in early 2020, the affordability index further improved to 31 per cent in 2020 and again to 29 per cent in 2021.

However, post the two consecutive rate hikes by the central bank and the growing prices of property in the city has once again pushed the affordability index to a higher number. In the first half of 2022, the affordability index of the city currently stood at 31 per cent.
Knight Frank CMD Shishir Baijal said, “The home affordability, due to the rise in home loan rates by 90 BPS, has worsened in the last couple of months. On an average, affordability has decreased by 200 – 300 basis points across the major markets. However, despite the hike in the rates, markets remain largely affordable. This, coupled with the positive change in sentiments towards home ownership, we expect demand to remain unhindered with the momentum backed by the latent demand in the market continuing. Further, factors like strong economic growth outlook, financial stability and job security, the purchasing capabilities of potential buyers are expected to remain intact.”

Affordability index of 8 cities

Source: Knight Frank Research