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Business News/ Industry / Banking/  Low-cost homes hit by rate hike spree
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Low-cost homes hit by rate hike spree

Home loans of up to ₹30 lakh formed 45% of loans disbursed between January and February, down from 60% between April and June 2022, according to estimates by SBI research

The bottom of the mortgage pyramid is the worst hit. (Photo: iStock)Premium
The bottom of the mortgage pyramid is the worst hit. (Photo: iStock)

Fewer customers are taking out loans to buy so-called affordable homes after several back-to-back interest rate hikes, with demand slackening sharply in the last few months, according to senior bankers and data analyzed by State Bank of India’s research wing.

Bankers said moderating demand is the intended consequence of the Reserve Bank of India (RBI) trying to slow stubbornly high inflation through the 250-basis point (bps) cumulative repo rate hike since May last year. Given that the higher rates would impact low-income borrowers more than their wealthier counterparts, demand for affordable housing loans has dipped more, they said. Home loans of up to 30 lakh formed 45% of loans disbursed between January and February, down from 60% between April and June 2022, according to estimates by SBI research. For loans above 50 lakh, the share has increased to 25% from 15% of fresh housing loans in the same period. This, the report said, indicates there is an emerging asymmetry in the home loan market. “We have used a bottom-up approach to estimate the share of affordable housing in the incremental loan portfolio of ASCB (all scheduled commercial banks) after adjusting for the market share of the leading players and banks in the retail space over the last three years," said Soumya Kanti Ghosh, group chief economic adviser, SBI.

Experts said while the rate hikes have led to higher interest outgo for most retail borrowers, the bottom of the mortgage pyramid is the worst hit. Outstanding loans under the priority sector housing shrank 0.3% this fiscal year, up to January, whereas total housing loans—including priority sector—grew 12.1% in the same period, RBI data showed. The regulator defines priority sector housing loans as those up to 35 lakh in metros and up to 25 lakh in other locations meant to construct or buy a house. “This (affordable housing) segment generally gets impacted first when disposable income goes down," said Suresh Khatanhar, deputy managing director of IDBI Bank.

The trend is also borne out by data on housing sales in this category. Data from real estate services firm Anarock showed that the affordable housing segment saw its overall sales share dip between 2019 and 2022. In 2019, of the total sales of nearly 261,400 homes across the top seven cities, nearly 38% were in the affordable segment. Last year, of 364,880 units sold, about 26% were in the affordable category.

“These affordable housing buyers have deferred their purchase decisions," said Anuj Puri, chairman of Anarock Group. Puri added that while the demand for affordable housing remains high, the target audience of the affordable segment—many employed in micro, small and medium enterprises (MSMEs)—has been severely impacted by the pandemic, in contrast to premium and luxury category buyers. “Moreover, profit margins of affordable housing developers were already wafer-thin. Rising inflationary trends of basic input costs have made it even more difficult for them to launch budget homes since increasing prices in this highly cost-sensitive segment defeat the purpose," Puri said.

According to Sanjiv Chadha, chief executive of India’s second-largest state-owned lender, Bank of Baroda, while interest rates have gone up, they have not gone up in a disruptive manner where they can impact credit quality. “The interest rate hikes at some point will affect demand. Understandably, it is the affordable segment which will get more impacted by this, and there will be some moderation in demand," Chadha said.

That apart, Chadha said, as compared to where “we were two-three years back, we are in a much better place in terms of demand for loans, and we are coming back to a normalized cycle—where we have normalized rates and normalized demand."

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ABOUT THE AUTHOR
Shayan Ghosh
Shayan Ghosh is a national editor at Mint reporting on traditional banks and shadow banks. He has over 12 years of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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Published: 15 Mar 2023, 10:22 PM IST
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