Raising home loan interest further will affect purchase: Survey report

Home loans rates are hovering near a decadal high and any further hike in home loan interest rates, especially if they exceed 9.5%, would affect purchase decisions, a survey of prospective homebuyers by real estate consultant Anarock has found.

The online ‘Consumer Sentiment Survey’ was conducted among a sample size of 5,218. It revealed that prospective buyers clearly demonstrated an inclination to go for mid-range and premium homes. Most of the respondents desire to buy 3BHK flats. According to media reports, the survey found that high inflation continues to affect disposable incomes of more than two-thirds of the respondents.

The report mentioned that the average home loan rate stands at 9.15% now.

Incidentally, retail inflation rate stood at 7.44% in July, a 15-month high, a quantum jump from 4.81% in June. According to quick polls among economists, it is not expected to expected to fall dramatically in August either.

The survey report said, “Any further home loan rate hikes – particularly if interest rates breach 9.5 % – will have a ‘high impact’ on residential sales, according to 98% survey respondents.”

Home loan rates steadily went up since early 2022, riding a steady rise in repo rates by RBI that struggled to tame runaway inflation that resulted mainly as an offshoot of the liquidity the central bank pumped in to tackle the pandemic. In the past one and a half years, home loan rates went north by around 250 basis points.

The golden price band, within which 59% of prospective homebuyers prefer to buy flats, is between Rs 45 lakh and Rs 1.5 crore.

Narrowing down the price range, the survey revealed that 35% homes between Rs 45 lakh and Rs 90 lakh are favoured by 35% of the respondents. They are followed by 24% respondents who are looking for apartments priced between Rs 90 lakh and Rs 1.5 crore.

“Demand for bigger homes remains undeterred, with 3BHKs once again superseding 2BHKs in the current survey. Around 48% property seekers prefer 3BHKs over other configurations, while 39% still prefer 2BHK units,” said Anarock Chairman Anuj Puri.

Incidentally, for more than a year now, various real estate consultants have been saying that buyers are clearly demonstrating an inclination towards 3 and 4BHK units rather than 2BHK that was a favourite earlier. The need for work from home and schooling from home have fashioned this trend.

The demand for 3BHKs has been growing steadily compared with the H1 2022 survey. While it was 41% in H1 2022 it has risen to 48% in H1 2023.

On the other hand, the demand for dwelling units cheaper than Rs 40 lakh has been falling. It declined from 40% in H2 2020 to 28 per cent in H1 2022. In H1 2023, it declined further to 25%.

“In recent years, there has been a remarkable enhancement in the aspiration for home ownership, primarily attributable to an improved economic landscape and increased income levels…
Homebuyers are now setting their sights on luxury residences that come complete with contemporary amenities, top-notch construction standards, and cutting-edge architectural designs,” said Mohit Jain, managing director of Gurugram-based realty firm Krisumi Corporation.

The survey by Anarock also revealed that real estate is the most preferred investment asset class for over 60% of the respondents. It said, “52% millennials and 35% Gen-X respondents will use their investment gains from other asset classes for buying homes in the future.”

For most buyers, the end-use remain using them for residential purpose. “End-users continue to dominate housing sentiment, with 67 per cent survey participants intending to buy properties for self-use,” the report said.