The government should provide home loans up to Rs 25 lakh at a lower interest rate of 5 per cent to middle class people, a leading real estate agents’ body has appealed to the government in the backdrop of rising home prices.
G Hari Babu, chairman of the National Real Estate Development Council (Naredco), in an online interaction with Business Standard, said the middle class in India accounts for about 30 per cent of the total population and is primarily dependent on rental housing.
This is because they cannot afford huge equated monthly installments (EMIs) at the current interest rates of 8.75-9 per cent, Babu said.
“For most of this 30 per cent, salaries are around Rs 50,000-70,000. Out of this amount, they can pay Rs 15,000-20,000 as monthly installments. But for Rs 20,000, what is the eligibility for a loan today? It is just Rs 20 lakhs,” he said.
“Can any builder provide any kind of accommodation for Rs 20 lakh in any major city like Mumbai, Delhi or Bengaluru today?” he asked, adding, “There is no place for people earning a salary less than Rs 1 lakh.”
The situation has been exacerbated by rising prices and rents. According to real estate consultancy Anarock, the average house price in India’s seven major cities has increased by 45% since 2019. During the same period, the average rent has increased by 64%.
“Last year and this year too, we requested the central government to provide a loan of Rs 25 lakh to these people at a rate of interest of 5 per cent,” he added.
“Up to Rs 25 lakh, if a fixed interest rate of 5 per cent is offered for the first five years, then their monthly installment will come down to Rs 16,000-17,000. They can then invest some more money by borrowing or raising another Rs 10-15 lakh at regular interest rates and buy a one-bedroom, hall and kitchen (BHK) house,” Babu said.
Babu also said that the demand for luxury and ultra-luxury housing in India is driven by 10 per cent of the population. Another 60 per cent, consisting of the economically weaker section (EWS), is being catered to by the government through free housing schemes, he added.
“Over the past 24 years, the Indian economy has developed tremendously, but two-thirds of the total value of the assets we have created have gone to just 10 percent of the population. All the big real estate players only cater to these 140 million people,” he said.
For others, interest rates have made it difficult to pay their installments and the number of new reservations is declining.
“Before the Covid-19 pandemic, interest rates were low, around 6.25 per cent. During that time, everyone thought they could buy houses. So, they somehow paid the down payments and booked their apartments,” he said, adding that it is this demand that India is seeing today.
“Today, when you have to register your apartment, the interest rate is 8.75 percent… That requirement is over. Today, with 8.75 percent, almost no one reserves apartments, except for those 10 percent,” he says.
According to Babu, demand for luxury homes is likely to remain high for the next 30 years, but for others, home prices could start to deflate as early as next calendar year.
“That’s my prediction,” he said.
First published: August 27, 2024 | 15:52 IS
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