Year Ahead: Lower interest rates may buoy affordable housing in 2024
Lower interest rates will likely drive the growth in affordable housing finance in 2024, say bankers. Last week, State Bank of India Chairperson, Dinesh Khara said that lending rates may fall from middle of next year.
“The 2024 outlook appears bright in the backdrop of rate cut hopes — probably happening by mid-year — and a strong GDP growth forecast. Affordable housing finance growth will come from tier-2/3 cities and rural markets,” says Ravi Subramanian, managing director and chief executive officer, Shriram Housing Finance.
Home buyers in the affordable home segment have not recovered from the income disruptions during the pandemic and subsequent rise in interest rates and prices, say experts. As a result of this, affordable housing loans have shown signs of early-stage delinquencies.
“The early-stage delinquency in the affordable housing can be on predictable lines looking at the unique business model. Since this sector promises healthy growth and income, it would remain a focus area for housing finance companies,” says Sarosh Amaria, managing director, Tata Capital Housing Finance.
Experts said that a 100 bps increase in interest rate leads to borrowers’ home loan equated monthly installment(EMI) rising 6.1-6.4% in general. For an affordable housing borrower, the EMI rises by around 5.3%. On an average, EMIs have risen 14.4% following RBI’s rate hikes.
A release by Knight Frank India shows that while EMI-to-income ratio across tier 1 and tier 2 cities improved in 2023, it is still below pre-COVID-19 levels. It also said that on an average, households across these cities need to spend 21-51% of their income to fund the EMI of a housing loan for a unit.
In recent years, affordable housing supply and new launches have
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