The home loan rates are oscillating between 7.50% and 12% over the last 15 years, and currently trending in the range of 8.50%. The present rates or the rates that prevailed in the past were high if we statistically measure the burden that a home loan borrower has been carrying through the long duration of repayment periods.
At the present rate of 8.50%, if an individual plans to take a home loan of ₹40 lakh for a repayment period of 20 years, the EMI works out to approx. ₹34,000 which is high if the earning capabilities are accounted for.
As the prices of apartments and cost of construction are rising, the quantum of loans availed too are raising thereby increasing the EMI outflows.
How much can a young individual earn in India, who is 30 year old? Going by the verifiable statistics the average salaries drawn by common employable individuals in urban areas is in the range of ₹40,000 to ₹50000 per month. At these income levels, is it easy to pay an EMI of ₹34,000?
Crucial factor
The growth and success of real estate segment at the macro level is solely dependent on the loan availing capabilities of individuals whose earning capabilities are limited due to economic, educational and personal challenges.
The top-of-the-pyramid segment of people in the country are very few. The rest are middle-class and below who really aspire to live in their own houses.
In developed countries the loan rates are under 3% which is why the growth has been phenomenal across various sectors and importantly in the housing segment. At such low rates it becomes more borrower-friendly, that promotes growth of ancillary sectors and industries that in turn facilitates economic growth.
India is on the cusp of exponential growth and the interest rates are set to reduce further in the coming years which should not be seen as negative by those who seek higher rates on their fixed deposit investments.
The sacrifice on fixed deposit rates would be an advantage for the growth of an economy that offers affordability for borrowers; housing is one such segment that is going to benefit immensely through more rate cuts.
