Young Indians Ignore High EMIs, Prefer To Own Personal Spaces Rather Than Rent

Atreya Roy, 29, an IT professional, a Gurgaon resident, bought his apartment in 2020, despite market volatility and Covid-19. Roy said that he deliberately chose to invest in real estate as he was confident about making good returns on his investment. 

Not just Roy but many younger professionals like him have chosen to invest in the residential housing market despite the seemingly high prices and rising EMIs. Not just that, they are preferring to do it now rather than renting or putting off their home purchase decisions for later which seemed the case a few years ago.

Narasimha Reddy, 32, who is a finance professional based in Hyderabad also bought a home in June 2023. “Real estate is the safest and the most secure investment with the best returns. In any volatile market, prices of everything will go up, and the prices of homes will also go up further. So, it is better if we could make the investment now, the returns will be manifold in the future,” he said.

Several bankers The Core spoke to said that young couples are risking buying homes as they see value in acquiring an asset that is likely to appreciate in future. And then, there is a sense of owning one’s own personal space’. According to various bankers and analysts, it is mostly the young professionals within the age group of 25 to 40 years, who are investing in real estate these days. 

Incidentally, India recorded an-all time high in housing sales of top 7 cities in the second quarter of 2023 surpassing the previous peak of the first quarter of 2023. 

Sales were up 36% at 1,15,100 units, latest data on housing sales from ANAROCK Research released in June’23 says. 

Metropolitan cities have witnessed the sharpest jump, despite home prices going up in the last few years, especially in the post-pandemic period. Alongside, rising interest rates have also failed to temper the home buyers appetite for new homes. 

The Reserve Bank of India (RBI) has increased interest rates by  250 bps since May '22 and it went from 4% in April’ 22 to 6.50% in February’23.

Prakash Agarwal, an independent credit analyst and ex. Head of BFSI - India Ratings & Industry,  points out how you can now take loans of 20-25 years or more.  

“The EMI burden has become less challenging for the borrowers and they take the risk of taking the home loans,” he said.

“If we have to rent a decent 2 BHK in Delhi NCR, the amount of rent I have to pay, if I just add a few more thousands, I can pay the EMI. Eventually in 10-15 years, the asset will be mine. Also, if I plan to sell it off, I can transfer the loans, and even then the return will be more than 20-30%,” said Roy.

Though Agarwal does throw in a note of caution.

“Longer tenures also expose borrowers to event risk. Also lending companies are facing challenges in the personal loans category, so they are also focussing more on secured loans like home loans.”

Bankers confirmed that even banks tend to focus more on home loans as personal loans are mostly unsecured loans and it also increases the chances of defaults. 

The big question could of course be interest rates which have  been rising steadily. An experienced real estate investor might pause here but that is not the case here evidently.

For example, home loan EMIs for customers who bought properties less than Rs 40 lakh have gone up 20% in the last two years due to a rise in mortgage rate, according to real estate consultant Anarock. 

The floating interest rates for home loans up to Rs 30 lakh have risen from 6.7% in mid-2021 to nearly 9.15% now. However, deployment of housing credit by the banks has also gone up by more than 32% between 2021 and 2023, shows RBI data. 

But the prospect of ownership seems to take precedence over the rising financial costs as young buyers are clearly prioritising securing a tangible asset that can appreciate over time, outweighing the impact of higher interest rates, as real estate is often seen as a stable, long-term investment. 

Atul Monga, co-founder & CEO of Basic Home Loan, a home lending fintech company said the necessity for housing surpasses interest rate concerns, particularly in cities like Mumbai. Individuals prioritise owning homes due to the scarcity of suitable accommodation. 

There is the other, somewhat obvious point of longer tenures.

Also, while interest rates have risen from their historical low of 6.5% a year and a half ago, lenders say the current rates have become the new normal, and borrowers have adjusted their expectations accordingly. 

And moreover, it does not feel like interest rates will rise further, possibly due to the fact that the  RBI has not changed policy rates in the last three policy announcements.

On the other hand, there is a belief among some that rates might go down..

“There is a general expectation that in subsequent RBI monetary policy announcements, there might be a reduction in interest rates. This anticipation has added to the confidence of potential homebuyers and borrowers, motivating them to continue with their plans,” said Raoul Kapoor, co-chief executive officer of Andromeda Sales and Distribution Pvt. Ltd, distributor of loans.

Monga of Basic Home Loan points out that in some ways it is back to the basics.

“Real estate ownership is deeply ingrained in many cultures as a symbol of stability and success. This cultural perception can outweigh concerns about rate hikes,” he said.

The other interesting point is that the Indian economy’s smart recovery from the pandemic has boosted confidence.

Coupled with a clear realisation of the importance of a personal space, people are flocking to buy homes..

“The Indian economy has shown signs of recovery after the initial impact of the pandemic. Most Individuals are experiencing a rise in income levels. This, coupled with the dual-income trend in many households, has contributed to a stronger purchasing power and increased affordability,” said Kapoor. 

Narsimha and his wife echoed the same thought, they said, “Now, both of us are earning and at this age, we know our income will increase faster, so it is easier to take the burden of EMI now. But gradually with age other financial commitments will also increase and it would be difficult to manage the EMIs.” 

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