Affordable Housing Demand May Slow Due to Rising Costs, but Luxury Segment Remains Resilient

In an exclusive conversation with ETMarkets, Anuj Puri, Chairman of ANAROCK Group, discussed the potential impact of rising home loan rates on the housing market. Puri highlighted that the affordable and mid-range housing segments are highly sensitive to overall acquisition costs, and even a small increase could deter demand.

He explained that buyers in the affordable category are particularly sensitive to changes in lending rates. If the overall cost of acquiring a home rises beyond a certain point, it will impact demand in the affordable segment and may cause longer purchase decision timelines in the mid-range housing segment.

However, demand for larger and luxury homes is driven more by lifestyle needs such as space, comfort, and long-term value, making it less vulnerable to minor rate hikes. According to Puri, the luxury housing segment, while also vulnerable, is not as dependent on borrowing cost variations as the affordable and mid-range segments.

When asked about the impact of SBI's recent home loan rate hike, Puri noted that home loan interest rates play a significant role in directing demand in the affordable and mid-range housing sectors. He stated, 'If the overall cost of acquisition rises beyond a certain point, it will impact demand in the affordable segment and may cause longer purchase decision timelines in mid-range housing.'

Regarding the potential shift in demand toward affordable housing due to higher EMIs, Puri clarified that while lending rates do influence home buying decisions, marginal hikes at the current levels will not cause a preference shift towards budget housing. 'The demand for larger homes is based on certain baseline fundamentals like comfort, space for the family to grow, improved work from home possibilities, and better resale value,' he said. 'Buyers looking for these will not compromise on them merely because lending rates have increased by a certain percentage. Instead, higher interest rates may delay some purchase decisions so that buyers can save toward a bigger down payment.'

When asked about the adjustments real estate developers might need to make if demand starts leaning toward affordable housing, Puri responded that such a scenario is unlikely. 'The demand for larger homes is founded in real-time requirements that buyers will not compromise on,' he explained. 'As such, the demand profiles of affordable and larger mid-range homes are not readily interchangeable. It is likelier that developers will try to optimize costs for their buyers with additional offers and flexible pricing.'

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