Affordable Housing Demand May Slow Due to Rising Costs, but Luxury Segment Remains Resilient
Rising home loan rates could impact demand in the affordable and mid-range housing segments, according to Anuj Puri, Chairman of ANAROCK Group. However, the luxury market is likely to remain relatively resilient.
Affordable HousingReal Estate MarketLuxury HousingHome Loan RatesReal Estate DevelopersReal Estate NewsAug 22, 2025
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.'
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own and do not represent the views of the Economic Times)
Frequently Asked Questions
How do rising home loan rates affect the affordable housing segment?
Rising home loan rates can significantly impact the affordable housing segment because buyers in this category are highly sensitive to overall acquisition costs. Even a small increase in rates can deter demand.
What drives demand in the luxury housing market?
Demand in the luxury housing market is driven more by lifestyle needs such as space, comfort, and long-term value, making it less vulnerable to minor rate hikes.
How might real estate developers respond to higher home loan rates?
Real estate developers are likely to optimize costs for their buyers with additional offers and flexible pricing to maintain demand, especially in the affordable and mid-range segments.
Will higher EMIs shift demand toward affordable housing?
While higher EMIs can influence home buying decisions, they are unlikely to cause a significant shift toward affordable housing. Buyers will more likely delay purchase decisions to save for a larger down payment.
What are the baseline fundamentals that drive demand for larger homes?
The demand for larger homes is based on fundamentals like comfort, space for the family to grow, improved work from home possibilities, and better resale value.
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