The affordable housing finance segment has witnessed traction in recent months, and has grown at a faster pace than pre-Covid levels, say bankers. “In tier-2 and tier-3 cities, there is a clear demand for affordable housing. You now see many reputed developers also diversifying into these schemes and setting up projects in tier-2 and tier-3 cities. Income affordability has also increased in rural areas. This is contributing to growth in the affordable housing space,” Kotak Mahindra Bank Group President and Consumer Banking Head Virat Diwanji said.
Home loans have become pricier in recent months, in line with the 250 bps hike in the current cycle, which was kicked-off by 40 bps rate hike in an off-cycle meeting in May. This is because all floating-rate retail loans sanctioned by banks after October 2019, are linked to the repo rate.
This steady rise in the interest rate of home loans has led to concern among bankers that at some point, loans will become too expensive for borrowers. In such a scenario, some lenders have turned to the affordable housing segment where the ticket sizes are lower and the borrowers are less interest-rate sensitive.
“Most of the customers (in the affordable housing segment) are building their own homes. When you are building a home, there are a lot of other aspects of home building process which needs to be lined up before taking a loan. The customer has lined up all those things and is ready to take a loan. At that point, the customer is not all that concerned about interest rate as many other priorities are there. That is why there is no moderation of demand in that segment,” said Manoj Viswanathan, chief executive officer, Home First Finance.
Typically, the average ticket size in the affordable housing segment is below `40 lakh. Affordable housing segment typically caters to self-employed individuals while the large ticket-size housing caters to salaried individuals.
The interest rate in the affordable housing segment is typically more ‘sticky’ than large ticket-size housing loans. This means that the affordable housing segment is less susceptible to repo rate changes that large ticket-size loans, say experts.