Ketan Patel, a 34-year-old share broker has decided to sell his home at Borivli, Mumbai. The reason: rising equated monthly instalment (EMI). In three years, his EMI has gone up from Rs 20,000 to Rs 23,000.
Bought in 2008 for Rs 33 lakh and valued currently at around Rs 55 lakh, discomfort over rising tenures and EMIs led him to put the house on the block for which he has already taken a token amount of Rs 1 lakh from a buyer.
“On such a high interest rate, I do not think it makes sense to continue holding a real estate property,” said Patel. “I would sell the property, pay off the loan and invest the balance amount in gold, or may be in real estate when prices fall within a year.”
“I took a loan of Rs 20 lakh at an interest of 10.5%. The interest rate is already touching 13% and the EMI is expected to go up further with the current rate hike by the RBI,” said Patel.
According to bankers, although in percentage terms the number of homeowners who are opting for distress sale is currently not alarming, the trend is likely to increase when rates would go up further.
“The logic amongst Indians is that if I am paying high rent, I might as well pay an EMI and own a house,” a general manager with a leading public sector bank told HT. “But when interest rates go up we would see an increase in the number of people who want to exit real estate.”
Mumbai and the National Capital Region would be the most affected by buyers exiting real estate due to high interest rates, experts said. “Times are tough and many home owners are forced to sell their houses, especially in places like Mumbai and NCR due to unaffordable loans,” said Pankaj Kapoor, managing director, Liases Foras, a real estate consultancy. “These sellers will have to sell at a discount as there is a loan on the property.”
Developers, too, are getting worried about the prospect of a weakening demand. “It is logical that the repo rate would have its impact on existing as well as future buyers and some of them might postpone plans to buy the house or worse might sell the property off,” said Brotin Banerjee, MD, Tata Housing. “But you have to understand that developers too are facing liquidity problems combined with high construction costs.”