The surge in home loans is driven by the rise in the real estate industry. Andromeda Sales and Distribution witnessed loans disbursal soared by over 23% to touch Rs 75,397 crore, driven primarily by the home loan segment.
The home loan business surged to approximately Rs 33,918 crore in FY24, up by over 22% from Rs 27,798 crore in FY23. Raoul Kapoor, Co-CEO of Andromeda, sheds light on the factors driving the momentum of the real estate market.
He discusses a range of topics, from the decrease in the average age of home buyers to 28 years from 40 years, to the increase in purchases coming from Tier 2, 3, and 4 cities. Edited Excerpts:
What is fuelling the real estate market?
What we are seeing is a huge jump in demand all across, and when I say this we are present in about 1100 cities. We did about 35000 crore of home loans, and we represent practically every bank and NBFC in the country. So, the demand today is not only from tier 1 but also from tier 2, 3, and 4 cities in all the cities today. As I generally mention about this, the country is upgrading, and the home loans lead the upgrade. I’ll give you two data points.
One is the average age of home loan buyers is significantly coming down; it used to be upwards of 40+ just 10 years back, today it has come down to 27-28 years, and I see in some of the markets that first-time jobbers are availing home loans. So, a very positive thing. I think this is what is fueling the real estate. With the easy availability of home loans, consumers have understood that home loan EMI is a part of your financial planning. As you move ahead in life, it is an integral part of your financial planning. And availing it earlier and fulfilling it, Indians have understood it very well. And that is what is fueling the whole ecosystem.
Property prices have risen sharply. How are youngsters able to afford it?
So, the rentals too have gone up, and the rentals have gone up more in proportion to the capital appreciation of property. Today, if you’re taking a first job, second job, and you’re in that age bracket, a significant part of your salary or income goes towards fulfilling the rent obligations. And, interest rates are stable today at 8.58-8.60%, and you have some positive outlook on your job. You’re going to be there for 2-3 years and I’ll get x amount of increment in my current job.
That is giving confidence to going ahead and committing yourself to a home loan, instead of paying that x amount of rent. If the differential between your rental and EMI is about 10-15%, and you are in the age of 27-28, and you’re getting married, and your wife is also earning, she becomes a co-applicant. So, this is the trend which is happening today.
How much was the rent and EMI differential in the past?
It used to be upward of 20% in the past; it is 10-15% now. Plus, what Covid has done to our psyche is people who were on rentals were the worst affected. See, for example, you’re from Mumbai and working in another city, from the north or any other place. Covid fueled you to unsettle to an extent to own an asset as your income has shaken up, but you have to pay rent. So, people chose to move out and move back to their hometown. Now, that propelled a lot of people to bridge that 10-15% gap thinking that I’m doing good, and my boss is going to give an increment of 10-12%, let me take that plunge. I’ll cut down on some of my expenses, but let me own that asset. So, the sense of ownership has significantly gone up post-Covid.
What is the reason for the rise in real estate prices over the last few years?
While the hike in the last year has been steep, for example, a Rs 50 lakh property is now costing Rs 70-80 lakh, and in some cases touching more, but when you look at the 10-year data, it was overdue. So, the time correction and inflation-adjusted prices weren’t built into that asset. Any market that you pick up, that was long overdue which hasn’t happened. It is just that it happened in a year’s time, so it’s looking steep. But, that was overdue actually.
The real estate cycle is a 10-year cycle. It depends on which part of the 10 years you caught on; it was just 1-2 years this time. The price rise which was due for the last 8-9 years has happened in the last 1-2 years. Pick up Noida for example. I can give you a self-example. The prices were the same for 7-8 years. And, suddenly the flat which was of Rs. 60 lakh was costing Rs. 1 crore. But, the prices were overdue for 7-8 years. Inflation, plus there is a time value of money.
It is difficult to predict future hikes. The price hike will spread out or happen in a particular time frame; it is difficult to predict. But the prices will be stable from now.
How is the home loan industry expected to grow?
See, the Indian psyche of owning the property, coupled with prices are expected to be stable now, and the interest rate regime being in the same range of 8.5-8.6% for home loans, I think, it is all the right reasons for you to go ahead and buy a house. And, that exactly what we have been seeing. A very interesting data I’ll share with you. A lot of housing finance companies (HFCs) and consumer finance companies took this data from the Luminosity Index from NASA or ISRO. This index tells you how that area is lit up. Greater Noida was not lit up 2-3 years back, but you pick up a satellite picture of that area, it will be all lit up. So, the way the area is being lit up, the way the segment is growing in tier 1, 2, 3, 4 is also creating an impact on prices which I was earlier talking about. As metro connectivity or transportation increases, you’re ready to go far and travel far. Take, for example, Mumbai. The metro is now connecting far-off places and it is bringing parity in prices, which also fuels the sense of ownership, the home loan buy, and also the home prices are stable. So, I think that these couple of factors will lead it.
Why is growth mostly seen only in luxury properties?
In tier 1, the ticket size is moving up. What is happening in tier 2, 3, 4 is the number of cases moving up. But, I’m seeing it across. I’m seeing it in Madurai, Pondicherry, Dehradun, and I’m seeing it in Delhi, Mumbai, and Bengaluru too. In Delhi, Mumbai, and Bengaluru, the ticket size is moving up.