The recent development by banks to extend the loan tenure to 30 years for a home loan worth Rs 1 crore has raised a pertinent question. Will the move positively impact the sale of luxury homes in the top cities of India?
The country’s young home buyers have a reason to cheer as all banks are mulling an increase in the tenure of home loans to 30 years, encouraged by leading banks such as State Bank of India (SBI) and Housing Development Finance Corporation (HDFC). Typically, these loans are being provided to properties above Rs 1 crore for select individuals in the age group of 25-30 years. The main triggers for this development are the improved buyer sentiments, rising disposable incomes and reduction in lending rates.
Experts believe that the direct impact of this move will be a push to the sales of luxury homes. Pawan Jasuja, Director, Finlace Consulting says, “The move to extend the home loan tenure to a period of 30 years will revive demand in the luxury housing segment. Extending the tenure will increase the home loan eligibility of the applicant, giving him/her the power to invest in high-end luxury residences worth Rs 1 crore and above.”
Long tenure to benefit young home buyers
Gaurav Rakyan, Managing Director, Rising Straits Capital says, "Long tenure home loans will allow young aspiring home buyers who have a good credit history and earning potential to borrow at competitive rates." Clearly, the young salaried class, in the age group of 25-30 will reap the maximum benefits of this announcement for two reasons. Firstly, owing to the age advantage, this segment of home buyers has the repaying capacity. Secondly, they have high disposable incomes and aspire for a high standard of living. Financial institutions too are responding to an increased demand for long tenure loans from the younger generation of customers. Experts say that there is an increasing demand for large value loans in the range of Rs 80 lakh to Rs 1.6 crore.
The modern home buyers yearn for more than just a decent dwelling, explains Jasuja. “The young generation of home buyers wants a lavish home, which can stand as a testimony to their financial strength and enhance their status in the society. Moreover, purchasing a luxury home not only gives them a sense of value to their investment but also comfort and security.”
The definition and realm of luxury has also gone to a completely new level. In addition to more space and a high-end location, luxury homes now come equipped with sophisticated technology and state-of-the-art amenities such as electronic surveillance, digital security and wireless communication.
The buyer sentiment has also improved with developments such as three repo rate cuts in the calendar year by the Reserve Bank of India (RBI), which helped banks lower the home loan interest rates. SBI, for instance, reduced the interest rate for home loan to 9.55 per cent and 9.5 per cent for male and female borrowers respectively. With this development, fence-sitting buyers are more likely to close the deal in near future.
Lower EMI an advantage?
Tenure of home loan is a crucial factor that is usually not the first thing on a borrower’s mind. By reducing the amount of monthly instalment, tenure can significantly impact money that will be available for a number of other household expenses in the future. For a home loan of Rs 1 crore for a period of 30 years, the monthly EMI breakup is shown below:
The impact of the extended loan tenure on sales and the overall realty market can be assessed in the long term. As of now, it is still early to foresee its immediate impact on the slow realty market.