The 66% of the young population, below 35 years of age, are emerging as young millennial borrowers of home loans.
It is also correct that the home-loans market is driven and volatile due to young borrowers within the age group of 26-35 years - about 25 per cent and also by people in the age group of 36-45 years - about 28 per cent.
These are all active home-loan audiences and jointly account for 53 per cent of annual originations.
Over the last 5 years, the average ticket size of a home-loan of young borrowers has continued to go up, with a CAGR of 6.2%. The ticket size continues to increase more for women in comparison to men. The cumulative active home-loan base of these borrowers has seen continuous growth, especially over the last 3 years at a CAGR of 3.5%.
These young borrowers have been the reason for the drastic change in the home-loan market today.
Over the last 5 years, within the affordable segment, volume growth in home loans of Rs 15-35 lakh. This indicates the shifting preferences of buyers towards higher ticket sizes.
Over the last 4-5 years, Rural Housing demand for mid-range and higher ticket sizes has continued to rise. Share of annual originations (volume) of Rs 35-75 lakh ticket size has increased by 4% in the last 5 years. Share of annual originations of Rs 75 lakh plus ticket size has increased from 0.37% to 0.87% in the last 5 years.
Share of annual originations of Rs 15 lakh ticket size has declined over the last 5 years, largely due to falling demand for a very small ticket size segment of Rs 2 lakh.
The dearth of disposable income has been a factor for the salaried class towards taking home-loan and buying real estate. Since the input cost in real estate has increased the rates, the salaried class is left with no other option but to approach home loans.
Interestingly, the tenure of repayment of home-loan is fluctuating between 11-30 years.
The EMIs are no more supportive since the financial institutions first draw a larger part of the interest in the EMIs and the principal component is kept less in more than the first 50% of the EMIs.
As the EMIs near completion, the interest component becomes negligible and the principal component becomes much higher.
Even if the buyer has the provision of pre-payment of a home loan, he ends up paying the larger portion of the principal amount rather than saving on the interest. Also, the financial institutions also put heavy fees on pre-closure of loans.
One question that has been asked frequently is - "If the principal and interest amount are predefined, why EMIs can't have equal amounts throughout the tenure."
Coming next to the tax benefit, repayment of the principal amount in a home loan qualifies for deduction under section 80C, which has an upper limit of Rs 1.50 lakh annually.
Since the same section - 80C, accounts for a number of other investments including PF, PPF and life insurance policies etc, it becomes impossible for a buyer to take advantage of any benefit out of this section.
Buyers are looking forward to increasing this limit in Union Budget-2022 since this limit has not been increased in the last many years in India.
On the tax benefit for interest payment, since under section 20(b) of the Income Tax Act, there is a cap of Rs 2 lakh per annum on the interest part of the home-loan, home-loans being larger in size, the buyers are unable to take much benefit of the same too.
In the Union Budget 2022, it is necessary to bring changes in the income-tax slabs and increase the rebates under section 80C, 80EE, 80EEA and 24(b) of the Income Tax Act.
These two statements said all about owning real estate and what it could mean to a buyer.
Globally, investment in real estate is directly related to the future of a buyer. It also results in the enhancement and growth of the economy of India.