Souring EMIs

SOARING EMI HAUNTS MIDDLE CLASS HOMES
The Latest Hike In Home Loan Rates Combined With Inflation Is A Double Whammy For Investors In Real Estate
Karthika Gopalakrishnan & M Ramya | TNN

Chennai: Janakiraman (29), currently employed at a PR agency, used to contribute Rs 15,000 towards the household expenses 18 months ago. However, this has dipped to Rs 5,000 now because the monthly EMI on his home loan of Rs 18.5 lakh has risen from Rs 16,500 to Rs 19,000. His repayment tenure has also risen to 25 years.
“Now, 65% of my salary goes towards the loan and I have been forced to cut back on my investments. I got good returns earlier by investing one-fifth of my salary in mutual funds. But now I invest only on the incentives that I get for my performance. In fact, even my allotment for recreation has gone from onethird of my salary to onesixth,” he said.
When the RBI announced the rise in repo and cash reserve rates in banks, the middle class held its breath. On Thursday, when home loan companies raised their housing finance rates by 75 basis points or 0.75%, there was a collective gasp.
With real estate remaining a popular mode of investment among the conservative middle class, home loans ought to follow suit. However, the rapidly rising interest rates and inflation are only serving as a deterrent in the process.
Poornima Ramanan, a quality assurance manager at Renault – Nissan, is worried about how the rising cost of living combined with the hike in EMIs will affect her daily life. Though the family income of her household would come up to Rs 1.5 lakh a month, she said the monthly budget would definitely be affected if interest rates continued to climb the way they did.
“Our pay will also not rise that much, maybe a maximum of 5 to 10%. I am planning to take a housing loan because I stay in a rented house on Santhome High Road right now. My rent is currently Rs 25,000 but once I take a home loan, my EMI will probably be double that amount. At this rate, we will definitely have to cut down on all our luxuries,” she said.
Poornima also cites the example of her friend, who had been paying Rs 18,100 on a loan of Rs 20 lakh for 20 years. “Now, it has gone up to Rs 20,120 and the tenure increased to 26 years. In fact, she expects it to rise by another Rs 1,000, as if the current situation is not bad enough,” she said.
Vijayan, a media professional, says that Standard Chartered Bank informed them about the first hike, which will come into effect from August 1, only on Thursday.
When they calculated the toll that the EMI rise would take on the family budget they found that they would have no savings at the end of the day. This was the situation before the Thursday hike. “If the bank decides to hike rates again we will find it difficult to make ends meet,” Shoba says.
The housing EMI is only a part of today’s problem for the middle class. “Take our case, what was Rs 100 a week for vegetables is now double that. Rice and provision prices have gone over the roof. Salaries don’t go up that way,” she chuckles.
During these trying times, not only do you have to shell out an exorbitant amount to ensure a roof over your head, you have to carry the burden over many years as well
Source : The Times of india dt 2 8 2008