Home Loans

During the first quarter that ended in June this year, HDFC bank, a home finance major, posted 23 percent rise in its retail home loan section. Following the same pattern was Sundaram BNP Paribas Home Finance that saw 15 percent growth in the home loans. Home loans have been rising and it is predicted that there will be higher growth in the coming years.

What is propelling the growth of housing loans?

There are many factors that are contributing to its growth. Like:

Banks consider home loans as a safe bet

In the wake of infrastructure loans and loans against small businesses turning bad, banks are finding housing loans as a safe bet. The Reserve Bank of India has data that shows that during the period April to December 2013, housing loans lent by the banks grew by 13.5 percent as compared to the 11 percent in the previous year. As bad loans in the housing segment are comparatively lower, banks do not have to set aside huge amounts in anticipation of defaults. This in turn enables the banks to lend more loans to people.

Houses made affordable

The Reserve Bank of India recently redefined the definition of ‘affordable housing.’ It said that home loans up to INR 50 lakh (for houses valued at INR 65 lakh) in metros and home loans up to 40 lakh (for houses valued at INR 50 lakh) in other places will fall under the category of affordable housing. For the banks, this means that they will be able to float infrastructure bonds till seven years. The money which will be raised through infrastructure bonds will not be bound by the cash reserve ratio or the statutory liquidity ratio. This gives the banks more flexibility. In addition, the recently announced Budget had allocated INR 7,000 crore with a view to developing 100 smart cities and had also announced a few tax concessions. These steps are provoking individuals to explore the option of picking up their own houses.

Housing prices set to come down

The real estate prices have come down, but the housing segment did not witness any major drop in price. There was no significant rise either. With the rise in supply of housing projects, the prices are bound to come down. This will propel the growth of housing loans further.

Tax structuring

In the recently announced Budget, the tax exemption limit on interest against housing loan has been raised by 50,000 to INR 2 lakh. This is going to increase the demand of housing loans, especially among the middle class. Apart from this, the tax slab has been increased from Rs 2 lakh to Rs 2.5 lakh. This will give more disposable income to an individual, hence increasing his loan repayment capacity.

Push in lower income group borrowing

People falling under the lower income group and economically weaker sections have been borrowing loans at a fast rate. Their loans usually fall under the 15 lakh category. Diwan Finance Housing, in a newspaper article, said that 58 percent of the loans disbursed last year were of less than Rs 15 lakh each.

What this means for the common people?

This is good news for them. India is a developing economy and the ownership of houses is still very low as compared to a developed economy. But as the country progresses, people would want to live in their own houses. The demand for houses will be on the rise. In such a scenario, the growth in housing loan means that the people will be able to afford the houses and will be buying them.

In a survey conducted by DNA Analysis, the result showed that Indian market needs different types of houses – one-bedroom houses ranging from 250 sq ft to 400 sq feet made up of 80.2 percent of the demand. Two bedroom houses within 450-650 sq feet made up of 10.5 percent of the demand. Larger two-bedroom or three-bedroom house within 650-900 sq feet formed 6.6. percent of the demand and houses bigger than 1000 square feet made up 2.7 percent of the demand. This clearly shows that the demand is towards small and medium houses, which is the target audience of the ‘affordable housing segment.’

 

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