Developers, banks lose out on young home buyers

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Property developers and banks are losing out on customers in the age group of around 25 years for home loans owing to these borrowers' inability to pay the requisite 10% down payment. The remaining 85% to 90% of the home loans are issued by the banks. Currently, the 25 years age group contributes about 15 to 20% to the total home loan market. Not only that, borrowers in this age group constitute 50% of India's population, according to builders and home finance institutions.

Hemant Shah, chairman, Akruti City told FE, "We are losing out on home loan customers in the age group of 25 years by about 15% to 20%. The problem is, even if these borrowers are able to pay up the EMIs, they are unable to cough up the down payment since they do not have the 10% component as savings to show up. We may in the near future look at talking to home finance institutions to provide 100% home loan facility to the 25 years' age group so that they are not deprived of their dream home."

Sunil Rohokale, managing director and CEO, ICICI Bank (home finance), sad, "Irrespective of the age of a borrower, a housing finance company will only finance up to 85% of the total cost of the home, provided the borrower is eligible for the loan amount. Registration fee and the stamp duty, which amount to 6 to 12% (depending on the state in which you reside) of the cost of the home, are also included in the total cost of the home. The balance margin amount has to be brought in by the borrower. Requests of certain customers are turned down as they are not eligible for requisite 10% component."

According to Pankaj Renjhen, managing director (Mumbai), Jones Lang LaSalle Meghraj, "In granting home loans, banks today deal with two distinct segments - the age group of 25 upward to approximately 28, and the age group of 28 to 30 and above. The key factor here is the 10% component that a borrower must contribute."

The first group offers the bank the security of a longer assured tenure of service, and therefore increased ability to service the loan over a longer period. However, since this age group tends to be at the very beginning of professional life, the likelihood of having accumulated the mandatory 10% property value contribution currently required to avail of a home loan is very remote. In the second age group, it can be taken for granted that the home loan availer has managed to save the 10% component. However, the tenure of service, and therefore the loan repayment ability, is correspondingly lower.

Banks are not concerned with the age group, but its ability to pay the requisite 10% and service the loan thereafter. In other words, banks do not discourage younger borrowers from availing of home loans, it is the fact that these borrowers often do not have the 10% together that discourages them from availing of one. It is, of course, not realistic to amend the required contribution to a lower magnitude for younger borrowers, Renjhen adds.

Further, Renjhen said, "By the same coin, banks will lose out further on younger borrowers if the 10% component requirement is raised in the future."

Niranjan Hiranandani, managing director, Hiranandani Construction said, "We have certain customers in the age group of 25 years who have managed to pay up the remaining 10% requisite for home loans by borrowing from their parents and relatives. Hence, we have so far not faced with difficulties in terms of losing them out."