The penetration of home loans has been declining over the last five years. While the mortgage to GDP ratio stood at 7.5% in March 2007, this ratio has progressively declined since then and stood at around 6.8% as of March 2012, according to a report by Avendus Securities. Not surprisingly, urban areas are more penetrated.
While nominal GDP rose at a compounded annual growth rate (CAGR) of 17% over 2005-06 to 2010-11, mortgages grew at a 16% CAGR in the same period. According to Reserve Bank of India (RBI) data, nominal home loan growth in 2011-12 slowed to 12.1% at R3,88,000 crore compared with a 15% growth to R3,46,100 crore in 2010-11.
RV Verma, the chairman and managing director (CMD) of housing finance regulator, National Housing Bank (NHB), said the presence of new lenders, particularly commercial banks as also a boom in the economy had driven up penetration of home loans rose sharply between 2001-08 from 3.47% to 7.5%. Thereafter, the growth had tapered off somewhat, partly due to the economic slowdown. ?There has been a general slowdown in credit growth across the board and home loans have been no exception,? he added.
High asset prices and high interest rates have held back home buyers. According to Diwakar Gupta, the managing director and CFO at SBI, though there is demand for housing, asset priced remain stubbornly high, particularly in the top tier cities like Mumbai and Bangalore. People are therefore delaying home purchases as they wait for the pricing correction to happen.
VK Sharma, CEO of LIC Housing Finance, said that interest rates on housing loans have risen from around 7.5% levels in 2005-06 to as high as 12.75% now, thus dampening demand for home loans. He said that for non-banking financial companies (NBFCs) like LIC Housing Finance, which are not permitted to raise cheaper funds from abroad, cutting interest rates is that much more difficult.
Kapil Wadhawan, CMD of Dewan Housing Finance, said the depth of home loan market is still weak with rural areas and smaller towns not having been tapped enough. He said that though NBFCs do focus on smaller towns, banks which command over 50% of the home loan market find it difficult to cater to these areas.
