Home loan business hot despite rate spike

The home loan business remains hot, despite attempts by RBI to curb the credit flow to this business by driving up interest rates, property developers and bankers said.

Interest rate hike may, at the best, drive away some real-estate investors, but not consumers who buy houses to reside in them, they said.

Home loan rates are way below what they were six years back, said Chanda Kochhar, deputy managing director, ICICI Bank, after the bank raised its home loan rates last week by 50 basis points.

"Affordability of Indian consumer has gone up, and I don't see credit demand falling as of now," Kochhar said.

Various housing developers said they don't expect consumers to shy away from buying new property.

The demand for houses and home loans will not go down, despite hike in interest rates, said Niranjan Hiranandani, managing director, Hiranandani Constructions. "(About) 95 per cent of buyers are actual users and only 5 per cent are investors," Hiranandani said.

"In 1993, home loan interest rates were around 12-13 per cent, whereas now when salaries have increased manifold, interest rates are around 9-10 per cent," said D S Kulkarni, chairman and managing director, DS Kulkarni Developers.

"So as long as population does not decrease and there are genuine house-seekers, demand will not subside," he added. On June 9, the RBI hiked its reverse repo rate by 25 basis points, for the second time in the last six months.

It now pays 5.75 per cent for interbank liquidity absorbed through reverse repo tenders.

Banks began to hike their home loan rates since the beginning of this calendar year, as RBI was targeting banks' exposure to the real estate sector. Apart from raising interest rates, RBI also tightened provisioning requirements.

In April, RBI hiked the provisioning on some standard assets such as personal loans, residential housing loans above Rs 20 lakh, and commercial real estate loans to 1.00 per cent from 0.40 per cent. It also hiked risk weight on commercial real estate loans to 125 per cent from 100 per cent.

RBI felt that banks had over-extended their lending to real estate and housing sectors. In April-January, while overall credit rose by about 26 per cent, loans to the real estate and housing sectors increased 85 per cent and 30 per cent, respectively, against a rise of 74 per cent and 18 per cent in the year-ago period.

ICICI Bank has thus far raised interest rates on home loans by 150 basis points in the last six months. Housing Development Finance Corp. hiked home loan rates by 100 basis points in the last six months.

Most agree, these hikes haven't had an impact yet. "We have only genuine home loan buyers and so we don't see our loan demand to be affected," HDFC chairman Deepak Parekh had said .