Home loan outstanding up by Rs 10 lakh cr: What does this mean?

The real estate boom is expected to continue, although the growth rate might slow down slightly due to the high loan amounts already issued.

In the last two years, the amount of money people owe on their houses has increased by a massive amount.  Credit outstanding to the housing sector rose by nearly Rs 10 lakh crore in the last two fiscals to reach a record Rs 27.23 lakh crore in March this year, according to RBI's data on 'Sectoral Deployment of Bank Credit'. 

Reason for increase: Experts attribute this to a strong revival in the housing market after the COVID-19 pandemic. People who delayed buying homes during the pandemic (pent-up demand) are now actively purchasing. Additionally, the government's push for affordable housing has also fueled this growth.

Here's an analogy: Imagine a pool representing the total amount of money loaned for housing. Over the past two years, this pool has grown significantly, indicating a surge in home buying activity. This is likely due to people catching up on delayed purchases and government initiatives promoting affordable housing. While the pool will likely keep growing, the rate of growth might slow down a bit in the future.

According to the BankBazaar Aspiration Index, in 2023, home ownership continued to be one of the top three goals. The demand for home loans continued its upward trajectory despite higher interest rates, and the loan book of banks grew above Rs 21 lakh crore.  In 2023 -- the average home loan ticket size disbursed on Bankbazaar was Rs 28.19 lakh. For metros, the average home loan ticket size was Rs 33.10 lakh, and for non-metros, it was Rs 22.81 lakh.

What should existing borrowers do to combat the pressure ?

“To combat the pressure of the rate hikes, existing borrowers can explore switching to lower home loan rates and continue to prepay a part of the loan to reduce the burden," said Adhil Shetty, CEO, of BankBazaar.com

The real estate boom decoded: 
 

Post-pandemic recovery: People who delayed buying homes during COVID-19 are now actively purchasing (pent-up demand).
 

Government push: Initiatives for affordable housing have made buying a home more accessible.

Increased demand: Reports show a significant rise in housing sales and prices across all segments, especially affordable housing.

Shift in priorities: The pandemic highlighted the value of homeownership, driving demand for spacious homes with dedicated workspaces.

According to the data of the Reserve Bank of India (RBI) on sectoral deployment of bank credit for March 2024, the amount outstanding on commercial real estate loans has grown significantly. In March 2022, it was Rs 2.97 lakh crore, and by March 2024, it had risen to Rs 4.48 lakh crore, which is an increase of Rs 1.5 lakh crore.This increase suggests that businesses are borrowing more money to invest in commercial properties. 

According to reports from various property consultants, housing sales and prices have surged significantly in the past two financial years.

 Madan Sabnavis, Chief Economist with Bank of Baroda, said the high growth in home loans can be attributed to the housing boom seen across all segments.

In particular, Sabnavis said the affordable housing segment has witnessed an uptick due to the government push.

"There was also some pent up demand for buying homes in the last two years following COVID which is getting reflected here," he said.

Sabnavis said the home loan growth would remain robust, but might taper down to 15-20 per cent due to a higher base.

Commenting on the RBI data, Samir Jasuja, CEO and MD of PropEquity, a leading real-estate data and analytics company, said the rise of housing loans outstanding is primarily due to the significant increase in the quantum of properties launched and sold in the last two fiscal years.

"Major Tier-1 cities have witnessed high rates of price appreciation ranging between 50-100 per cent since FY 2021, which has contributed to an increase in average loan size per property," he explained.

Jasuja expects the housing loan segment to remain on an uptrend as demand for residential real estate remains strong.

Indian real estate sector, which supports more than 200 ancillary industries including cement and steel, has been witnessing a strong demand since 2022, after languishing for more than a decade because of subdued sales and stable prices.

The real estate sector suffered on account of disruptions caused by new realty law RERA, GST and demonetisation besides trust deficit in the sector as many developers did not deliver projects after taking money from customers. However, the sector bounced back post-COVID as the pandemic re-emphasized the importance of home ownership.

Industry experts believe the sector to reach $1 trillion milestone by 2030.

Karthik Srinivasan, Senior Vice President and Group Head at rating agency ICRA, said the retail housing loans deployed by banks has increased significantly in FY'24 consequent to the merger of Housing Development Finance Corporation Ltd (HDFC) with HDFC Bank effective July 2023.

"Mortgage penetration level is steadily increasing in India (around 12 per cent as of March 2024; the amount of housing loans outstanding as a proportion of GDP), but remains relatively lower than developed economies, implying significant room for growth," he said.

ICRA expects the trend to continue with overall housing finance expected to grow by 12-14 per cent annually in the near-to-medium term, supported by buoyant demand.

Aakash Ohri, Jt Managing Director of DLF Home Developers, said there is an unprecedented surge in the demand for homes, which has reached an all-time high in the past two years, particularly in the aftermath of COVID.

"This surge underscores a fundamental shift in people's perception of homeownership, where the value of having a place to call home has become more apparent than ever before. Residential real estate has not only served as a sanctuary for end-users but has also emerged as an attractive investment avenue," he said.

Ohri further said the remarkable growth in home loan advances can be attributed to various factors, including favourable government policies, attractive financing options, and the growing aspirations of the populace for homeownership.

Mohit Jain, Managing Director, Krisumi Corporation said the demand for spacious homes has truly skyrocketed and buyers are prioritising comfortable living areas and dedicated workspaces.

"We are seeing a surge in interest for properties with dedicated home offices and outdoor space features that were once considered luxuries, but are now essential for the modern homeowner," he said.

The long-term outlook for the housing market remains incredibly strong and accordingly, home loan growth is also likely to remain strong, Jain added.

With inputs from PTI