At the peak of the global housing crisis in 2008, a group of executives at State Bank of India (SBI) were busy devising a new home loan scheme meant to boost the sluggish demand.
The growth in housing loans had fallen from a high of 31.2 per cent in December 2006 to 4.1 per cent in March 2009. After State bank of India (SBI) launched its special home loan scheme, home loan portfolio of banks in India rose 30 per cent on a year on year basis till September 30 2010, against 20 per cent in 2009-10, according to data from the Reserve Bank of India (RBI).
In 2011, as the housing market in the West slowly picks up, the Indian market may be in for slack. SBI withdrew its home loan scheme with effect from May, after RBI raised concerns on the borrowers' ability to repay them over longer tenures. After a period of sustained growth, bankers expect a moderation in home loan growth in the coming months. Rising interest rates and property prices are once again set to hit demand for home loans, say bankers.
The impact of the slowdown is already visible in the priority sector lending portfolio of banks.
According to RBI data, the growth in outstanding credit of banks, under priority sector housing loans, halved to 6.80 per cent in April, against 11.90 per cent in the year-ago period.
SBI, the country's largest public sector bank, expects a moderation in the growth in home loans. “We expect a slowdown, a moderation in the home loan market. It has been evident in the last two quarter. It is difficult to estimate the extent of the moderation,” said Diwakar Gupta, managing director and chief financial officer, State Bank of India.
Close to 30 per cent of the home loan market in India is currently accounted for by the teaser home loan market, according to Monish Shah, director, Deloitte, India. “The withdrawal of teaser loans would have a marginal negative impact on the demand. After 2009, in the two-to three year period, the home loan growth was mostly seen in the teaser home loan segment. It gained about 20-30 per cent market share, which is an absolutely phenomenal growth,” said Shah.
SBI launched the special home loan scheme in 2008, under which it offered an interest rate of 8.5 per cent for a loan of Rs 5 lakh and 9.25 per cent for a loan of Rs 20 lakh, with a reset clause after every five years. The scheme was tweaked several times since then.
High interest rates are also expected to play a dampener. “Demand for home loans is likely to be impacted due to high interest rates. The impact would be more visible in the next two months. Both investors and home loan buyers are likely to wait for few months before buying property. In the last one year, the burden of easy monthly installments for borrowers has gone up by 15-20 per cent,” said S L Bansal, executive director, United Bank of India.
The slowdown in home loan disbursements is already visible. The home loan growth recorded by United Bank of India till April was about 10-11 per cent on a year-on-year basis, against 12-13 per cent last year. R V Verma, chairman and managing director, National Housing Bank had said there was a slowdown in the growth in housing loans due to rising interest rates and property prices.
Smaller banks expect a level-playing field after the exit of teaser home loans from the market. Allured by lower interest rates, several home loan customers had shifted to teaser loans. “Now, we hope our customers will remain with us. Earlier, we saw some customers moving to teaser home loans. “During the first few months, the demand for housing loan is generally low, but for the whole year, we expect a reasonable growth in the home loan portfolio,” said M Narendra, chairman and managing director, Indian Overseas Bank.
Rising property prices have also dented the prospects of robust home loan growth. According to realty consultant Cushman & Wakefield, residential property prices in Delhi-national capital region and Mumbai saw prices rise 36 per cent in 2010 on good demand. The trend was reflected in loan disbursements for banks as well. Housing Development Finance Corporation, one of the biggest players in the home loan market, saw fourth-quarter net profit rise 27 per cent rise last year.
“In some markets, the outlook on property prices is expected to correct, while the interest rates are high. This could lead to a slowdown,” said Vibha Batra, co head, financial sector ratings, Icra.
“A lot of factors would contribute to the slight slowdown in credit off-take. Affordability, interest rates and uncertainty in the real estate market are some of the reasons. So, going forward, there would be a slowdown in the home loan market for sure,” Deloitte’s Shah said.
