One of the surprises of the current downturn has been the ability of builders and developers to hold on to unsold properties, rather than reduce rates drastically.
True, real estate prices have started to fall, but the fall has not been dramatic. How do these builders manage to have so much holding power? The answer is tucked away in the Reserve Bank of India (RBI) data on the sectoral deployment of non-food credit. Between 19 December and 27 February, bank outstandings on account of real estate rose from Rs76,463 crore to Rs90,765 crore, an increase of Rs14,302 crore, or 18.7%, in a little more than two months.
On 27 February, the year-on-year (y-o-y ) growth in loans to the real estate sector was a whopping 61.4%, compared to a y-o-y growth of 19.5% for gross bank non-food credit as a whole.
What’s more, loans for individual housing increased at a mere 7.5% y-o-y. Between 19 December and 27 February, bank lending for individual housing increased by a mere Rs693 crore. The RBI data seems to show that banks are far more interested in lending to the real estate sector than to individuals.
In sharp contrast, personal loans contracted between 19 December and 27 February, with outstandings falling from Rs5,68,474 crore to Rs5,55,392 crore. Advances against fixed deposits, credit cards and consumer durables shrank during the period. Trade advances and loans to professionals also shrank. Outstanding balances on account of loans to industry, however, rose by Rs21,257 crore over the period.
One interesting feature was a decline in outstandings to the petroleum, coal products and nuclear fuels industry, because of the oil bonds and because of lower oil prices improving the cash flows of oil marketers. Loans to the infrastructure sector increased by Rs19,624 crore over the period, which is heartening and it probably accounts for the rise in cement and steel prices.
But spending on infrastructure, too, has been decelerating on a y-o-y basis. On 27 February, y-o-y growth in loans to infrastructure was 35.1%, compared with 38.5% on 19 December.
Construction loans, however, grew at an annual rate of 58.8% on 27 February, higher than the 51% y-o-y growth they showed in mid-December.
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