New Delhi: Despite real estate witnessing boom in the last few years with 90% of home loan borrowers being first timers, home loans GDP ratio in India continues to be a meager 5% as against 50% in US and UK.
Home loan rates have shot up from 7% in 2003 to 12% in 2007 with its impact massively following across the board including genuine buyers, speculators, real estate developers and bankers
As home loan rates went up sharply, interest pay out on housing loans amplified. A borrower of Rs10 lakh with a loan tenure of 20 years would have to shell out an extra of Rs3250 every month on his EMI and annual additional burden would be as high as Rs39,000 and loans up to Rs20 lakh form 80% of the total housing loan portfolio.
According to a Paper on Reality Check brought out by Assocham, the home loan GDP ratio should be doubled in the budget proposals for 2008-09.
* 90% borrowers are first time borrowers
* Since buying a home requires huge investment, especially for first time buyers, higher home loan GDP ratio is necessary
* High interest rates coupled with soaring property prices have only impacted affordability of buyers; demand continues to persist and will become stronger and more intense in near future
* India has a housing shortage of about 19.4 million units of which 6.7 million is estimated for urban India and 12.7 million units in rural India
* With rising income, swelling middle class and rapid urbanization, demand is set to shoot up and is estimated that additional 45 million units would be required for both rural and urban areas by 2012
* As a result of rising income and swelling middle class, India’s per capita income has doubled over the past 20 years
* With population growth of about 1.6% per annum and GDP growth of 9% per annum, per capita income is expected to quadruple by year 2020
* Average real income of urban India and rural India is likely to grow by 5.7% and 3.6% respectively by 2025
* India’s middle class is expected to expand by more than 10 times from its current size of 50 million to 583 million people in next 18 years
* Higher home loan GDP ratio will help India and its population is able to keep pace for meeting demand for housing units
* Share of housing loans in total personal loans have been on its way up since 2000-01, increasing from 37.2% in 2001-02 to 48.6% in 2004-05
Home loan scenario
Home loans constituted 52.7% in the total household credit in the year ended March 2006, marginally up from 52.5% in the previous year. Housing together with agriculture accounted for more than two-third of incremental priority sector lending in 2005-06.
Home loans formed 11% of the total outstanding credit of scheduled commercial banks in March 2005 up from just 2.4% in May 1990. The sales value of housing construction has witnessed an exceptional leap from Rs.17.61 crore in 1991 to Rs.4,182.67 crore in the year 2006. Lower interest rate regime has played a pivotal role in the progress.
However, with the repricing of interest rates in the last four years from 7% to 12% and the sky rocketing prices of the property, there has been a slow down in the residential property market.
The phenomenon signifies suppression of demand rather than absence. Though it is necessary to check the flow of speculative money it needs to be appreciated that augmenting the land supply for development would go a long way in easing the demand pressure on prices