Home sales have been slow for the past few years. A report by Liases Foras says the total number of unsold residential units across eight big cities in the July-September period rose by 1.05%, compared with the same period last year. Yet, growth of bank home loans has been healthy.

How have home loans grown?

If we take a look at the chart above, it shows that growth in bank home loans has been extremely robust. For July-September 2018, outstanding home loans grew at a very healthy rate of 15.6%, in comparison to the same period last year. Home loans have been growing much faster than the overall growth in bank loans (that is, non-food credit). Banks give loans to the Food Corporation of India and other state procurement agencies to buy rice and wheat directly from farmers. Once these loans are subtracted from total bank loans, what remains is non-food credit.

What is happening here?

A stagnation in home sales should have led to a stagnation in disbursement of home loans. However, that hasn’t happened. One thing that Indians have learnt over the last few years is not to buy property that is under construction . In fact, due to lack of trust on builders, they are even apprehensive of buying residential properties that have been completed, but are lying unoccupied with the builders. High prices of properties have played their role in this as well. This explains the high number of unsold residential units across the eight big cities.

So where are homebuyers going?

Since home loans are being disbursed, it means homes are being bought. Buyers are moving into societies, which are already occupied to some extent.

If not builders, who are selling the homes?

Many individuals bought homes as an investment when real estate prices were rising at a fast pace. Lately, prices have either remained stagnant or dipped (if we leave out the National Capital Region, where they did crash). The staying power of investors, who bought real estate as an investment, is lower than that of builders. They are a bit more amenable to price negotiations. Investors also tend to own apartments in societies that are already occupied to some extent. And they are ready to sell now.

Is there any other trend that is playing out?

Real estate reports concentrate on cities, where apartments cost 60 lakh or more. The average home loan given by HDFC is 27 lakh. For government banks, it is around 25 lakh. Taking this into account, along with a down payment and the black portion in most real estate deals, suggests that many homes are being bought in the range of 40-60 lakh, in cities and areas not covered by the reports.

Vivek Kaul is the author of the Easy Money trilogy.

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