Rising interest rates could reduce the demand for fresh home loans and increase prepayments, leading to lower growth of 15-18 per cent in the mortgage market in 2011-12, according to a ICRA report.
The rate of credit growth in the Indian mortgage finance market was around 18 per cent in 2010-11.
Going forward, two of the main factors that could lead to lower portfolio growth in 2011-12 compared with the previous two financial years are high property prices and increasing interest rates, both of which affect borrowers' affordability adversely, the credit rating agency said.
New challenges
The changing attitude of borrowers towards debt, relatively high property prices, tight liquidity position of builders, rising interest rates, and regulatory tightening pose new challenges for the mortgage finance market, said the report on housing finance companies and Indian mortgage finance market.
As for growth, although a rise in interest rates could reduce the demand for fresh loans and push up prepayments, higher ticket sizes (because of higher property prices) and increased income levels could support a 15-18 per cent growth of the Indian mortgage market in 2011-12.
According to ICRA's estimates, the total housing credit outstanding in India as on March 31 was over Rs 5,29,200 crore against Rs 4,49,900 crore as on March 31, 2010, indicating growth of 18 per cent.
The housing market is quite concentrated, with the top three players (SBI along with Associates, HDFC Group, and ICICI Group) clearly dominating the domestic mortgage market and cumulatively accounting for 48 per cent of the total housing credit in India (as of March 31, 2011).
However, the players ranked 4 to 10 in terms of housing loan size players are catching up, and were able to increase their share from 24 per cent as on March 31, 2010, to 28 per cent as on March 31, 2011, said ICRA.
The housing loan portfolios of HFCs as a whole reported a growth of 24 per cent during 2010-11— higher than the 15 per cent growth reported by scheduled commercial banks.
The share of HFCs in the mortgage market has been growing.
Going forward, HFCs may be able to maintain their market share on the strength of their focused approach, targeting of special customer segments, relatively superior customer service, and significant growth plans (in the case of some of the new HFCs).
However, banks are also likely to be able to maintain a sizeable share of the market, considering their extensive network and broad customer base, access to stable low-cost funds, and their mandatory compulsion to meet priority sector lending targets.