The Indian home loan market is expected to grow 17-19 per cent in the current financial year despite significant decline in affordability, according to credit rating agency ICRA.
Possible softening in home loan rates, attractive schemes offered by banks and higher ticket sizes (because of higher property prices) could support a 17-19 per cent growth of the home loan market in 2012-13, said the agency.
The challenges impacting the growth of the sector are relatively high property prices, declining affordability (as property prices has appreciated at a faster pace than increase in income levels), and tough operating environment. These factors could continue to temper the number of home transactions.
Housing finance penetration in India increased from 4.5 per cent in March 2004 to 7 per cent in March 2007. However, the penetration has remained at 7 per cent levels over the last 5 years.
The current housing finance penetration level, however, is significantly lower than the penetration rates in developed countries, and being so it appears to point to a significant scope for further growth in future.
According to ICRA’s estimates, the total housing credit outstanding in India as on March 31, 2012 was over Rs 6,26,100 crore as against Rs 5,34,500 crore as on March 31, 2011, indicating growth of 17 per cent. Affordability has declined for new home buyers on account of rise in property prices; lower rise in income levels; rise in interest rates; and high inflation leading to reduction in net disposable income of the borrower.
According to ICRA’s assessment, in the 2007-2012 period, property prices appreciated by around 200 per cent in Chennai, Gurgaon, Mumbai (Mahim, Matunga, Lower Parel). In the same period, property prices appreciated by around 100 per cent in Faridabad, Lucknow, Pune, Bhopal, Kolkata, Mumbai (Bandra, Cuffe Parade, Andheri, Goregaon) and Indore.