The year 2009 was a good one for home loan borrowers. Banks rolled out the goodies for them in the form of low interest rate offers and special home loan packages. Stable property prices also helped. So, the demand for home loans was steady.

With the economy poised for strong growth and confidence returning to the capital market, most players expect the demand for home loans to grow in 2010. Bankers expect disbursements to be around 25 per cent higher next year.

Economic slowdown

The first half of 2009 saw a deceleration in the housing loan segment due to a combination of reasons including the overall economic slowdown, high property prices and high interest rates.

According to the Reserve Bank of India Macroeconomic and Monetary Developments Second Quarter Review 2009-10, as on August 28, 2009, the year-on-year growth in home loans was 5.4 per cent, against 12.4 per cent as on August 29, 2008.

In absolute terms, the growth in housing loans was Rs 14,668 crore in August 2009, against Rs 29,872 crore in August 2008.

But the home loans segment weathered the economic slowdown better than other segments due to the Government stimulus packages and a correction in property prices.

Mixed experience

According to MNair, Director and Chief Executive, LIC Housing Finance, 2009 was a rewarding year for his company, with disbursements growing by 70 per cent and approvals by 90 per cent. From the industry point of view, it was a mixed experience, he said.

Home loan growth in the second-half of 2008-09 was weighed down by a combination of factors such as the economic slowdown, high interest rates, high property prices and a lack of confidence among buyers, who were not sure of their jobs and, therefore, their incomes, said Ms Renu Sud Karnad, Managing Director, HDFC Ltd. In fiscal 2009-10, so far the growth in disbursals has been about 26 per cent for HDFC.

According to Mr Nandakumaran, Chief General Manager, State Bank of India, the home loan sector has recovered fast on the back of stimulus measures and the competitive rates and free insurance offered by banks. Moreover, banks also improved the speed and quality of their service.

Bonanza for borrowers

For borrowers, 2009 was a bonanza as far as interest rates were concerned. Banks offered home loans at rates as low as 8 per cent.

In some cases, they offered to lock-in the interest rates for periods of up to five years before they are reset. But going ahead, these rates may not be sustainable, said bankers.

The dual rate scheme first introduced by SBI and then by almost all other players and low interest rates saw many borrowers either switching their banks to ones that offered lower rates or resetting their loan rates with their existing banks.

Nandakumaran said, “The dual rate scheme was more on account of the circumstances and it will not sustain in the long term.”

He added that the bank did take over a number of home loans from other banks. The trend of customers refinancing their loans at intervals, say every five or six years, is bound to stay, as customers are becoming more discerning and informed,’ he said.

Nair said, Lending rates have softened to unbelievable levels. They are not realistic as compared to the market conditions. If you look at the current market situation, there is little possibility of rates going down from these levels, unless there is some aberration.

Sud Karnad said interest rates could remain low in the near-term. We do not expect interest rates to reach levels of 2008 as there is ample liquidity in the system. The credit pick-up in the system is very low; just around 13 per cent, she said.

Rise in prices

The rise in property prices, especially in cities such as Delhi and Mumbai, also impacted demand.

After the recession in 2008, there was growth in demand. But property prices in some pockets went up. This slowed the demand and dampened the enthusiasm of consumers, Nair said.

Ms Sud Karnad also agreed that the demand for property is directly related to property prices. For demand to pick up, property prices should be affordable.

However, she said, Property prices in India are unlikely to fall in any major way. In fact, they have recovered by 15 to 25 per cent, particularly in metros such as Mumbai and Delhi. Over the past two quarters, developers have seen acceleration in sales and also a substantial increase in the inquiry levels for properties.

In upbeat mood

With economic growth looking healthy and property prices stabilising, most players are upbeat about good growth in the home loans segment next year.

Good demand for home loans will continue provided property prices remain stable, the soft interest rate regime continues and there is optimism about income, Nair said.

Nandakumaran said, The stimulus has worked. So growth next year will be more than average growth. Karnad Sud said, The housing shortage in India is estimated at around 25 million units, of which, two-thirds is in the urban centres. With rapid urbanisation, demand is likely to grow.

With the economy back on the growth track and estimated to grow upwards of 7 per cent next year, confidence among buyers is back. The only worry is the increase in property prices. Any unusual increase in property prices will affect growth in the sector.”

Given the current demand from first-time home buyers, loan approvals and disbursements could grow between 20 and 25 per cent, she added.

The trend of affordable housing that began in 2009 will continue in 2010, said Ms Sud Karnad. “Developers will continue to launch innovative schemes and affordable middle-income housing projects as they did in 2009 to encourage home buying. Our take is that customers are in for good times and should buy a property, especially if they are buying for their own use, she said.

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