Home Loan Growth Flat in February Amid High Prices, Interest Rates

Home loan growth in India flatlined in February due to high property prices and interest rates, with banks witnessing a sequential slowdown in sales of property. Despite an increase in lending by 15.2% in February compared to a year ago, the sector faces challenges in the form of high real estate prices, high interest rates, and a shift in customer behavior. The Reserve Bank of India (RBI) data also reflects the impact of these factors, showing a non-food credit growth of 22.8% as of February end.

Key Takeaways:

• Home loan growth in February was flat sequentially, with sales of property slowing down due to high prices and interest rates.
• Banks lent 15.2% more this February compared to the last year, according to RBI and Morgan Stanley data.
• Non-food credit growth in the banking sector stood at 22.8% as of February end, compared to 23% in January, according to RBI data.
• Three reasons cited for the impact on property sales are high real estate prices, high interest rates, and people waiting for prices to correct.
• Lenders find business in Mumbai the most slack, with real estate transactions down by 25% and property prices having jumped up 40% in the last one year.
• State Bank of India (SBI) expects its home loan advances growth in fiscal 2011 to be a shade lesser than the year before, impacted by high real estate prices and high interest rates.
• Analysts are of the view that high real estate prices are the biggest problem followed by interest rates, leading banks to focus on substitute lending like loans against property.
• Some analysts predict a rebound in housing loan demand once prices correct, with a possible stagnation for a few months.

Statistics:

• Home loan growth in February was 15.2% higher compared to January.
• Non-food credit growth in the banking sector stood at 22.8% as of February end.
• Real estate transactions in Mumbai were down by 25% compared to last year.
• Property prices in Mumbai had jumped up 40% in the last one year.
• SBI expects its home loan advances growth in fiscal 2011 to be a shade lesser than the year before.

Sources:

• Reserve Bank of India (RBI) data
• Morgan Stanley data
• Maneesh Srivastava, CEO of Muthoot Housing Finance Company
• Anil Kothuri, Executive Vice President of Edelweiss Finance & Investments
• Clyton Fernandes, Banking Analyst at Anand Rathi Financial Services
• Vaibhav Agrawal, Vice President (Research) at Angel Broking
• State Bank of India (SBI) officials
• Jawaharlal Nehru Port Trust official
• Vishakapatnam port official
• Mumbai Port Trust official
• Diligent Media Corporation Ltd. (DNA)