Outstanding home loans increase by Rs 10 lakh cr: what does this mean?

Over the past two years, the amount people owe on their homes has increased dramatically. Outstanding credit to the housing sector rose by nearly Rs 10 lakh crore in the last two fiscals and reached a record Rs 27.23 lakh crore in March this year, according to RBI data on ‘Sectoral deployment of bank credit’.

Reason for increase: Experts attribute this to a strong rebound in the housing market following the COVID-19 pandemic. People who put off buying homes during the pandemic (pent-up demand) are now actively buying. Moreover, the government’s push for affordable housing has also fueled this growth.

“To counter the pressure of interest rate hikes, existing borrowers may consider switching to a lower mortgage rate and continuing to prepay a portion of the loan to ease the burden,” said Adhil Shetty, CEO of BankBazaar.com.

The real estate tree decoded:

Post-pandemic recovery: People who put off buying homes during COVID-19 are now actively buying (pent-up demand).

Government Urge: Affordable housing initiatives have made purchasing a home more accessible.

Increasing demand: Reports show that home sales and prices have increased significantly across all segments, especially in affordable housing.

Shift in priorities: The pandemic has highlighted the value of homeownership, increasing demand for spacious homes with dedicated work spaces.

According to the Reserve Bank of India (RBI) data on sectoral deployment of bank credits for March 2024, the outstanding amount of commercial real estate loans has increased significantly. In March 2022, it was Rs 2.97 lakh crore, and by March 2024, it had increased to Rs 4.48 lakh crore, which is an increase of Rs 1.5 lakh crore. This increase suggests that companies are borrowing more money to invest in commercial real estate.

According to reports from various real estate consultants, sales and prices of homes have increased significantly over the past two financial years.

Madan Sabnavis, chief economist at Bank of Baroda, said the high growth in home loans can be attributed to the housing market boom seen across all segments.

Notably, Sabnavis said the affordable housing segment has witnessed an upswing due to government push.

“There has also been pent-up demand for home buying over the last two years post-COVID, which is reflected here,” he said.

Sabnavis said home loan growth would remain robust but could decline to 15-20 percent due to a higher base.

Commenting on the RBI data, Samir Jasuja, CEO and MD of PropEquity, a leading real estate data and analytics company, said the rise in the number of outstanding home loans is mainly due to the significant increase in the number of properties has been launched and sold in recent years. two financial years.

“Major Tier-1 cities have witnessed high price increases ranging from 50 to 100 percent since FY2021, which has contributed to an increase in the average loan size per property,” he explains.

Jasuja expects the home loan segment to continue to show an upward trend as demand for residential real estate remains strong.

India’s real estate sector, which supports more than 200 supporting industries including cement and steel, has been witnessing strong demand since 2022 after languishing for over a decade due to subdued sales and stable prices.

The real estate sector suffered from the disruptions caused by the new real estate law RERA, GST and demonetisation, besides a lack of confidence in the sector as many developers failed to deliver projects after taking money from customers. However, the sector rebounded after the COVID-19 crisis as the pandemic re-emphasized the importance of home ownership.

Industry experts believe that the sector will reach a $1 trillion milestone by 2030.

Karthik Srinivasan, Senior Vice President and Group Head at rating agency ICRA, said private housing loans granted by banks increased significantly in FY’24 due to the merger of Housing Development Finance Corporation Ltd (HDFC) with HDFC Bank with effect from July 2023.

“Mortgage penetration in India is steadily increasing (about 12 percent as of March 2024; the amount of outstanding housing loans as a percentage of GDP), but remains relatively lower than in developed economies, implying significant room for growth,” he said.

ICRA expects the trend to continue, with total housing financing expected to grow by 12 to 14 percent annually in the short to medium term, supported by buoyant demand.

Aakash Ohri, Jt Managing Director, DLF Home Developers, said there has been an unprecedented rise in housing demand, which has reached an all-time high in the last two years, especially in the wake of COVID.

“This increase underlines a fundamental shift in people’s perception of home ownership, with the value of having a place they can call home becoming more apparent than ever before. Residential real estate has not only served as a haven for end users but has also emerged as an attractive investment opportunity,” he said.

Ohri further said that the remarkable growth in home loan advances can be attributed to several factors, including favorable government policies, attractive financing options and the population’s growing aspirations for home ownership.

Mohit Jain, Managing Director, Krisumi Corporation said the demand for spacious homes has surged and buyers are prioritizing comfortable living spaces and dedicated work spaces.

“We are seeing a huge interest in homes with dedicated home offices and outdoor spaces that were once considered luxurious but are now essential for the modern homeowner,” he said.