Demand for home loans remains strong despite rising interest rates


Between 2017 and 2020, home loan growth was mainly driven by the affordable housing segment, including metro outskirts, while high-end locations in metropolitan areas such as Mumbai, Delhi and Bangalore remained subdued , Keki Mistry, vice president and general manager of Housing Development Finance Corp. Ltd., told BQ Prime.

The trend changed after 2020 and growth came from all walks of life including high-end locations in subways and they continue to show growth, he said.

There’s “good growth coming from metros just like there’s good growth coming from Tier 2 and Tier 3 cities,” Mistry said.

“We expect (housing finance company) lending (excluding LIC Housing Finance Ltd.) to grow 22% year-over-year in Q2 FY23, driven by strong growth in affordable HFCs” , Jefferies analysts said in a recent report.

A host of factors are driving current demand for home loans, including people’s preferences for larger homes following the Covid-19 pandemic and a stagnation in house prices that set in after 2018, said Jinay Gala, associate director at India Ratings and Research, to BQ. Prime.

In addition to the factors cited by Gala, an accumulation of savings from households and attractive discounts offered by property developers have also helped to maintain demand, according to Jorty Chacko, executive director of retail assets at IDBI Bank.

“The momentum has been more in terms of the mid-to-luxury segment. For the affordable price points, the demand has been a bit slower,” Gala said.

“If you also look at key Metro data points, ticket sales under Rs 30 lakh have been subdued,” he said.

But as interest rates rise further, the affordable segment may show more demand as it is still under-penetrated, Gala said.

While demand has remained resilient so far, rising interest rates will inevitably impact volumes as we approach the third or final quarter of this fiscal year, Emkay Global analysts wrote in a statement. recent note.

“Some cost subsidy by the developer and customer ownership envy would continue to drive home loan growth,” the note said.

While some industry executives expect interest rates to have a dampening effect on home lending, HDFC’s Mistry disagrees.

“Whether interest rates are high today or not, it won’t make much difference because if they’re high today, they could go down in two or three years. If they’re low today, they’ll come back up in two or three years,” he said.

Home loans are long-term loans where the borrower is likely to see cycles of rising and falling rates.

Immediately after a rate hike, applications for new home loans decline slightly, but once 8-10 days pass, “people just adjust to the new interest rate environment and growth returns,” he said. he declared.

Home lending dynamics are unlikely to improve from current levels, but there is also no real expectation of a substantial deterioration over the next two quarters, according to a banking analyst. investment, who spoke on condition of anonymity.

With the festive season approaching which is expected to bring more discounts into the fray, there might even be further growth in demand. But after that, “there could definitely be some slowdown,” India Ratings’ Gala said.

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