High Interest Rates Not Deterring Homebuyers, BoB Research Report Shows

High interest rates don’t impact housing demand as single-detached home buyers are aware they can go up and down over the life of their loan, according to a Bank of Baroda.

Lending rates have been on the rise since May this year after the Reserve Bank of India (RBI) made the first hike in the benchmark lending rate. The repo rate has risen 140 basis points since May.

The “India Housing Loan Scenario” report indicates that the housing segment has shown resilience post-pandemic.

The strong momentum in housing loans by public sector banks (PSBs) and other financial institutions also points in the same direction. Government and RBI measure to support this sector, along with lower prices and interest rates, have helped to cushion the impact of the Covid-19 pandemic on this sector.

With economic activity normalizing and growth picking up, housing demand is poised to pick up, suggesting an increase in demand for housing loans, said the report authored by Bank economist Aditi Gupta. of Baroda.

“On the other hand, higher interest rates may deter some borrowers from the housing market, the demand for housing as a safe investment is likely to offset this.

“Additionally, single-family home buyers will be prepared for interest rates to rise and fall over the life of their loan and therefore cannot be deterred from such purchases,” he said.

He further stated that the growing importance of home loans can be measured by the fact that the ratio of outstanding individual home loans by commercial banks and housing finance companies (HFCs) to the GDP of the India has grown tremendously over the past ten years.

From around 6.8% of GDP in 2010-11, this ratio rose to 9.5% in 2020-21.

Even in 2019-2020, despite the negative Covid-19 shock which severely affected the housing sector, the housing loan ratio rose to 9.8%, he said, adding that the following year , the sector noted a remarkable recovery from the pandemic and the mortgage-to-GDP ratio rose to 11.2 percent.

From Rs 3.45 lakh crore in FY 2010-11, the banks’ housing loan portfolio grew to Rs 15 lakh crore in 2020-21, registering an annual growth of 14.3%.

PSOs are the dominant market player in the housing loan segment, accounting for 61.2% of commercial banks’ total housing loan portfolio in FY 2020-21.

However, it should be noted that the share of PSOs saw a sequential decline of around 70% in 2010-2011, he said. From 21.3% in 2010-11, the market share of private banks has increased to 35.2% in 2020-21.

The report also states that from Rs 2.6 lakh crore, the HFC housing loan portfolio grew to Rs 6.6 lakh crore in 2018-19 and remained stagnant at the same level the following year.

In FY 2020-21, outstanding HFC home loans increased moderately to Rs 7.1 lakh crore as housing demand remained subdued amid the Covid-19 pandemic.

(Only the title and image of this report may have been edited by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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