The Hindu Business Line : Demand for home loans slowing down

Mumbai, Sept. 2 The demand for home loans has slowed down over the past few months due to rising property prices and high interest rates. The number of applications for home loans and registrations of new flats have come down, say bank officials and analysts.

Interest rates for home loans have seen a steady rise for over a year now with the Reserve Bank of India following a tight-money policy, to ensure price stability and growth.

The stricter prudential norms for the real estate sector have pushed up property prices across the country. This has led to a drop in enquires with builders and with banks.

According to Mr Sunil Rohokale, General Manager, Mortgage Finance and Real Estate, ICICI Bank, the declining trend has been noticed since the past three to four months.

“Interest rates have increased by 250-350 basis points in the last 18 months. Also, the property prices have increased by as much as 40-50 per cent in the same period. Customers have been hit by a double whammy,” he said.

This is reflected in a 30-35 per cent reduction in the number of transactions in new homes, he added.

Mr H.N. Sinor, Chief Executive, Indian Banks’ Association, said that there is need for some kind of relaxation of the prudential norms with regard to sectors such as housing, as the sector is seeing a slowdown.

A recent report by Merrill Lynch also said that banks are beginning to shy away from mortgage lending owing to rising rates and emergence of stronger corporate growth opportunities.

High property prices is the main reason for a slowdown in the housing market, since January or February this year, said Mr Sangeet Shukla, Chief General Manager, (Personal Banking), State Bank of India. “While high interest rates don’t contribute much to the cost of the property, they do compound the problem,” he said.

For both ICICI Bank and SBI, housing loans contribute as much as 50 per cent to the retail loan portfolio.

As high interest rates push up the EMI (equated monthly instalment) which affect the repaying capacity of borrowers, clients think twice before taking a housing loan, said Mr Nandan Srivastava, General Manager, Retail Banking, Bank of Baroda.

“The inflow of loan applications for home loans has not been up to expectations for the last couple of months,” he admitted.

Bank of Baroda recently announced a cut of up to 50 basis points in the home loan rates on new loans sanctioned from September 1 onwards. Mr Srivastava said that it was merely to align the rates with the market and does not indicate that other players may reduce their lending rates. “We are trying to fall in line with what our peers are offering. The rate of interest on our asset products depends on the cost of funds and we have to keep our spreads and margins in mind,” he pointed out.

Mr Rohokale also ruled out the possibility of a reduction in lending rates, going by signals from the RBI such as the CRR hike and the stricter norms for ECB, which he said are cautionary in nature.

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