Strong growth observed in investments in housing and purchase of vehicles by households has pushed private consumption, a Finance Ministry report has shown. It also said households remain optimistic about future earnings.

“Thanks to the release of pent-up demand, household investment in physical assets grew much faster in FY22, compared to the pre-pandemic decade (FY12 to FY20). There has been steady double-digit growth in housing loans since May 2021 till the present,” a Monthly Economic Review prepared by the Economic Affairs Department of the Finance Ministry said. Quoting data from reality research firm, Anarock, the report said the housing sector recorded 36.5 per cent volume growth and 47.7 per cent value growth during FY23.

Vehicle loans, an important indicator of growth in private consumption, have grown in double-digits since April 2022. Outstanding NBFC retail loans witnessed 29.6 per cent growth in FY23, with 36 per cent of the loans being used for the purchase of vehicles. Overall lending by NBFCs to the household sector rose from ₹0.2-lakh crore in FY22 to ₹2.4-lakh crore in FY23, a nearly 11.2 times jump, the report added.

Price appreciation

The report gathered evidence from the Monetary Policy Committee Report of October, which said credit to the housing sector recorded consistent double-digit expansion (13.8 per cent in August), while vehicle loan growth strengthened to 20.6 per cent. Credit card loans maintained high growth (30 per cent in August), reflecting inter alia the buoyancy in demand from contact-intensive services. One reason for higher investment in housing could be price appreciation. According to the RBI’s all-India housing price index, housing prices increased by 5.1 per cent y-o-y in Q1, the highest in 19 quarters, led by Bengaluru, Delhi and Mumbai.

“Households are making a smart investment choice by acquiring physical assets, taking advantage of larger credit availability from banks and after a long period of elevated returns in financial assets. Given that the real estate sector has a vast network of forward and backward linkages (such as cement and steel, among others, besides various services), the increase in housing demand is inducing broad-based growth and job creation,” Finance Ministry report said.

Households’ share

Of the total gross fixed capital formation (GFCF or fixed investment), households held the highest share of 40.4 per cent in FY22, acquired majorly through ownership of residential properties, followed by the private corporate sector at 34.9 per cent, and the public sector at 24.7 per cent. While the Centre’s relentless focus on capital spending has been propelling aggregate investment since FY22, there are strong indications that households’ increased propensity to invest in residential properties will drive further investment, the report said.

It listed confidence of households in their future employment and income prospects for increased demand for housing and vehicle loans. This is further supported by the Future Expectations Index of the Consumer Confidence Survey of RBI, which has hit a four-year high in the latest survey round.

“The general economic outlook, as well as prospects for employment, income and spending are expected to improve further over the next year. Households remain highly optimistic about future earnings even though sentiment on current earnings remained around its July level,” the report concluded.

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