“Priority sector” housing loan growth witnessed a sharp moderation in FY23 due to rising property prices and a spike in interest rates. However, “non-priority sector” housing loans recorded strong growth.

FY23 witnessed a sharp divergence in growth rates for priority housing and non-priority housing loans, per an assessment by ICICI Securities.

Growth of non-priority housing loans picked up from 17 per cent in March 2022 to more than 23 per cent year-on-year (y-o-y) in March 2023, I-Sec Research Analysts’ Jai Prakash Mundhra, Chintan Shah and Renish Bhuva said.

However, growth of priority housing loans from the banking system moderated sharply from 6-7 per cent in March 2022 to less than 1 per cent y-o-y in March 2023.

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The analysts’ observed that demand for housing (non-priority as well as priority) in FY24 would be a key monitorable.

Home loans given by Banks to individuals up to ₹ 35 lakh in metropolitan centres (with a population of 10 lakh and above) and ₹ 25 lakh in other centres, are eligible to be classified under “priority sector”, provided that the cost of dwelling unit does not exceed ₹ 45 lakh and ₹ 30 lakh, respectively.

Home loans above the aforementioned threshold are “non-priority sector” loans.

Bankers say there is a need for an upward revision (the last revision was done in 2018) in the housing loan limits for classifying them as a priority sector lending in the wake of an increase in property prices due to a rise in the cost of land, materials and labour. This will give a fillip to low-cost housing for the Economically Weaker Sections and Low Income Groups.

“Flats/ dwelling units that will qualify as priority sector housing are not available even in far-flung suburbs of Tier-I and Tier-II cities, let alone within them. So, there is an urgent need for suitably revising the priority sector housing loan limit upwards,” said a senior public sector bank official.

Home loan rates have jumped 250 basis points since the monetary policy committee embarked on a tightening cycle, beginning May 2022.

Affordable housing

The affordable housing segment has seen a distinct dip in demand over the years slipping to just about a fifth of total sales at the end of March 2023 from nearly 40 per cent in 2019, as high costs and interest rates are pinching the segment.

According to data from ANAROCK Research, of the 1.14 lakh units sold in the top seven cities of India in the March quarter, just over 23,000 affordable homes were sold. That share in 2022 was at 26 per cent, an indicator of how rapidly affordability is becoming an issue for those at the lower end of the income spectrum.

“The notional demand for affordable housing is high, but actual affordability is limited,” said Anuj Puri, Chairman, ANAROCK Group.

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Puri pointed out that housing developers’ profitability margins, already wafer thin to start with have crossed into negative territory due to the high commodity costs that were seen over the last couple of years.

Increasing prices in this segment is not feasible and this has made it difficult for developers to launch affordable homes, leading to a dip in supply as well, he added.

ANAROCK Research showed that in direct proportion to the demand, the supply of affordable homes has also dipped to 20 per cent of the total in the top seven cities in the March quarter, compared to 40 per cent in 2019.