Demand has gone up for home loans in India on account of the growth in the affordable housing segment. Developers are steadily shifting towards developing budget apartments for low and mid-income buyers after several years of emphasizing on premium luxury properties with amenities like Jacuzzis and golf courses. There is a clear increase in demand for home loans which is spurred by sales of properties that are priced lower than Rs.30 lakhs.
Developers got an incentive to change their strategy on account of the 2017 Union Budget which offered interest concessions and tax benefits for the affordable housing category. Close to half of bank credit this year encompassed housing loans in a scenario where corporate loan demand remained near non-existent. According to the Chairman at HDFC, Deepak Parekh, loan applications in January 2017 went up by 21% in comparison to December 2016. In February 2017, loan applications went up by 24% while loan applications went up by 44% in March 2017 as compared to the earlier month.
According to Parekh, the average loan size for HDFC has gone down to Rs.26 lakhs and this growth is being driven by affordable homes and not premium properties. As per reports, Ahmedabad is the biggest contributor in terms of affordable homes which are priced lower than Rs.30 lakhs followed by Pune (for homes up to Rs.50 lakhs). Some zones in the Mumbai Metropolitan Region are also big contributors to the affordable housing category. Housing finance companies are expecting growth of 25% in the affordable homes segment taking into account the subsidy provided as part of the PMAY (Pradhan Mantri Awas Yojana). The scheme is available till December 2017 and offers 4% subsidy on home loans up to Rs. 9 lakhs for those earning up to Rs.12 lakhs annually and 3% subsidies on loans up to Rs. 12 lakhs for those earning up to Rs. 18 lakhs annually.
According to the Managing Director at Liases Foras, Pankaj Kapoor, maximum growth in sales of 31% was posted in the affordable category for homes that were priced below Rs.25 lakhs. There was also de-growth of 4% in sales in the ultra-luxury category. The period between October and December 2016 witnessed a minor slump on account of demonetization but demand rose healthily between January and March 2017. Leading developer Niranjan Hiranandani also stated that sales for apartments lower than 600 sq. ft. at his project in Thane had been rising steadily.
According to mortgage player Indiabulls Housing, borrowers asking for loans up to Rs.24 lakhs will have an effective interest rate of only 0.42% after taking all subsidies and tax benefits into account. The Government is making efforts to boost affordable housing under PMAY for economically weaker sections (EWS) and other low-income groups for boosting mass housing segments in peripheral zones with attractive interest subventions. The PMAY scheme apart, developers building affordable projects will also be exempted from having to dish out taxes on profits for 5 years, commencing from 2016 instead of 3 years. These are majorly 300 sq. ft. homes in metro cities and 600 sq. ft. homes in non-metro zones. According to CLSA, the investment bank, the decision to allow a whopping 90% of one’s provident fund money for buying a home is also driving demand hugely for affordable homes. Growth in the prime home loan category is going through a phase of moderation while the affordable housing segment looks poised to grow at an even faster pace.