Ravi Subramanian
India’s housing market is poised for an upcycle with demand perking up in the second half of 2021 on the back of government initiatives, record-low interest rates, stamp duty cuts, increased work-from-home mandates, and green shoots of revival in consumer demand. Added offers and benefits extended by housing financiers—banks and non-bank lenders—have also aided the favourable shift in consumer sentiment towards property and home ownership.
Rising Property Sales
Housing sales across major cities are at an all-time high and a majority of this demand is fueled by the end-use buyer. Accordingly, housing inventories across the top seven cities also dived to a 32-month low in December. Further, interesting change in consumer patter was the sale of houses in peripheries of metros – semi urban demand has risen much more than metro demand, with reduced priority to office proximity due to the work-from-home culture and many MNCs, start-ups and cost-conscious companies considering a hybrid model in 2022.
RBI data showed that housing finance companies disbursed loans worth Rs 2.11 lakh crore in Apr-Oct 2021, almost 14 percent higher than a year-ago. Home loan growth across lenders has surpassed the pre-COVID levels as of December 2021. Banks are also increasingly eyeing the home loan market share in 2022.
Property prices are going up
Tracking the buoyancy in the number of units sold, prices of houses are also rising across the country. The latest All-India Housing Price Index, compiled by the Reserve Bank of India, rose 2 percent on-year in the first quarter of FY22 as compared with a 2.7 percent growth in the previous quarter and 2.8 percent in the year-ago period.
Arguably, factors such as rising input costs for materials such as cement and steel pushing up construction costs and prices of units, and the significant reduction in inventory overhang over 2021 are all leading towards a likely increase in housing rates over the coming quarters.
Government incentivizes house-buying
The confluence of these factors combined with the increasing likelihood of an increase in interest rates by the RBI after the recent pick-up in inflation print makes this an ideal time for would-be homeowners to buy a new house. Further, subsidies offered under the Pradhan Mantri Awas Yojana (Grameen) are also set to expire in March 2022. The union budget 2022 is also likely to provide an impetus to the housing for all agenda, given that home ownership in India continues to be low for the low to middle income Indians.
It may be noted that housing prices are closely correlated with both inflation and interest rates. The Consumer Price Index-based inflation print firmed up to a five-month high of 5.6 percent in December, higher by 7 percent on-year—the fastest 12-month increase since June 1982. This rise may force RBI to hike the policy rates in its next Monetary Policy Committee meeting in February. Major lenders have already started factoring in this possibility, as reflected in the recent hike in some long-term deposit rates.
Attractive rates on home loans
The current competitive interest rates on offer from banks and home loan companies, also offer existing home loan borrowers the opportunity to switch their home loans to lenders that offer the best rates. There are umpteen benefits customers can accrue while transferring the balance home loans to another lender, however, it is pertinent that they exercise abundant caution while opting for this by reading the fine print.
In addition to comparing the rates offered by various lenders, customers must look into whether the lower rates are accompanied by reduced monthly payments or reduced loan tenure. They should also look for any hidden costs, pre-closure charges and their impact on overall monthly installments before deciding to switch home loans.
Moreover, customers looking to give a facelift to or renovate their homes, can also opt for top-up or home improvement loans. The rates on these loans are usually much less compared with personal loans, and can help customers avoid dipping into their savings or having to liquidate other assets in order to make their homes better.
In summation, first-time home buyers, new to credit customers, self-employed customers, professionals and salaried customers all would benefit from buying a home in the current financial year, given the soft property prices, low rates and additional benefits on offer. While the low rates by lenders have aided the growth in home sales and housing finance over the last few months, the rates are unlikely to sustain going into the next fiscal. It then also makes sense to opt for home improvement loans as some segment of lenders are looking to hike rates in the coming months.
(The writer is MD & CEO, Shriram Housing finance)
