The Covid-19 pandemic has made people aware of the importance of owning a home. People prioritize buying a house over renting it before an unpleasant consequence occurs.
According to the recent report by ASSOCHAM (Associated Chambers of Commerce and Industry of India), the housing finance sector in India has expanded at a CAGR of 15% over the past few years, despite a low ratio between real estate credit and gross domestic product of 10.4%.
During the pandemic, the Reserve Bank of India (RBI) cut repo rates, which made buying a home more rewarding as home loan interest rates fell. But, in 2022, the repo rate and inflation are exorbitant, which has led to high interest rates for home loans.
Apart from this, the festive season provides an opportunity for the real estate market to gain more demand and sales with new programs and discounts. But what’s on the agenda for home sales this festive season, as the rate of inflation rises?
In an interview with BW Businessworld, Y Viswanatha Gowd, MD and CEO of LIC Housing Financediscussed trends and forecasts for housing sales at upcoming festivals this year.
Is the rise in RBI repo rates a concern for housing finance?
In terms of inflation, economies around the world have been reeling from supply chain pressures and soaring crude oil prices. The ongoing crisis between Russia and Ukraine has further accentuated the problem. The Indian economy has performed very well, registering exceptional growth rates despite numerous headwinds.
The Government of India (GoI) and the Reserve Bank of India (RBI) have played a crucial role in steering the Indian economy through the aftershocks of the covid 19 pandemic. The changes were more structural in addition to the multitude of relief programs helping individuals and businesses. After keeping the repo rate at 4% for more than two years since the start of the covid 19 pandemic, it was only natural that repo rates should rise in tandem with other global economies.
RBI had to fight rising inflation by raising the repo rate to its current level of 5.4%. I expect the RBI to continue its measured approach in the short term and maintain an environment conducive to growth.
How does a rise in inflation and the repo rate affect the housing finance industry?
Today, in India’s major metropolitan markets, residential and commercial inventory levels are falling due to a pick-up in demand as sectors open up. Ever-lower mortgage rates offered by lenders since the start of the pandemic have given further impetus to home sales. Many borrowers have benefited from this, as evidenced by the level of disbursements that have taken place over the past twenty-four months, exceeding pre-pandemic levels.
Traction is also coming from homebuyers who either purchased their first home for personal use or chose to invest in another property during this period. Despite rising interest rates, I don’t expect any major shifts in this consumption pattern as home loan interest rates are still at similar or lower levels than we experienced prior to March 2020. .
More importantly, the demand for well-designed and comfortable accommodation continues to rise as more and more Indians continue to work in a hybrid working environment. Even factoring in a slight increase in interest rates from here, EMIs remain affordable and should not deter Indian consumers from buying homes. The national economy is growing at a fair pace, which will create more demand.
What was the demand for housing finance during the Covid 19 pandemic?
Considering the debilitating impact of the pandemic on the personal finances of most Indians, demand for housing finance has been quite good over the past two and a half years. This shows that home ownership is an aspiration for Indians. The Covid situation has only re-emphasized the importance of home ownership and the need for large, comfortable residential units, especially for young couples with children and elderly dependents.
Consumer preferences were shifting from compact houses to those with large and expansive rooms, as well as the need for recreation spaces and other amenities within the premises of the building.
Additionally, with remote work now being preferred by employees and organizations, we can see strong demand and traction even in non-metro markets as migrant workers of old want to stay in their hometowns. The final boost was provided by the low interest rate regime that has prevailed for nearly thirty months since the start of the pandemic and has undoubtedly helped many fence keepers to take the plunge and buy the home of their dreams.
During festivals people choose to buy their own properties, so do you think the demand for housing will increase this year?
We need to understand that as the Indian economy bounces back above pre-covid activity levels, the same trend will be seen with consumer spending. We can expect more Indians to splurge on essentials, including houses. Home ownership has become a necessity rather than a luxury.
If we are to analyze credit growth rates across different geographies and sectors in India today, it is clear that we are at the start of a long-term bull cycle and it seems unlikely that demand will decline anytime soon. All indicators point to even stronger growth in demand over the upcoming holiday season, as consumers rush to take advantage of attractive prices and freebies from manufacturers.
To generate interest, we have granted a preferential processing fee of only Rs 3000 for home loans up to Rs 15 crore. Customers can benefit from the home service by submitting their requests online or via the LIC HFL HomY application. We are constantly improving our digital capabilities to ensure operational efficiency while providing comfort and ease to customers throughout the lending journey. We remain committed to making the home buying journey easier for thousands of Indians looking for their dream home this festive season.