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Tuesday, November 29, 2011

Home loans grow despite rising interest rates, property prices

High residential property prices in some parts of the country and rising interest rates have not dampened the appetite for home loans in the first half of the current financial year (April-September 2011), going by data from the National Housing Bank and the Reserve Bank of India.

In the first six months of the current financial year, the collective disbursement of home loans by 54 HFCs (housing finance companies) was 10 per cent higher at Rs 49,458 crore against Rs 44,870 crore in the corresponding year-ago period.

Similarly, in the first six months of the current financial year, the collective disbursement of home loans by 47 scheduled commercial banks was up six per cent at Rs 20,779 crore against Rs 16,221 crore in the corresponding year-ago period.

“Due to availability of affordable houses on the periphery of metros and in Tier-II and Tier-III cities, demand for housing finance has been good,” said Mr R.V. Verma, Chairman and Managing Director, NHB.

First-time buyers seeking affordable houses are not deterred by high interest rates if they are able to get ready possession of flats, priced up to Rs 25 lakh, he added.

NHB is the regulator and supervisor of HFCs and provides refinance to banks against home loans.

Lending rates move up

With the RBI increasing the interest rate at which it lends overnight funds to banks (repo rate) six times since the beginning of the current fiscal to staunch the rising tide of inflation, the latter have steeply upped their lending rates.

In the financial year so far, the central bank has raised the repo rate from 6.75 per cent to 8.50 per cent. Banks responded to this monetary tightening by re-aligning their Base Rate upwards from the 8.25-9.50 per cent band as on April 1, 2011, to 10-10.75 per cent now.

Banks determine their actual lending rates on loans and advances with reference to the Base Rate and by including such other customer-specific charges as considered appropriate.


Housing prices, according to the RBI's latest report on macroeconomic and monetary developments, have risen amidst falling transaction volumes in the April-June 2011-12 period.

The RBI's quarterly housing price index increased by about 8 per cent for the second successive quarter at an all-India level, while the transactions volume index that had fallen sharply in the July-September and October-December 2010-11 periods dipped by about 7 per cent in April-June 2011-12 period.

Residex movement

NHB's Residential Housing Price Index (Residex) shows that residential housing prices in six cities have risen in the July-September 2011 quarter over the previous quarter (April-June, 2011).

The city which has shown the maximum increase is Pune (13 per cent) followed by Chennai (9 per cent), Mumbai (7 per cent), Delhi (5 per cent), Jaipur (2 per cent) and Bengaluru (1 per cent).

There are 9 cities which have shown decline in prices over the previous quarter with maximum fall shown by Kochi (-9 per cent) followed by Hyderabad (-8 per cent), Bhopal (-7 per cent), Surat (-7 per cent), Faridabad (-6 per cent), Ahmedabad (-4 per cent), Lucknow (-4 per cent), Patna (-3 per cent) and Kolkata (-2 per cent).

The Residex tracks the housing prices in the select 15 cities.

The Residex takes into account the price trends for residential properties in different locations and zones in each city as per classification devised for the purpose.

“The continued rise in residential housing prices in cities such as Mumbai can be attributed to investor interest.

“In cities such as Chennai and Pune, the rise could be due to genuine consumer demand. In the case of the nine cities where the prices have fallen, it is a clear indicator that demand is softening on account of the prevailing high prices,” said Mr Verma.


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