Soaring rates pull down home loan Expansion

There has been a slowdown in the growth of housing loans with higher interest rates and rising property prices taking homes out of the reach of the middle-class, according to National Housing Bank (NHB) chairman and managing director (CMD) R.V. Verma.

"During the four years preceding to the 2008 crisis, the home loan portfolio for housing finance companies grew 25 %. In 2009-10, it grew by 19 % and in 2010-11 it slowed to 16 % when Rs 62,000 crore was disbursed," Verma told journalists on the minors of the 26th Skoch apex in Mumbai.

Verma pointed out that even in 2009-10 when the economic recovery began, the increase in home loans was about 19 % and that it has now fallen to 16 % makes it quite evident that there is a slowdown. Rising interest rates coupled with the jump in property prices have dented loan demand, he said.

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Verma disclosed that he is already getting reports of inventory pile-up in the real estate sector and said that demand would go down further if interest rates continue to be hiked. The Reserve Bank of India (RBI) has raised key interest rates for the ninth time since March 2010 with a sharp 0.5 % in May this year to rein in inflation. This has led to commercial banks increasing interest rates on home and car loans.

Verma said NHB has raised its prime lending rates to 10.5 % from 10.25 % three months ago and has no plans to hike rates further. NHB, which acts as a regulator for housing finance companies and provides such firms with refinance facilities, has disbursed nearly Rs 12,000 crore as of now, he said.

When asked if NHB plans to sell its stake in Mahindra Rural Housing Finance, Verma said that there was no such plan at present and the company would stick to the investment. NHB has a 12.5 % stake in Mahindra group company, Mahindra Rural Housing Finance Ltd (Mahindra Home Finance).

Source: [Business Today]