Rising Interest Rates, Realty Prices Mark Doom for Home Loans

Rising real estate prices are resulting in a decline in home loan demand. Although Indian realty market is witnessing a compounding growth, owning a home is still a tough dream for many middle class Indians. Earlier (in 2002-2006), the easy availability of home loans was accelerating the realty growth drive.

But, there is now substantial decline in the demand for home loans. Major banks have blamed the rising property rates as a reason behind the slash. According to a recent survey, the prices of furnished and semi-furnished houses in the metros and upcoming metros are becoming sky scrapping day by day.

Realty prices may pose risk to banking system: RBI

The strong demands for housing and home finance in India are likely to maintain pressure on the real estate prices. The elevated prices along with non transparency may lead asset bubble in the market and pose risk to banking system, says RBI Deputy Governor, Rakesh Mohan. In view of the expected high demand, pressure on real estate prices may continue. RBI has also noted lapses in the implementation of banks’ own approved policies while lending.

High Lending Rates Hit Home Loans Growth

Rising interest rates have hit banks’ consumer finance business, particularly the housing loan segment. In the unsecured loan segment. The growth in personal loans has moderated to 20% at Rs 81,451 crore as on November 23, 2007, as against a 35% growth at Rs 1,05,034 crore in the previous year.

The dip in growth is led by a slowdown in housing loan portfolios of banks. Interest rates on home loans have increased to over 10%, affecting demand. The rising Real Estate Prices have also had an impact on the loan growth.