Sunday, November 04, 2012

Loan growth stonewalled by surge in house prices, crashes to 5-month low as buyers fail to turn up

Its Diwali and all as per the norm, this is the season for making big purchases like houses and cars. Unfortunately this year is turning out to be damp squb. Very high inflation has pushed daily budgets of most middle-class citizens to the brink. Nobody in the right mind is making any big purchases. Anybody with an account with a bank is hounded by retail bankers pushing loans and investment. Most are not buying the bait. Existing loan owners have seen their EMI tenure extended by 10 years to a maximum of 30. One friend of mine complained he has been servicing the interest for the past 2 years and has added almost nothing to the principal. The flat now has cost him more then what he has paid even after regularly paying the EMI. 

The black magic of compounding of loan interest is only experienced by the borrower. 

Brokers tell me that the market has a gone silent for loan properties over 1 Cr in Mumbai. The only buyers in the market are those who trade up/down their existing properties depending on their need. No Gujarathi NRI's are interested in the market. Hurricane Sandy has hit a  huge number of Gujarathi's business owners in NY and NJ. I just heard from one who wants to dispose of his Mumbai property.. Here are pictures from Hurricane Sandy. The devastation to property is just mind numbing.  With so much damage to houses it seems that housing rental market is going to give the newly displaced a new shock. 

Economic Times  article is here

MUMBAI: Growth in home loans has slumped to a five-month low despite banks showering potential buyers with attractive schemes and lower rates due to soaringreal estate prices. 

Buyers are holding back since an over-24% increase in prices in the past one year is putting homes beyond their reach despite banks lowering interest rates by 100-150 basis points in the past four months. A basis point is 0.01 percentage point. 

Home loans have grown by 11.2% year-on-year in September, compared with 15.6% in the same month a year ago. The latest growth rate for home loans is the lowest since April. 

"Interest rates have a limited role to play in house sales," said VK Sharma, CEO at LIC Housing FinanceBSE 0.54 %, India's second-biggest mortgage lender. "Home prices affect sales more than interest rates. If the house price range is within the capacity of the middle class, then sales pick up." 

Facing slowing demand for loans from corporates, banks have been pushing retail loans, especially mortgages, since it is one of the safest forms of lending. But steep prices are stalling sales. More than 80,000 flats remain unsold in Mumbai and the financial capital has lost its crown as the fastest-growing market.