Home Loan Demand Declines Amidst Rising Real Estate Prices and Interest Rates
The escalating cost of real estate, coupled with increasing interest rates, is contributing to a significant decline in the demand for home loans across India. This development casts a shadow over the Indian realty market, which, despite experiencing overall expansion, continues to pose affordability challenges for many middle-class Indian citizens. While the easy availability of home loans previously fueled a period of robust growth (2002-2006), the current climate paints a different picture.
Rising Property Prices: A Key Deterrent
Major banks identify the skyrocketing prices of residential properties as the primary reason for the shrinking demand for home loans. A recent survey indicates that property prices, especially for furnished and semi-furnished residences in metropolitan and emerging metropolitan areas, have reached unprecedented levels. This surge in prices is creating a formidable barrier for potential homebuyers.
The Impact of Rising Interest Rates
The increasing property prices are not solely responsible for the slump in home loan applications; the continuously escalating interest rates over recent months have also played a notable role. The Associated Chambers of Commerce (ASSOCHAM) observes that this notable rise in loan rates has harshly affected the housing sector, hindering prospective homeowners and investors. The sector's growth rate fell to 26.6 percent in 2006-07, a marked decrease from 29.1 percent in 2005-06. The interest rates on home loans, which averaged around 7 percent in 2002, have dramatically risen to between 12 and 14 percent in 2007, thus affecting the delicate balance of affordability concerning both loan extension and acquisition for homeowners and banks alike.