10 MAY, 2022

The real estate industry in India is estimated to contribute about 13% to the GDP of the country by 2025 and the market is expected to reach $1 trillion by 2030. The affordable housing sector and urban housing are expected to contribute to this growth in a significant way and already there is an increase in the demand for home loans. More and more people are looking to apply for home loans, using home loan EMI calculators to check their home loan eligibility, and getting started on their home-buying journey. Here are some of the key factors that are driving the growth of home loans year on year:

  • The home loan interest rates are the lowest they have been in decades. Most lenders are offering a home loan interest rate of around 6.5%. What is astounding is that this rate is lower than the 10-year Government Securities (G-Secs) yield. This means that when you apply for a home loan, your cost of borrowing is lower than the government’s cost of borrowing from the market.

  • Low interest rates along with stable property prices are helping drive the growth of home loans. The second and third waves of the COVID-19 pandemic had a low impact on the housing market and the overall economy compared to what was earlier anticipated. This has improved homebuyers' affordability.

  • The pandemic has changed the needs and the outlook of homebuyers. Months of staying indoors and the shift to remote working have increased the demand for bigger houses. This change is having a positive impact on the overall assets under management growth of the home loan lenders.

  • The demand for home loans is also increasing because of the several benefits afforded to homebuyers recently such as government subsidies and concessions on stamp duty rates offered by certain states.

  • There are a few other things that are working in the favour of home loan financers. These factors include the growth in deposits with lower interest rates and the central bank’s liquidity measures.

  • The Reserve Bank of India (RBI) now allows developers and housing finance companies to raise money from external commercial borrowings up to $1 billion for affordable housing projects.

The prospects for the housing finance industry look bright for the next decade due to all these factors. Socio-economic factors such as an increase in the purchasing power of the younger generations, rapid urbanisation, cultural shifts towards nuclear families, the government’s focus on affordable housing for all and more are steadily increasing the demand for housing and by extension the demand for home loans

Most of the leading housing finance companies have also come up with newer business models and are catering to the needs of different segments with a prioritised focus on the affordable housing segment. Along with the newer business models, digitalisation of processes for increased efficiency and customer experience are also factors driving the growth of home loans.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.