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Property price rise driving home loans

According to bankers, the demand for home loans will pick up as prices fall in the next few months, reports BS Srinivasalu Reddy.

business Updated: Sep 13, 2007 21:44 IST
BS Srinivasalu Reddy

Bankers have put down the recent drop in housing loan off-take to the unprecedented rise in property prices and not the recent rise in interest rates. According to bankers, the demand for home loans will pick up as prices fall in the next few months.



Despite a rise in delinquencies in the personal loan portfolio, including home loans, banks are still banking on home loans for growth.



"Property prices have gone up by about 100 per cent in the West and over 150 per cent in the South. This has affected the affordability of 20-22 per cent of the customers," Sunil Rohokale, general manager, mortgages and real estate division of ICICI Bank said.



"Though we cannot time the fall, property prices are expected to fall by 10-15 per cent across the board except Mumbai, which has different characteristics," Rohokale said at the FICCI-IBA conference on Global Banking — The Paradigm Shift.



Only the areas where speculative investments in real estate is rampant like in Jaipur, Chandigarh, and the suburbs of Bangalore, prices have already fallen substantially.



About 0.5 per cent rise in interest rates will increase monthly instalment by about Rs 30 per lakh or Rs 300 per month on over Rs 10 lakh loan. But a 50 per cent rise in property prices will make it unaffordable.



Earlier talking to

Hindustan Times

, Anil Khandelwal, chairman and managing director, Bank of Baroda said the growth of home loan sanctions have fallen drastically in 2007, compared with the last two years. "The growth in home loans is expected to be around 5 per cent for the first half against 35 per cent seen over the last two years."