What's On The Card For Housing Sector This Festive Season

The Covid-19 pandemic made people realise the importance of owning a house. People prioritising home buying rather then renting it before any unpleasant consequence occurs.

According to ASSOCHAM's (The Associated Chambers of Commerce and Industry of India) recent report, India's housing finance industry has extended at a 15 per cent CAGR throughout recent years, despite having a low home loan credit to gross domestic product proportion of 10.4 per cent.

During the pandemic, the Reserve Bank of India (RBI) cut repo rates making home buying more rewarding as the interest rates of home loans went down. But, in the year 2022, the repo rate and inflation are sky high, which caused high interest rates of home loans.

Apart from this, the festive season brings an opportunity for the real estate market to gain more demand and sales with new schemes and discounts. But what's on the card for housing sales this festive season, as the inflation rate goes up?

In an interview with BW Businessworld, Y Viswanatha Gowd, MD and CEO of LIC Housing Finance, discussed the trends and preditions of housing sales in the upcoming festivals this year. 

Edited Excerpts:

Is RBI's repo rate hike a matter of concern for housing finance?

In terms of inflation, economies across the globe have been reeling under supply chain pressures and runaway crude oil prices.  The ongoing Russia- Ukraine crisis has further accentuated the problem.  The Indian economy has been fairing very well, recording stellar growth rates despite many headwinds.

The Government of India (GoI) and the Reserve Bank of India (RBI) have played a crucial role in steering the Indian economy through the after-shocks of the covid 19 pandemic. The changes were more structural besides the slew of relief packages helping individuals and businesses.  After keeping the repo rate at 4 per cent for more than two years since the onset of the covid 19 pandemic, it was only natural that the repo rates have to go up in tandem with the other global economies.

RBI had to combat rising inflation by hiking the repo rate to its present level of 5.4 per cent. I expect the RBI to continue with its measured approach in the near term and keep the environment conducive to growth.  

How are a hike in inflation and repo rate affecting the housing finance sector?

Across major metro markets in India today, both residential and commercial inventory levels are coming down on account of a demand revival with the opening up of sectors. The ever-lowest home loan rates provided by the lenders since the start of the pandemic gave further push to the sales of housing units. Many borrowers have taken advantage as can be seen by the level of disbursements that happened in the last twenty-four months crossing pre-pandemic levels.

The traction is also coming from home buyers who have either bought their first home for personal use or opted to invest in another property in this period. Despite the increase in interest rates, I expect no major change in this consumption pattern as home loan interest rates are still at similar or lower levels than what we had witnessed before March 2020.

More importantly, the demand for well-designed and comfortable housing units continues to trend upwards as more Indians continue to work in a hybrid work environment. Even if we factor in a modest increase in interest rates from here, EMIs continue to remain affordable and should not deter Indian consumers from buying homes.  The domestic economy is growing at a fair clip which will further create demand.

What was the demand for housing finance during Covid 19 pandemic?

Considering the debilitating impact of the pandemic on personal finances for most Indians, the demand for housing finance was quite good over the past two and a half years. This shows that home ownership is an aspirational thing for Indians. Covid's situation only served to reemphasise the importance of home ownership and the need for comfortable large residential units, especially for young couples with children and elderly dependents.

Consumer preferences were shifting from compact homes to those with large and ample rooms, along with the requirement for recreational spaces and other amenities within the building premises.

Additionally, with remote working now being preferred by employees and organisations alike, we can see great demand and traction even in non-metro markets as erstwhile migrant workers want to stay back in their hometowns. The final fillip was provided by the low rate of interest regime that prevailed for nearly thirty months since the start of the pandemic and has undoubtedly helped many fence sitters take the plunge and purchase their dream homes.

During the festivals, people opt to buy own properties, so do you think amid all things going expensive, housing demand will rise this year?

We need to understand that as the Indian economy bounces back above pre-covid levels of activity, the same trend will be seen with consumer spending. We can expect more Indians to be splurging on essentials that will include homes. Homeownership has become a necessity rather than a luxury.

If we are to analyse credit growth rates across the different geographies and sectors in India today, it is clear that we are at the start of a long-term upcycle and it seems improbable that demand will wane anytime soon. All indicators point towards even stronger demand growth in the upcoming festive period, as consumers rush to take advantage of attractive price points and freebies being offered by builders.

To ignite the interests, we have given a concessional processing fee of just Rs 3000 for home loans up to Rs 15 crore. Customers can avail of doorstep service by filing their applications online or through the LIC HFL HomY app. We are constantly upgrading our digital capabilities to ensure operational efficiency while at the same time giving comfort and ease to customers throughout the loan journey. We remain committed to facilitating the home-buying journey for lakhs of Indians who are looking for their dream home this festive season.