Despite the boom in real estate sector, home loans to GDP ratio in India continues to be a dismal 5 per cent as against 50 per cent in US and UK.

These observations were made by the Associated Chambers of Commerce and Industry of India (Assocham), which also pointed out that since buying a home requires huge investment, higher home loan GDP ratio is necessary as 90 per cent of borrowers are the first time borrowers.

“At present, India has a housing shortage of about 19.4 million units of which 6.7 million is estimated for urban sector and 12.7 million units in rural. However, the demand is set to shoot up to 45 million units for both rural and urban areas by 2012,” said Assocham president Venugopal N Dhoot.

The average real income of urban and rural sector is likely to grow by 5.7 per cent and 3.6 per cent respectively by 2025. Moreover, India’s middle class is expected to expand by more than 10 times from its current size of 50 million to 583 million in next 18 years.

All these estimates work out to make a strong case for higher home loan GDP ratio so that India and its population is able to keep a pace for meeting the demand for housing units, said Dhoot. Commenting on impact of rising home loan rates, the Assocham paper states that rates have shot up from 7 per cent in 2003 to 12 per cent in 2007 with its impact massively following across the board including genuine buyers, speculators, real estate developers and bankers.

The paper also points out that share of housing loans in total personal loans have been rising since 2000-01. It has increased from 37.2 per cent in 2001-02 to 48.6 per cent in 2004-05. Home loans constituted 52.7 per cent in the total household credit in the year ended March 2006, marginally up from 52.5 per cent in the previous year. Housing together with agriculture accounted for more than two-third of incremental priority sector lending in 2005-06.

Home loans formed 11 per cent of the total outstanding credit of scheduled commercial banks in March 2005 up from just 2.4 per cent in May 1990. The sales value of housing construction has witnessed an exceptional leap from Rs.17.61 crore in 1991 to Rs.4,182.67 crore in the year 2006. Lower interest rate regime has played a pivotal role in the progress.

Source: The Indian Express
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  • Who's to take the call..!

    Definitely, the figures press that it is time for Indian banking and finance industry to take the call.

    Indian populace also expects this industry as reform oriented rather than the one trying to extort them with incomprehensive legal arrangements and spiraling re-payment plans.
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