Cautious Borrowing Allows India to Expand Loan Efforts reports Payday Ninja
San Francisco, CA (PRBuzz.com) November 19, 2012 -- Raghavendra Deshpande took out a 20-year home loan seven years ago in order to buy a two-bedroom apartment in Mumbai. He now hopes to have the residence paid off in three years.
"I don't want to have debt for long, I want to be in control," said Deshpande, 41, a project manager at Itek Business Solutions, who took a 1.3 million rupee ($23,921) loan for his 1.8 million rupee property. "Interest rates matter too. If I continue my loan for a longer tenure, my interest payments will be higher than the principal loan amount."
Home loan debt sits at 8% of the gross domestic product, which is around one-tenth of the U.S. and European levels currently, and will grow another 15% annually for the next half-decade. It will likely reach 13% of the GDP the first quarter of 2015, according to Emkay Global Financial Services Ltd., a Mumbai-based Brokerage.
While Indians continue to be drawn to financial services, technology, and manufacturing jobs in major cities such as Mumbai, more young professionals are cautiously borrowing to buy homes.
Loans have an average of 13 years when originated, and are repaid in less than six years, according to the Housing Development Finance Corp (HDFC), which is India's biggest mortgage lender. That efficient payback statistic helps banks keep the bad loans in check, and to expand their lending. It has also resulted in driving up home prices, which in turn leads to world gains that have helped in the past decade as it quadrupled through the end of the year.
"People in India are very debt averse," Keki M. Mistry stated. She is the Chief Executive Officer of HDFC, and has seen HDFC forecast loan growth to expand as much as 20% on the over the next handful of years. The average home-loan size has climbed 10% to 2.15 million rupees this year. It had been at 1.95 million a year ago, according to the HDFC, pressing India to find loan possibilities is the urban shortage that it currently faces. The government estimates the shortcoming at 18.8 million in all urban areas. That shortfall will lead to an inadequate housing sector for nearly a quarter of the 81 million households living in urban india.
"India's demographic dividend is a major driver for the mortgage finance market," said Brian Hunsaker, a Hong Kong- based banking analyst at brokerage Keefe, Bruyette & Woods. "A relatively younger population than other geographies ensures more people will start earning in coming years or relocate, triggering demand for mortgage loans."
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