Riding the Youthful Wave: India’s Housing Demand to Remain Strong
India’s largest private mortgage lender, Housing Development Finance Corporation’s managing director, Keki Mistry, predicts that the country’s youthful population will fuel housing demand for years. According to Mistry, the upward trend in rising incomes, new job opportunities, and an increase in demographic growth have made housing more affordable, which adds confidence that growth will remain strong for some time. He also stated that rising interest rates, which have hurt housing demand in other economies, have just occurred in India, where mortgage rates have been historically high, and the rates will not have a significant percentage increase.
The housing loan to GDP ratio in India has nearly doubled every decade this century, from 3.2% in 2001 to 10.6% in 2021-22, according to the National Housing Bank. While India still has one of the world’s low home loans to GDP rates, the country’s rising incomes, relatively steady house prices, and government incentives are making it a more practical prospect for many middle-class consumers. Housing demand has been on the rise since the Indian economy recovered from the pandemic, and consumers borrowed faster than businesses, buying goods from homes to cars or financing education.
Mistry believes that all of these young people will reach an age where they have to buy a house, and this pattern will sustain the substantial growth in the industry. Robust home purchases have spurred a 21% increase in HDFC’s net profit for the year ending March, to INR 460 billion (about $5.6 billion), as development picks up in smaller cities across the country. The merger between HDFC and HDFC Bank is also expected to close in July, which will be India’s largest-ever business combination.
Yet, competition has been increasing in the Housing Finance Companies (HFCs) space, mainly due to the approval of new HFCs. Other factors leading to heightened competition are the availability of relatively cheaper bank funding due to the accommodative rate environment; and the incumbent HFCs, which are facing a severe liquidity crunch amid asset-liability mismatches.
Furthermore, the Indian real estate market has been undergoing a massive transformation, with the emergence of new technologies and the impact of COVID-19. The industry has been traditionally unorganized and lacked transparency due to limited data availability. However, with the introduction of new technologies, data sharing, and the digitization of the industry, the landscape is evolving. While the pandemic has disrupted all segments of the market, residential projects appear to be more adaptable to the new normal. Developers are focusing on providing better amenities and redesigning the living spaces to cater to the emerging customer needs. Urbanization is also driving the development of affordable housing for the country’s urban population.
Furthermore, the Indian government has launched several schemes to boost affordable housing in the country. It launched the Pradhan Mantri Awas Yojana (PMAY) in 2015, an affordable housing initiative aimed at providing housing to all by March 2022. Under the scheme, eligible beneficiaries receive a subsidy of INR 2.67 lakh ($3,460) on the purchase of their first house. As of March 2021, around 80% of the sanctioned houses under PMAY have been completed.
In conclusion, India’s housing demand is expected to remain strong, driven by a combination of rising incomes, demographic factors, and government incentives. The real estate sector is undergoing a significant transformation, with new technologies and the impact of COVID-19 leading to innovative approaches to design and construction. The government’s measures to boost affordable housing and promote homeownership are also contributing to the growth of the industry. The sector, however, faces stiff competition and challenges, such as low home-loan to GDP ratio, severe liquidity crunch grim economic situation, and low affordable housing demand in metros. However, the industry is expected to grow and become more organized, transparent and data-driven in the future.
Summary:
India’s housing demand will remain strong, fueled by a youthful population and a combination of rising incomes, demographic factors, and government incentives. With the introduction of new technologies, digital market, and data sharing, the real estate sector is undergoing a significant transformation, leading to innovative approaches to design and construction. Rising interest rates, which have hurt housing demand in other economies, have just occurred in India, where mortgage rates have been historically high, and reforms are pushing for a more organized and transparent industry. However, the sector faces stiff competition and challenges, such as low home-loan to GDP ratio, severe liquidity crunch grim economic situation, and low affordable housing demand in metros.
About the author: I am XYZ, and I have been writing about the Indian real estate industry for the past five years. My experience in the sector has given me a unique perspective on the market’s challenges and opportunities.
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The head of India’s largest private mortgage lender has predicted that India’s youthful bulge will fuel housing demand for years, as rising incomes in the world’s most populous country have made housing more affordable.
“What gives me confidence that growth will remain strong for a number of years is the fact that India it has a young population,” said Keki Mistry, managing director of the Housing Development Finance Corporation (HDFC), in an interview with the Financial Times at the company’s headquarters in Mumbai.
Well over half of India’s population is under the age of 30, while the average first-time home buyer is between the ages of 37 and 38, Mistry said.
“All of these young people will reach an age where they have to buy a house,” added the four-decade industry veteran. “In my view, there will be a structural demand for housing and then a demand for housing finance.”
Mistry’s comments come as the 68-year-old prepares for partial retirement in a non-executive role, as HDFC prepares to merge with subsidiary HDFC Bank, India’s largest private lender, in what will be India’s largest ever business combination. The merger is expected to close in July.
As the Indian economy has recovered from the pandemic and its population has grown to become the largest in the world this yearconsumers borrowed faster than businesses to buy goods from homes to cars or to finance education.
In March, banks increased the amount of personal loans they took out by 20.6% year-on-year, compared to 12.6% in the same month of the previous year.
The Reserve Bank of India, which publishes the data, said the jump was “primarily driven by ‘housing loans,'” while loans to industry grew at a slower 5.7% in March, slowing from a 7.5% increase from the previous year.
Mistry said he isn’t concerned about the rapid growth in unsecured loans. “Even in unsecured loans there has never been any real credit issue that ever popped up,” he said, arguing that “regulations in India are extremely strict.”
Robust home purchases spurred a 21% increase in HDFC’s net profit for the year ending March, to 460 billion rupees (about $5.6 billion), as development picks up in smaller cities across the country. India.
India still has one of the world’s lowest rates of home loans to gross domestic product, although that ratio has nearly doubled every decade this century – from 3.2% of home loans to GDP in 2001- 2, at 10.6% in 2021-22 – according to the National Housing Bank.
However, rising incomes, relatively stagnant house prices and government incentives are making buying a house or apartment a more realistic prospect for many middle-class consumers. “Accessibility is much better today than it has been historically,” Mistry said.
Meanwhile, rising interest rates, which have hurt housing demand in other economies, have just occurred in India, where mortgage rates have been historically high.
“If 1% goes up to 4 or 5%, that’s a huge increase,” Mistry said. “In India, interest rates have always been high, so when rates go up . . . the percentage increase in the interest rate is not that significant.
Mortgage interest rates range between 9 and 14 percent in India, according to non-bank lender Bajaj Finserv. In the UK, by comparison, the average variable mortgage rate stood at 7.4% in April, according to government statistics.
Mistry, who has worked for HDFC since 1981, said consumers have also become increasingly comfortable with taking loans: “The fear of borrowing money, which was there 50 years ago, is not there today.” .
https://www.ft.com/content/b380f48f-2e9a-4bcb-a372-8eb9b58ca290
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