Indian Mortgage Loans increase 15% despite ‘debt averse’ demographic

Raghavendra Deshpande took a 20-year home loan in 2005 to buy a two-bedroom apartment in Mumbai. He plans to have it all repaid within 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 ($23,908) 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.”

The loans, which average 13 years at origination, are repaid in less than five and a half, according to Housing Development Finance Corp., India’s biggest mortgage lender.

Home loan debt, at $104 billion or 8 percent of gross domestic product, about a 10th of U.S. and European levels, will grow about 15 percent annually over the next five years, to 13 percent of GDP by March 31, 2015, according to Emkay Global Financial Services Ltd., a Mumbai-based brokerage.

As Indians are drawn to financial services, technology and manufacturing jobs in cities such as Mumbai, Bangalore and New Delhi, more young professionals are cautiously borrowing to buy their homes. The loans, which average 13 years at origination, are repaid in less than five and a half, according to Housing Development Finance Corp. (HDFC), India’s biggest mortgage lender. That helps banks keep bad loans in check and expand lending, and it has driven up home prices, which led the world in gains over the past decade, almost quadrupling through the end of last year.
‘Debt Averse’

“People in India are very debt averse,” Keki M. Mistry, chief executive officer of HDFC, said in an interview in Mumbai. HDFC forecasts loan growth will expand as much as 20 percent for the next few years. The average size of a home loan at HDFC climbed 10 percent to 2.15 million rupees this year, from 1.95 million a year ago, the lender said.

India faces an urban housing shortage of 18.8 million units, according to government estimates. The shortage will lead to inadequate housing for about a quarter of the 81 million households that live in urban India, according to a report.

“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.”

This demand is prompting optimism among India’s lenders. Mortgages account for almost half of retail loans by the banking sector, according to data from the Reserve Bank of India. Mortgage loans constitute 9.3 percent, or 4.2 trillion rupees, of the total loans by banks in India as of Sept. 21, data from the central bank showed. By comparison, home loans in Singapore make up 31 percent of total advances.

India had the biggest rise in housing prices in the world in the decade to 2011, according to a study released by Lloyds TSB International in June. Prices in India grew 284 percent over the 10-year period compared to Russia’s 209 percent increase and South Africa’s 161 percent gain. China clocked a 47 percent increase, the data from Lloyds showed.

Via – Bloomberg

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