Are home prices on the rise after remaining depressed in the last two years? If data from the Reserve Bank of India (RBI) is any indication, home prices have gone up during the first quarter ended June 2016 when compared to the same period of last year. Analysts and bankers are attributing the rise to the fall in interest rates and the retail push by lenders.
The RBI’s all-India home price index (base 2010-11=100) has sequentially increased by 5.5 per cent to 231.1 in Q1 of 2016-17 from 219.1 in Q4 of 2015-16. All major cities in the country witnessed an increase in HPI in the first quarter of 2016-17. The All-India HPI recorded annual increase of 7.3 per cent in the first quarter of 2016-17 after moderation over four consecutive quarters from 17.5 per cent in the fourth quarter of 2014-15 to 3.3 per cent in Q4 of 2015-16.
According to the RBI, on an annual basis, Chennai witnessed the maximum increase of 23.9 in the first quarter whereas Jaipur witnessed maximum contraction (-4.4 per cent). On a sequential basis (first quarter of 2016-17 over fourth quarter of 2015-16), Kochi recorded highest home price index increase of 17.6 per cent whereas Jaipur recorded the lowest increase of 0.6 per cent.
“The rise was fairly broad-based. Of the 10 cities tracked by the HPI, nine reported faster year-on-year growth, and prices rebounded faster in non-metro cities than in metro cities. Additionally, the southern cities of Bangalore, Chennai and Kochi saw the highest quarterly momentum of an average increase of 14.4 per cent in quarter-on-quarter as against 4.8 per cent in the other cities,” Nomura said.
“In our view, two factors may be supporting this rebound. First, the 80-85 bps reduction in bank lending rates in this easing cycle. Second, the aggressive retail lending push by banks. Housing loans rose 16.7 per cent y-o-y in August even as industrial credit continues to languish at negative 0.2 per cent,” it said. “Affordability concerns still remain, especially in the top-tier cities, due to elevated property prices relative to income and slow job creation. This casts doubts over the sustainability of this uptrend. The next few quarters should confirm if this is one-off or a change in trend,” Nomura said.
According to the RBI data, housing loans have shot up to Rs 786,900 crore as of August 2016 as against Rs 674,500 crore in August 2015, a rise of 16.7 per cent. Public sector banks have started focussing on home loans in a big way as the sector has witnessed very low level of non-performing assets.
A senior State Bank of India official said, “people in over 92 per cent of our portfolio live in houses for which they have taken loans. They are genuine borrowers and we take care of their capability to pay EMI. We don’t compromise on that. Our loan to value ratio is less than 60 per cent. In the last four years, home prices haven’t gone up. There’s no bubble. In any lending, risk is very much there. You have to take sufficient care on what the risks are. We have a very diversified portfolio. Our concentration is more on the salaried class. We can determine their income very accurately.”
However, rating agencies said delinquencies in India’s loan against property (LAP) portfolio, which have been modest till the last year, could significantly increase in the next four quarters. In the last 2-3 years, there has been considerable concerns on the quality of LAP loans in the system. Amongst the fastest growing segment, there are some concerns about the robustness and resilience of this segment to an economic downturn, especially in real estate. A combination of stagnant property prices especially in metros and large cities, which are the primary markets for medium and large ticket LAP, and squeeze on refinancing due to risk aversion building up in some financiers is bringing the stress to the fore, it said.