After witnessing a phenomenal growth last year, the home loan market is now facing a slowdown as three steps taken by the government — demonetisation, goods and services tax (GST) and the Real Estate (Regulation and Development) Act, 2016, (RERA) — appear to have prompted homebuyers to go slow on contracting bank loans. Despite a significant cut in interest rates and sops to affordable housing, growth in home loans fell to 10.5 per cent in the 12 months ended July 2017, from 17.2 per cent in the same period of last year.
According to data from the Reserve Bank of India (RBI), housing loan outstandings have gone up from Rs 7,81,600 crore in the previous year to Rs 8,63,600 crore in the 12 months ended July 2017. The incremental rise in home loans was only Rs 3,600 crore during the April-July 2017 period, the data show. “The fall in growth has happened despite a fall in home loan rates. A fall in interest rate doesn’t necessarily mean higher loan offtake. Buyers soft-pedalled after demonetisation and GST,” said an official of a public sector bank (PSB).
Anuj Puri, chairman, Anarock Property Consultants, said: “Currently, residential demand is subdued due to the uncertainty caused by many regulatory upheavals — all of which were necessary to make Indian real estate a better marketplace. The government’s unexpected demonetisation move last year put a severe dampener on the resale market and also impacted the primary market to some extent. Even as the markets were recovering, RERA and GST — both of which were predicted and expected — caused considerable confusion among both developers and buyers.”
In many parts of the country, it is widely known that many builders used to demand a cash component from potential home buyers. After demonetisation, this cash component has almost been eliminated with the government putting a cap of Rs 2 lakh on cash transactions. “Buyers backed out soon after demonetisation. It’s only recently they have started coming back. Then the RERA was introduced… which seeks to address issues like delays, price, quality of construction, title and other changes,” said an official of a real estate firm.
While some states including Haryana, Uttar Pradesh and Maharashtra have already notified the RERA rules, many states are yet to come out with a notification. Moreover, consumers will have to shell out more for ready- to-move-in flats under the GST system, as developers with large unsold inventories decided to pass on the higher tax burden to home buyers.
“The triple impact of demonetisation, RERA and now GST have brought dramatic changes in regulatory, tax and business environment in India. The implementation of these landmark developments within a short span of time is bound to create short-term problems till our economy gets accustomed to it. However, in the long term, all these are certain to make the industry more transparent which will boost investors confidence in India,” said Surendra Hiranandani, chairman & managing director, House of Hiranandani.
In June 2017, after the RBI announced in its credit policy a cut in the statutory liquidity ratio by 50 basis points (bps) and reduced the risk weightage on home loans above Rs 75 lakh to 50 per cent from 75 per cent earlier, State Bank of India (SBI) cut the interest rate on home loans above Rs 75 lakh by 10 basis points to 8.55-8.6 per cent with effect from June 15. In May 2017, SBI slashed the rates for home loan below Rs 30 lakh by 25 bps to 8.35 per cent and loan above Rs 30 lakh by 0.10 per cent. Other banks, including ICICI Bank, HDFC Bank and many PSBs, also followed suit.
Banks offered the reduced rates to new customers even as old customers did not get much benefit. Most banks, including public sector banks, announced their intention to focus on retail credit — mainly the home loan category — as bad loans are comparatively less in the sector. The realty sector is optimistic about a recovery. “Taking a good look at the short-term story on the end-user side, the state of upheaval is a result of an enforced maturing process. The turmoil this process brings with it could be compared to the growing pains one experiences during adolescence,” Puri said.
The demonetisation and GST impact
The biggest fall was in consumer durables loans which decelerated by 8.5 per cent in July 2017 as against a growth of 18.4 per cent in the previous year as demonetisation and GST forced customers to either defer purchases or refrain from going for a loan. Consumer loan outstandings fell from Rs 18,800 crore to Rs 17,200 crore during the period.
Small and medium units faced a contraction in credit growth. Small units, which are still reeling under the impact of demonetisation and GST, showed a contraction of 3.3 per cent in loan offtake to Rs 3,59,300 crore. Medium-sized companies reported an 8.7 per cent decline in credit outstanding to Rs 1,00,500 crore during the 12 months ended July 2017.
As a result, overall credit to industry contracted by 0.3 per cent in July 2017 in contrast with an increase of 0.6 per cent in July 2016, the RBI said. Credit growth to major sub-sectors such as infrastructure, basic metal & metal products, textiles, petroleum, coal products & nuclear fuels and all engineering witnessed contraction or deceleration. However, credit growth to construction, cement & cement products, rubber, plastic & their products and beverage & tobacco accelerated, the RBI said. The RBI said on a year-on-year basis, non-food bank credit increased by 5.3 per cent in July 2017 as compared with an increase of 8.3 per cent in July 2016. Credit to agriculture and allied activities increased by 6.8 per cent in July 2017, lower than the increase of 13.4 per cent in July 2016. Credit to the services sector increased by 4.9 per cent in July 2017, lower than the increase of 10.8 per cent in July 2016.