RBI data suggests outstanding home loan portfolio of banks grew a modest 8% YoY in 4QFY09, down substantially from 16% seen in 4QFY08. Also growth has slowed during the year from 14% in 2QFY09 to 10% in 3QFY09 and 8% in 4QFY09.
Demand for homes has been muted in FY09 on account of low affordability caused by high interest rates and property prices. It is only since Oct 2008 that RBI took the initiative to lower the repo rate by 425bps from 9% to 4.75% currently. Additionally, in Dec 2008 the government capped interest rates on home loans by PSU banks at 8.5%, for loans up to Rs0.5m, and 9.25% for loans up to Rs2m. House prices have also declined substantially in 2HCY08.
With the decline in interest rates and property prices, affordability has improved. However, this has not yet translated into higher loan growth given that the weak macroeconomic environment and resulting job insecurity, and low income visibility, have adversely impacted buyer sentiment.
Moreover, there is a section of buyers who are waiting on the sidelines expecting further reduction in property prices and interest rates.
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