Affordability of property declines for new home buyers: Icra

Housing finance penetration has remained stagnant over the past five years according to a report by ratings firms Icra. The penetration levels are far lower than those in developing economies.

"Housing Finance penetration in India increased from 4.5% as on Mar-04 to 7% as on Mar-07, however has remained at these levels over the last 5 years. This figure is however significantly lower than the penetration rates in developed countries" the Icra report said.

This trend points to a ignificant scope for further growth in future, notes the report. The challenges for growth in housing finance include relatively high property prices, declining affordability (as property prices has appreciated at a faster pace than increase in income levels), and tough operating environment.

According to Icra's estimates, the total housing credit outstanding in India as on March 31, 2012 was over Rs.6261 billion as against Rs.5345 billion as on March 31, 2011, indicating growth of 17%. The housing loan market reported a growth of about 10% over 2011-12 levels in H1,2012-13.

Although high property prices and tough operating environment could continue to temper the number of home transactions, possible softening in home loan rates, attractive schemes offered by the banks and higher ticket sizes (because of higher property prices) could support a 17-19% growth of the Indian mortgage market in 2012-13.

Affordability has declined for new home buyers on account of rise in property prices, lower rise in income levels, rise in interest rates, high inflation leading to reduction in net disposable income of the borrower, according to ICRA.

Source: articles.economictimes.indiatimes.com