Rukmani Vishwanath

Mumbai , Nov. 25

A RISE in interest rates notwithstanding, experts in housing-finance industry still expect the sector to grow by 30-35 per cent this year, almost in line with the growth rate over the past couple of years.

Their argument is that a hardening in interest rates alone is not enough to impede demand for home loans in the retail sector.

"I don't see any reason why a change in interest rates will dampen demand for home loans. Look at the scenario around September-October last year, where rates were ruling between 8.25 per cent and 8.75 per cent; we still saw a growth of 30-35 per cent in the sector. So even if rates inch up now to around 8 per cent, there is no reason why we shouldn't see a similar growth this year as well," according to Mr Rajeev Sabharwal, Chief Operating Officer, ICICI Home Finance.

A section of industry watchers has formed a view that the home loan markets may have been saturated as a result of the cut-throat competition among banks and housing finance institutions to aggressively push retail credit over the past couple of years.

A number of housing finance entities have also gone to the extent of lending below their cost of funds to capture larger volumes of business in a competitive environment.

However, in the current fiscal, some banks are understood to be observing a slowdown in the off take of retail credit, even as corporate credit is showing strong signs of a pick-up.

Analysts are of the view, that when home loan rates were going down, borrowers were aiming higher in terms of affordability of loans. They would go in for houses that were more expensive than would have been permissible as per their budgets otherwise.

Once rates go up, they might at best scale down their expectations and go in for comparatively cheaper homes. But the demand for home loans is expected to be strong regardless. However, what may be impacted to a smaller extent could be the quantum of financing by housing finance entities.

Mr Kapil Wadhawan, Managing Director, Dewan Housing Finance Ltd, says, "There is still a lot of latent demand in the housing finance sector. A 50-100 basis points increase in rates will not have any great implications. We have come from a regime where interest rates ruled much higher and there were no fiscal incentives for availing home loans, like there are today."

"Housing finance entities are not solely dependent on urban areas for their growth. The focus is also shifting to semi urban and rural markets where there is still tremendous potential," he said.

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