Only 25% of urban Indians have used bank finance to invest in a house, government data released on Monday showed. Instead, over 61% of the cost of houses built by families across urban India was financed by themselves. This means India is quite removed from the build-up of sub-prime lending bubble as of now. The figures from the National Sample Survey Organisation’s report on Housing Conditions and Amenities in India for the 2008-09 are startling. They confirm the anecdotal evidence of the boom in construction of residential properties in Indian towns unaffected by the changes in the rates of interest for housing loans from banks and housing finance companies.
“The NSSO figures reflect under-penetration of Indian banks and show that Indian households are typically under-leveraged so far as bank financing is concerned,” said Crisil director and principal economist DK Joshi. He added that the data was also consistent with earlier findings that only few Indians hold bank accounts and very few took bank loans. The data also show that on top of the 61%, another 15% of the cost of construction is sourced from “non-institutional agencies”, a description for local lenders, including chit funds.
In the latest quarterly monetary policy, the Reserve Bank of India raised the provisioning cost for real estate loans. It has prescribed an upper cap of 80% for loan-to-value ratio for all housing loans. But as the NSSO data show, the impact of such direct measures by RBI might have only muted impact on the pace of construction in domestic real estate.
The data also show that migration of households to urban from rural areas does not seem to increase their access to institutional finance. In rural areas, for instance, access to bank credit is 18% of the total cost of completed constructions. In both urban and rural areas, therefore, almost two-thirds of the cost of housing has to be financed by the households themselves.
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