Date:04/11/2006 URL: http://www.thehindubusinessline.com/2006/11/04/stories/2006110403570600.htm

Back More demand for home loans in non-metros

Radhika Menon
Elina Mohanty

The top Tier-II and Tier-III cities that are showing growth include Cochin, Coimbatore, Belgaum, Shimoga and Gulbarga, says Mr Prashant Chaturvedi, CFO, Dewan Housing Finance.

Mumbai , Nov. 3

Demand for home loans from Tier-II and Tier-III cities (non-metros, towns, semi-urban areas) are to see a robust growth of around 40-45 per cent this fiscal, predict bankers. It comes at a time when demand from Tier-I cities has stabilised and slowed down in some cases. As property prices in metros shoot up, customers prefer Tier-II cities and the demand is genuine, said bankers.

"The top Tier-II and Tier-III cities that are showing growth include Kochi, Coimbatore, Belgaum, Shimoga and Gulbarga," said Mr Prashant Chaturvedi, CFO, Dewan Housing Finance.

"We are seeing a year-on-year compounded growth rate of disbursement of 30-35 per cent. We would peg the growth higher for Tier-II and III cities," he said. "We see their contribution increasing from the current 60-70 per cent of total portfolio to 75-80 per cent in the next two years. We want to penetrate deeper into areas that are 100 km away from cities," he added.

"The demand for home loans from Tier-II cities constitutes 40 per cent of the total home loan segment of SBI. It is expected to grow at 40-50 per cent," said an official from State Bank of India.

But why are home loans from Tier-II and III cities turning so attractive?

"Better facilities, infrastructure and affordability is adding to the demand," said the official from SBI. Average loan size is around Rs 5 lakh.

"Pricing is going through a consolidation phase in Tier-I cities (metros). Demand has slowed down in Tier-I cities as interest rates have gone up by 200 basis points in the past two months," said Mr Chaturvedi.

DHFL's average home loan borrower has a salary ranging from Rs 5,000 and Rs 15,000. The average loan size is Rs 4.25 lakh.

"Growth is slower in big cities such as Mumbai. There has been a price correction in certain pockets of cities such as Mumbai and Bangalore," said Mr Keki Mistry, MD, HDFC.

Land prices up

Land prices have gone up in some Tier-II cities, which are 20-25 km away from cities but the cost of construction has held steady at around Rs 400 per sq ft. "Most of the loans (90 per cent of the buyers) in Tier-II and III cities are for constructing houses. Their forefathers may have some land on which they want to build homes, " said Mr Chaturvedi.

There are some who feel that the concept of Tier-I and Tier-II has changed and spot a direct co-relation between the spreading IT and IT-enabled services industry and the home loan market.

"With the IT and IT-enabled industry spreading to Jaipur, Jodhpur and Bhubhaneshwar, the demand from these cities is expected to be higher," said Mr S.K. Mitter, Director and Chief Executive, LIC Housing Finance.