“Priority sector” home loans sees sharp moderation in FY23

Growth of “priority sector” housing loans moderated sharply in FY23 due to higher real estate prices and higher interest rates. Nevertheless, housing loans for the “non-priority sector” recorded strong growth.

FY23 saw sharply divergent growth rates for priority housing and non-priority housing loans, according to an assessment by ICICI Securities.

Non-priority housing loan growth rose from 17 percent in March 2022 to more than 23 percent year-on-year in March 2023, according to I-Sec Research analysts Jay Prakash Mundra, Shintan Shah and Rinesh Bova. .

However, the growth of priority housing loans from the banking system slowed sharply from 6-7 percent in March 2022 to less than 1 percent year-on-year in March 2023.

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Analysts note that housing demand (not a priority as well as a priority) in FY24 will be a key thing to watch.

Home loans offered by banks to individuals up to ₹ 35 lakh in urban centers (with a population of 10 lakh and above) and ₹ 25 lakh in other centres, are eligible for classification under the ‘Priority Sector’, provided that the cost of the unit dwelling does not exceed 45 lakh. and 30 lakh, respectively.

Housing loans that exceed the above limit are “non-priority sector” loans.

Bankers say there is a need for an upward revision (last revised in 2018) in loan limits to classify home loans as a priority sector in the wake of a surge in real estate prices due to the rising cost of land, materials and labour. This will give a boost to low-cost housing for the economically weaker sections and lower-income groups.

Home loan rates have jumped 250 basis points since the MPC embarked on a tightening cycle, starting in May 2022.

Affordable housing

The affordable housing sector has seen a clear decline in demand over the years, falling to around a fifth of total sales at the end of March 2023 from around 40 percent in 2019, as rising costs and interest rates put pressure on the sector.

According to data from ANAROCK Research, just over 23,000 affordable homes of 1.14 lakh units were sold across India’s seven largest cities in the March quarter. That share in 2022 was at 26 percent, an indication of how quickly affordability has become an issue for those on the lower end of the income spectrum.

“The hypothetical demand for affordable housing is high, but the actual affordability is limited,” said Anuj Puri, Chairman, ANAROCK Group.

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Bouri noted that housing developers’ profit margins, which were already weak to begin with, have moved into negative territory due to the rising commodity costs seen over the past two years.

He added that a price increase in this sector is not possible, which has made it difficult for developers to launch affordable homes, which has also led to a decline in supply.

ANAROCK research showed that in direct proportion to demand, the supply of affordable homes also fell to 20 percent of the total in the top seven cities in the March quarter, compared to 40 percent in 2019.