Mumbai has always been the number one market for most consumer products and services, followed by the National Capital Region (NCR) and other metros. In the home loan market, however, the NCR has been number one followed by Mumbai. Today, Mumbai has dropped to number three position and Chennai is number two.
Ask Deepak Parekh, Chairman of HDFC. “Today business in Chennai is bigger than that in Mumbai. Chennai ranks as the second largest market after the NCR in loan applications.”
Does this mean the residential real estate market has been growing faster in Chennai compared to other metros? “Chennai has done better compared to Mumbai. The reason for that are the property prices. It is still affordable in Chennai and a good property is available in the range of Rs 5,000 to Rs.7, 000 a sq. ft. In Mumbai, there is hardly any property available at less than Rs 10,000 a sq ft., and that too in a distant suburb,” says Renu Sud Karnad, Managing Director, HDFC Ltd.
V. K. Sharma, Director and Chief Executive, LIC Housing Finance, also stated at a recent Chennai property fair that the southern region was the strongest market for LIC housing finance, with the growth led by Tamil Nadu. Loan disbursals continued to be strong in Chennai and other cities including Coimbatore, Madurai and Tirunelveli. The target for the southern region is Rs 5,500 crore against Rs 4,125 crore last year.
For HDFC, according to Ms. Karnad, loan approvals and loan disbursements grew by 22 per cent and 20 per cent respectively, during the quarter ended June 2011, compared to the corresponding quarter in the previous year. However, the average loan size has remained the same at Rs 18.6 lakhs. This indicates that the disbursements have grown based on more people borrowing/buying property rather than increase in property prices.
A combination of factors ranging from increase in number of nuclear families to growing job opportunities in Chennai have led to a steep demand for residential real estate. Chennai has always been a conservative market as far as residential real estate is concerned. It has two types of consumers — first time buyers and investors (people looking for a second home). The booming job market in Chennai and suburbs has created a need for affordable housing, says Srinivas Acharya, Managing Director, Sundaram BNP Paribas.
According to Mr. Acharya, his company's total home loan disbursement for Chennai city is around Rs. 25 crore to Rs. 35 crore per month. The home loan market Chennai is estimated to be Rs. 550 crore. The need for owning a house is also due to increase in rental values within the city. Instead of going in for rented accommodation, first time buyers prefer to buy a property with the help of a loan. As far as investors are concerned, they prefer to invest in land or a house as it fetches more or equal appreciation.
Some are, however, concerned. Is a bubble building in the housing sector? With the rise in the interest rates and increase in demand, is this bubble waiting to burst? That is unlikely, says heads of the financial institutions. The recent spate of interest rate hikes has made funds costlier. But the enthusiasm in the end-user segment in the southern cities has not evaporated, they feel.
Most purchases are by middle-income borrowers and not by investors or speculators. House is a necessity for them. Interest rates will have a lesser impact on demand for loans than other factors like unstable employment and very high property values. The cost of a house as a multiple of the annual income of a borrower is currently estimated at 4.8 times. In other words, it takes about 4.8 years' income to buy a house. As long as that ratio stays in 4.2-5.5 range, housing loan demand will be there, says Ms. Karnad.
