India’s home loan story shifts to the periphery

Smaller towns and cities have seen better home loan offtake, beating the metros share by 8 percentage

home loan

A look at India’s home loan market reveals that the pace of home loans growth is at 19% for rest of the nation during Mar-13 to Mar-19, while that of districts which comprise of top 7 metro cities grew at 12% over the same period. The same has been revealed by data of home loans disbursed by the commercial banks.

A study by JLL Research reveals that home loan growth in the districts that comprise of top 7 metro cities, Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad and Pune, grew at a relatively slower pace than rest of the country.

Improved connectivity and economic prospects and lower land cost have spurred higher residential growth in these smaller cities, which is reflected in rising home loans. The urban sprawl, as well as growth in peripheral regions, has created new growth regions apt for better investment.

JLL Research has analysed the trends of district wise outstanding home loans by scheduled commercial banks during Mar-13 and Mar-19. These districts have the presence of top metro cities and Tier-I/II/III cities.

Mumbai IGR data
MonthConveyance (Sales)M-o-m change

Source : Department of Registration & Stamps, Maharashtra

Districts of top 7 metro cities ceding share of home loans

share of home loans

India’s home loan market grew growth stood at Rs 11.5 trillion as of Mar-19 growing at CAGR of 16% over last 6 years. Districts comprising top 7 metro cities witnessed a CAGR of 12% in home loans that grew from Rs 1.8 trillion to Rs 3.6 trillion during Mar-13 to Mar-19. On the other hand, the rest of India home loans grew at a high CAGR of 19% from Rs 2.8 trillion to Rs 7.9 trillion. This implies that the growth in Tier-II and Tier-III cities is quite substantial.

Affordability and urban sprawl leading to higher growth in peripheries

Home loan growth
Home loan growth trends during Mar-13 and Mar-19

As per the above table, top 4 districts comprising metro cities of Delhi, Mumbai, Kolkata and Chennai grew between 8 and 12%. However, the peripheral districts around these metros grew at a higher pace. For instance, Gurugram grew by 18% as against 8% of National territory of Delhi due to growth of offices and affordable housing options this region. Similarly Chennai grew by 8% while neighbouring Kanchipuram grew by 35%.

This growth has been driven by higher demand for mid-income and affordable housing segment. Demand for housing shifted to suburban regions as home buyers looked for homes that were within their budget. Lower land cost, larger land parcels and integrated amenities attracted homebuyers looking for aspirational homes at affordable prices.

The other two prominent districts mainly- Bengaluru and Pune have registered higher growth of 15% and 18% respectively during the same period and these districts have been driven by strong service sector growth thereby pushing housing demand.

45 districts comprising prominent tier-II and tier-III cities provide next growth opportunity

The study of the home loan growth, highlights that there are 45 districts representing Tier-II/ III cities that have registered higher growth than the national average. Most of these cities have been driven by manufacturing or services sector like ceramic tiles, diamond processing, tourism, textiles, leather industry, agro-processing, automobiles, engineering goods etc. The economic growth over the years has been complimented with improving connectivity, infrastructure growth, better education and health care facilities leading to improvement in living standards. Real estate developers in these cities have been adopting latest trends and are able to provide homes at competitive rates mainly due to lower land and manpower costs.

Various policy initiatives like Smart city mission, Industrial corridors, Atal Mission for Rejuvenation and Urban Transformation (AMRUT), Metro Rail projects, Prime Minister Awas Yojana (Urban) and Make in India, which have led to improved interest of buyers in these cities. The impact of these projects is expected to be long term and will make these cities more attractive destinations for various industries as well as residential real estate.

The below map indicates that the western region of the country has a higher share of districts that have Tier-II or III cities, followed by the Northern region. The skew in regions has been influenced by the economic growth pattern of various states.

high home loan growth

Author: Jitesh Karlekar, Director-Capital markets Research, Jones Lang LaSalle Property Consultants (India) Pvt. Ltd.