India’s swell of young people will drive housing demand for years as rising incomes in the world’s most populous nation make housing more affordable, the head of India’s largest private mortgage provider predicts.
Keki Mistry, chief executive of Housing Development Finance Corporation (HDFC), told the Financial Times: “What makes me believe that growth will remain strong for several years is India’s young population. Facts.” The company’s Mumbai headquarters.
More than half of India’s population is under the age of 30, while the average age of a first-time home buyer is 37-38, Mistry said.
“All of these young people will reach the age where they will necessarily need to buy a house,” added the four-year industry veteran. “In my view there will be a structural need for housing and therefore a need for housing finance.”
Mistry’s comments come as the 68-year-old prepares to retire partially into a non-executive role as HDFC prepares to merge with HDFC Bank, India’s largest private banking unit, in what would be India’s largest-ever corporate merger . The merger is scheduled to be completed in July.
As India’s economy recovers from the pandemic and its population grows to become the largest in the world this year, consumers are borrowing faster than companies to buy goods from homes to cars or finance education.
In March, the bank’s personal loan volume increased by 20.6% year-on-year, compared with 12.6% in the same period last year.
The RBI, which released the data, said the increase was “mainly driven by ‘housing loans'”, while lending to industry rose at a more modest 5.7% in March, down from a 7.5% rise last year.
Mistry said he was not concerned about the rapid growth of unsecured loans. “Even with unsecured loans, there have never been any real credit issues,” he said, noting that “regulation in India is very strict”.
Strong home-buying activity helped drive HDFC’s net profit up 21 percent to 460 billion rupiah ($5.6 billion) in the year to March, as growth in India’s smaller towns accelerated.
India still has one of the lowest housing loan-to-GDP ratios in the world, although the ratio has doubled almost every decade this century – from 3.2% of GDP in 2001-2 to 2021-22 10.6% of the year – according to the National Housing Bank.
However, rising incomes, relatively stagnant house prices and government incentives have made buying a house or apartment a more realistic prospect for many middle-class consumers. “Affordability is much better today than it has been historically,” Mistry said.
Meanwhile, rising interest rates have hurt housing demand in other economies, but little in India, where mortgage rates have historically been high.
“If 1% goes up to 4% or 5%, that’s a huge increase,” Mistry said. “In India, interest rates have been high, so when rates go up … . . the percentage increase in rates is not that significant.”
Mortgage rates in India range from 9% to 14%, according to Bajaj Finserv, a non-bank lender. By comparison, the average variable mortgage rate in the UK was 7.4% in April, according to government statistics.
Mistry, who has worked at HDFC since 1981, said consumers are also becoming more comfortable with loans: “The fear of borrowing money that existed 50 years ago is no longer present today.”