NHB says oversupply condition in housing market, hints at price correction

By Sanu Sandilya Jul 01 2011 , New Delhi


National Housing Bank, a wholly-owned entity of Reserve Bank of India, in its report on the housing finance market in 2010 released on Friday, has said there is an oversupply condition in the residential property sector, and held out the possibility of a price correction if present trends continue.

The report “Trend and progress of housing in India” highlights important trends like growing competition in the primary housing finance market in terms of marketing and innovative products, and high food inflation which has led to low bank credit for most of 2010.

Launching the report, chairman and managing director of National Housing Bank, RV Verma, said, “The housing market is seeing an oversupply condition and if present trends continue, then a price correction is very near.”

Emphasising the need to improve accessibility and affordability of housing finance for the middle- and low-income groups, Verma said, “NHB is exploring the possibility of introducing a mortgage guarantee product in the country in collaboration with some international partners including IFC and ADB to improve accessibility and affordability of housing finance.”

The bank, which follows the July-June financial year, has fixed the refinancing disbursement target for 2011-12 at Rs 12,500 crore against Rs 11,723 crore last financial year.

“NHB’s disbursements in the last financial year reached an all-time high of Rs 11,723 crore against Rs 8,108 crore in 2009-10,” Verma said.

The report mentions that outstanding housing loans increased to Rs 1,53,188.73 crore at the end of March 2010 against Rs 1,26,823.50 crore in March 2009, a growth of 20.79 per cent year-on-year. Rural lending increased from 13.12 per cent in 2008-09 to 16.25 per cent in 2009-10.

Verma said the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (Cersai), a government company under Section 25 of the Companies Act, 1956, has been incorporated for the purpose of operating and maintaining the central registry of loan disbursements under the provisions of the SARFAESI Act, 2002.

Explaining the initiative, Verma said, “The objective of setting up the central registry is to prevent frauds in loan cases involving multiple lending from different banks on the same immovable property. We have registered 166 leading institutions till now that provide data on loan disbursals.”

The registry became operational on March 31, 2011 and all transactions made on or after March 31 will have to be registered with Cersai.

NHB, which completed its accounting year on June 30, also released its RESIDEX index, which covers residential property prices in 15 cities. The index shows that majority of the cities have witnessed a price correction of 2-3 per cent.

Explaining the condition, Verma said, “The correction may be due to the interest rate hike and slackening demand or because prices have already peaked in some of the cities, which means they can either plateau or come down.'