Home buyers seem to prefer own finance over bank loans 

March 23, 2023

Owning a house is something that anyone would take pride in. But figuring out a way to finance it could be a hurdle for many. However, a new survey reveals that of the first-time homeowners who bought or constructed a new house from April 2014 and lived in that house as of August 2021, more than 35 per cent funded it themselves. Only 28 per cent of them relied on a bank.

This is according to the National Sample Survey Office’s 78th round Multiple Indicator Survey. The survey says that while 41.9 per cent of the urban first-time homeowners relied on banks to fund their house purchase, only 22.8 per cent of the corresponding rural population did so. Only 1.2 per cent of rural homeowners and 1.8 per cent of urban homeowners relied on private finance institutions. The remaining relied on Central or State government aid, LIC loans, postal life insurance, refundable loans or advances from PPF accounts of the public sector offices, loans from money lenders or friends and relatives. 

Debt trap

The data provides insights to banks and other financial institutions that there is a large market which they can tap, especially in rural areas. Informal lending channels such as money lenders, who charge usurious interest rates, tend to be the main source of finance in rural India, leading to debt trap for many. 

Of all the households surveyed, 9.9 per cent bought a new house after March 31, 2014. Almost half of them (49.9 per cent) were buying or constructing a house for the first time. Interestingly, 96.6 of them were living in the house. This shows that most house construction in India is for self-occupancy, which probably explains the low delinquencies in housing loans. 

The data varies across States. Reliance on bank loans was higher in Chandigarh, Goa, Himachal Pradesh and Kerala. In these places, more than 50 per cent of first-time homeowners bought houses through bank loans. Contrasting were north- eastern regions — Arunachal Pradesh, Manipur and Assam, where less than 10 per cent relied on bank loans and the majority funded their houses themselves. Lower access to banking in these areas could explain the low numbers. 

We also looked at how big these houses were. The survey says that the average floor area of a newly purchased first-time house in India was 54.2 square metre. This is 24.2 square metre bigger than the size of the biggest house constructed as part of Pradhan Mantri Awas Yojana Urban. 

The biggest houses were constructed or bought in Chandigarh, Andaman and Nicobar Islands and Kerala. The floor area of an average house here was more than 90 square metre. In Odisha, however, it was just 35.6 square metre big. 

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