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Home loan defaults on the increase realty check

Aloysius Xavier Lopez

It is an echo of global economic meltdown

CHENNAI: The impact of the global economic meltdown is leading to an increase in the default on repayment of home loans and as a result, many such customers are forced to sell their houses.

Home loan default has almost doubled after January and the trend is on the rise, said an official of a public sector bank. Last year, the delinquencies were less than 3 per cent of the total loan, he added.

A leading private sector bank has sent more than hundred files, pertaining to the properties for which home loans were given and whose repayments have been defaulted, for technical valuation after January towards auctioning them.

This figure is large when compared to the very small number of files sent for technical valuation during the same period last year, said bank officials.

The banks conduct auction of property for recovery of home loans in the case of default and the successful bidder is normally required to pay the amount in 15 days. The bidders will have to pay 10 per cent of the reserve price of the property as Earnest Money Deposit.

The ‘forced’ sale value of a house will be 70 per cent of the actual value of the house. The recovery of the housing loan by the bank by declaring the property for forced sale was easier earlier as there were many takers in the past. However there are no takers for the houses on forced sale by the banks nowadays, said an official of another bank.

Officials said that the number of delinquencies of home loans in nationalised banks have also increased considerably. But the very large volume of home loan disbursals by some of these nationalised banks has made the percentage of delinquencies of home loans relatively low.

“The hard core default of home loans is around 3 per cent, but around 12 per cent of the home loans which have turned default are yet to become hardcore,” said an official of a public sector bank. Wilful defaulters for six months are treated as hardcore, but many bank officials claim that the banks try to help customers affected by the economic downturn. An official of the State Bank of India said that they have also avoided a large number of defaults by the recent restructuring of around 20,000 home loans.

Most of the properties available for forced sale in the city are apartments, according to bank officials.

“Given the current state of the economy, home mortgage defaults are expected to marginally rise. However, this percentage of defaults would be lesser when compared to US residential markets,” said Ramesh Nair, Managing Director of Jones Lang LaSalle Meghraj.

“Historically, it’s been noticed that areas that experience the fastest growth also are the ones experiencing higher default rates,” he added.

Houses on forced sale were at lesser price than that of the market price before the economic downturn. So there were many takers. Now there are no takers as the market price of the property has already started coming down and customers think that buying a property on forced sale may not be cost-effective, according to bankers. With people continuing to wait and watch the prices reduce, the banks are unable to recover the loan amount of housing loan defaults.

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