I know some famous investors have been making apples-to-oranges comparison between India’s mortgage-to-GDP ratio and that of developed countries like USA.
Lets try to put that in perspective…. How fair / unfair is such comparisons??? Two key things come to my mind…..
- Housing loans interest rates in India are at 12%-14%, while in US/Germany they are 2%-4%
- Only 6% of Indians are employed in organized sector, while in US more than 90% are employed in the formal sector
What the former means is that the EMI on a 15 year housing loan in India would be ~ 2x of the EMI on the same housing loan in USA/Germany…. So, in effect on a like-to-like basis, India’s mortgage-to-GDP ratio has to be multiplied by 2x, which makes it 20%
What the latter means is that only a far smaller number of the people contributing to India’s GDP are credit-worthy. For a like-to-like comparison – you may want to shave off at least 2/3rds of India’s GDP in the mortgage-to-GDP ratio…. which in effect means that the mortgate-to-GDP ratio goes up another 3x (that is, from 20% to 60%)….
If you take these 2 factors into account, you will realize why a 10% mortgage-to-GDP ratio in India, is probably worse than a 70% mortgage-to-GDP ratio in USA/Germany…..
Just a word of caution to people who have excessively high allocations to Gruh/Repco – Because these lend to the borrowers from the informal sector, they are a double-edge sword – don’t find yourself in the wrong place when the wrong edge of the sword swings towards you… 
Disc. Not invested. This is not a recommendation – please do your own research.
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