Indian Households Favour Real Estate over Traditional Banking Options for Savings
To sustain India's long-term growth, savings and investments must grow. The aggregate saving rate in India has moderated in recent years. Additionally, household savings have remained stable as a share of GDP, following a peak in 2011-12.
There are two types of household savings: financial and physical. As compared to the previous year, households' gross financial savings declined in 2021-22, whereas savings in physical assets increased.
The composition of household financial savings has been shifting over the past few years, with more households diversifying their portfolio and shifting away from traditional ways like bank deposits. Last year, households made profound changes to their savings and investment patterns. In recent years, mutual funds and equity have become important instruments for saving money. In last year's real estate market, households invested more money. Gold investment increased as well, but real estate investment was far ahead.
Households saved more on physical assets in the last two years
Families save in a variety of ways, including financial instruments and physical assets. Cash, bank deposits, mutual funds (MFs), insurance, and pension funds are the most common ways households save. Physical assets such as gold and real estate are also saved by households. The savings in physical assets have ranged between 58-60% of household savings over the past five years. The share of savings in physical assets increased to 65 percent last year.
The household financial savings need to increase in order to ensure a sustained flow of funds for investments. There was a decline in household savings from Rs 30.54 lakh crore in 2020-21 to Rs 25.98 lakh crore in 2021-22. There is some evidence that pent-up demand contributed to some of the decline, but the decline was still significant.
Furthermore, there has been an increase in bank credit for housing in recent months. It is being considered that housing investments are an appropriate hedge against inflation. As a result of the government's infrastructure push and higher budget allocation for PM Awaas Yojana, housing demand is expected to continue to rise.
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