customer perception on home loan finance: an analytical study...

© 2019 IJRAR May 2019, Volume 6, Issue 2 www.ijrar.org (E-ISSN 2348-1269, P- ISSN 2349-5138)

IJRAR1AHP011 International Journal of Research and Analytical Reviews (IJRAR) www.ijrar.org 90

Customer Perception on Home Loan Finance: An

Analytical Study onInfluencing Factors Towards

Need for Home Loan in Krishnagiri District,

Tamilnadu, India

DR.S. SYED AHAMED

Assistant Professor- MBA Department,

HKBK College of Engineering, Bangalore, India,

Md Tipu Sultan,

Final Year MBA Student,

HKBK College of Engineering, Bangalore, India,

Abstract

One of the common types of financial credit is housing loan, which an individual gets money

from the financial institution either to construct or to purchase a house. The intention of the study

is to analyze the factors that impacts the customers on requirement of home loan and the study also

explore how the independent variables such as housing prices, interest rate, taxation benefits and

income level negatively or positively influence the customer on need for home loan. This study is

conducted with the help of circulating questionnaire to three hundred respondents in Krishnagiri

District and data collected through a face-to-face interview. The findings of the study reveal that,

housing prices, interest rate, taxation benefits and income levelhave a positive relationship with

home loan requirement, it shows that increase in housing price or income level will increase the

home loan need.

Keywords: Housing finance, housing price, perception, income level, interest rate, taxation benefits,

home loan.

Introduction

Consumer`s perception of a services offered may differ from what the marketer intended to

offer. It is likely to have more serious results in seeking consumer attention as today`s consumers

have greater exposure to the diverse and extensive information. This makes it very difficult

foroffering, to gain the complete attention of the consumers especially in situation where the

consumer perception is not the same as that of the offering.“Housing is an essential need in each

economy and it is fundamental pointer for development of a nation”(Srinivasa Kumar, 2017).Home

is a dream of a person that shows the quality of efforts, sacrifices luxuries and above all gathering

funds little by little to afford one`s dream home is one of the things that everyone wants own.

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According toThe Economic Times(2018), “India's real estate sector is projected to reach USD 180

billion by 2020 from USD 126 billion in 2015 as per CREDAI & JLL joint report and the housing

sector contribution of residential segment to GDP would almost double to 11% by 2020”.

In Krishnagiri district, home loans are mainly issued by Housing Finance Companies and

commercial banks like LIC Housing Finance, HDFC, Can Fin Home Finance, SBI Home Finance,

DHFL and so on. In these LIC Housing Finance play an important role and captured the market in

terms of sectioning and disbursement with interest rate 8.40 % onwards(LIC, 2018). According to

Guirguis, Giannikos and Anderson (2005), “the housing sector makes up a part of GDP and has

impact on the global economy. This is considered to be an important factor that cause the

government trying to implement several policies like lending rate, taxation to increase the home

ownership”. The housing prices has a greater influence on mortgage demand than supply(Basten

and Koch, 2015). As per Dietsch and Petey (2015), interest rate is important factor in repayment of

home loan and mortgage demand is also a determinent which influence the low income buyers. The

research done by Srinivasa (2017), reveals that, problems faced by salaried customers

likedocuments needed for filing application, rate of interest, and time period between appling loan

and sactioning loan.

Based on the empirical evidence, the research is intended to evaluate whether changes in housing

prices, interest rate, taxation benefits and income levels are significantly influence the housing

transactions.

1. Conceptualization and Hypothesis Development

1.1 Housing Price

The housing prices are positively connected with requirement of housing loans. So, the housing

price increases, the requirement of home loan will also increase (Anundsen and Jansen, 2013),

(Gimeno, and Martínez-Carrascal, 2010), and (Oikarinen, 2009). The research carried out by

Addae-Depaah(2014) proves that the housing price is positively correlated to home laon in the long

period and also he identified that people will like to avail a bigger laon than usual when the house

price is increasing. According to Gimeno and Martinez- Carrascal(2010), their exist a

interdependent relationship between housing prices and home loans and it revealed that housing

prices are positively affected to the home loans. Based on theressearch work of Ismail, Bujang,

Jiram, Zarin and Jaafar (2015), it is found that the home prices will negativelly influencce the

requirement of home loan. Therefore, this hypothesis is used to analyse the relationship between

the housing prices and the requirement of home loans in order totest where the housing prices will




significantly affect the reqquirement of home loan. Relying on explanation given above we

hypothesize:

H0: There is no significant relationship between housing prices and requirement of home loans in

Krishnagiri District.

H1: There is significant relationship between housing prices and requirement of home loans in

Krishnagiri District

1.2 Interest Rate

Ye, Deng and Li(2014) found that the changes in interest rate has significant influence on

mortgagors’ choice of loan. Micro-econometric approach was used to examine how the spread

between short-term interest rate and long-term interest rate of mortgage affects the choice. The

interest rate is important criteria which influences the need for home loan (Ye,Deng and Li,2014).

There is a long-term connection between the interest rate and Islamic home loans (Yusof and

Usman, 2015).Dietsch and Petey (2015) identified interest rate has an influence on mortgage

demand of low income borrowers. In this study, multi-factor extension of the structural one-factor

model and generalized linear mixed model are used to determine the credit risk of borrowers with

low income. The relation of interest rate and requirement of home loan is opposite which means the

borrowers requirement of home loan declines when the interest rate increase(Wolswijk, 2006).

Upon explanation given above, it is hypothesized that;

H0: There is no significant relationship between the interest rate and requirement of home loan in


H1: There is a significant relationship between the interest rate and the requirement of home loan in


1.3 Taxation benefits

The relationship between tax deductions and the home owned by youth in urban areas in the

United State. This study has induced the influence of eliminating the state and federal mortgage

interest and property tax deduction(Bourassa and Yin , 2008). Chambers, Garriga and Schlagenhauf

(2009), studied how tax treatment and home ownership influenced by changes in income tax. Hlber

and Turner (2014), inveatigated how combined of United State and the federal mortgage interest

deduction impact home ownership decisions. It revelas that it will have a significant influence on

higher income group and low income groups less likely to be affected by the taxation




benefits.According to Hanson (2012), “elemination of taxationbenefits only will influence the size

of the housing, but have less impact on home ownership”. From this discussions we propose that;

H0: There is no significant relationship between the taxation benefits and the home loan requirement

in Krishnagiri District

H1: There is a significant relationship between the taxation benefits and the home loan requirement

in Krishnagiri District.

1.4 Income Level

According to Ismail et al. (2015) the researchers have found that the customer willapply for

home loan as per their affordability and income level. This research was conducted in Malaysia and

found that the middle-income group desire to purchase a house, restricted by affordability of the

customer. The rapid growth of home loan in CEE countries was due to higher requirement of homes,

this is because of higher income of the population (Visković et al, 2015). There are many

determinants, including higher income levels within theurban population are motivating the

requirement of home loan in India(Bandyopadhya, 2016). As per Gallin(2006), “Income level is the

level of income earned by an individual in the given a period of time. He states that, higher income

means, “ the individual earned an income higher than the average; while low income means the

individual earned an income lower than the average”. Kim (2010) study shows that income level

positively impacts the demand of home loan. This is due to, “customere expect their incomes to

increase, they are likely to demand for bigger loans”. The above results shows that the income level

has positive influence on demand of home loan. The incomelevel influences the need for home

loan in India and Albania respectively (Shahini, 2014). Based on these emprical evidence,we

conclude that when the income level increase, the demand of home loan also increases.The

hypothesis as follows;

H0: There is no significant relationship the income level and the home loan requirement in


H1: There is a significant relationship between the income level and the home loan requirement in





1.5 Requirement of Home Loan

Purchase of house is fulfilled by finance through a Home finance company or private financial

institution and most of the people willing to take loan due to loan taken will help them in financial

terms(Ismail, Bujang, Anthony Jiram, Zarin and Jaafar, 2015). According to Shahini (2014), “In

Albania, the government is providing a dwelling for the citizens, but this is not the government`s

priority; therefore, some citizens have to rely on housing loan in order to purchase a house”.

Fig 1. Conceptual Framework (adapted from Chan Yan Yee, et al, 2017, p. 31)

2. Research design

2.1 Sample and data collection

A survey was conducted to obtain customer perception on home loan. A questionnaire was

constructed and circulated to the prospective customers who eligible to apply home loan and is

desiring for a home loan in Krishnagiri District focusing on locations like Hosur, Krishnagiri,

Uthangarai, Bargur and Denganikotta. The questionnaire comprises of questions related to

constructs and measures needed in the research. All measures were developed from existing

literature Chan Yan Yee et al, (2017). In order to test the developed hypothesis, three hundred

responses from Krishnagiri District were collected by using conveniencesampling technique. The

data were collected with the help of questionnaire by conducting a face to face interview. The

questionnaire was developed by involving extensive literature review and all constructs were

measured with existing scales. All items were measured on a five-point Likert-type scale; where 1=

strongly agree to 5= strongly disagree.

Requirement

of Home

Loan

Housing

prices

Interest

Rates

Taxation

Benefits

Income

Level




2.2 Analysis and Results

For evaluation of our data we have used SPSS software. Descriptive analysis, reliabilitytest,

correlation and regression analysis were used to examine the relationship between variables of the

conceptual model. Cronbach`s Alpha used to measure the internal consistency of scales. Each scale

had acceptablereliability with Cronbach`s Alpha above 0.07. Table 1 gives the means, standard

deviations and correlations for the variables used in the study. Reliabilities are located among the

diagonal of the correlation matrix.

Table 1. Results of the Standard Deviation, Means and Correlation.

Variables MEAN SD 1 2 3 4 5

1.HL 3.66 1.011 1 (0.739) 0.761** 0.743** 0.732** 0.802**

2.HP 3.35 1.174 0.761** 1 (0.837)

3.IR 3.43 1.014 0.743** 1 (0.715)

4.TB 3.45 1.012 0.732** 1 (0.818)

5.IL 3.63 1.218 0.802** 1 (0.734)

**Correlation is significant at the 0.01 level SD= Standard Deviation () = Cronbach`s alpha

HL: Home Loan HP: Housing Price IR: Interest Rate TB: Tax Benefits IL: Income Level

Table 1 shows that housing prices and requirement of home loan in Krishnagiri district has a

correlation of p= 0.761, the interest rate and requirement of home loan in Krishnagiri has a

correlation of p=0.743, the tax benefits and requirement of home loan has a correlation of p=0.732

and income level and need of home loan has highest correlation p=0.802. Hence, the results indicate

that all independent variables like housing prices, interest rate, taxation benefits and income level

are significantly correlated with the dependent variable called requirement of home loan.




Table 2. Multiple Regression Analysis for Requirement of Home Loan and Housing Prices,

Interest Rate, Tax Benefits and Income Level

Variables

B St. Error Beta T value Sig.

Constant

0.800 0.113 7.116 0.000

HP

0.143 0.041 0.195 3.581 0.000

IR

0.125 0.049 0.131 2.486 0.013

TB

0.302 0.037 0.304 7.741 0.000

IL

0.269 0.414 0.341 6.152 0.000

Sources: Developed for Research

Table 2 indicates, HP (Housing Prices)is significant to the requirement ofhome loan with p-value

of HP is equal to 0.000 which is less than the alpha value of 0.05. IR Interest Rate) are significant

to the need for home loan with p-value of IR is equal to 0.000 which is less than the alpha value of

0.05. Likewise, TB(Tax Benefits) and IL (Income Level) are significant to the requirement of home

loan and less than alpha value 0.05.

Table 3. Model Summary

R

R Square Adjusted R Square Std. Error Durbin-Watson

0.861

0.747 0.747 0.354 1.725

Sources: Developed for Research

Table 3 depicts that the adjusted R-square value is 0.744. This shows 74.4% variation of the housing loan

need in Krishnagiri District may be explain by housing prices, interest rate, tax benefits and income level.

Hence, still left 35.4 cannot be explained in this study. It explains other variables that are significant and

explained the requirement of home loan in Krishnagiri District.




Discussion and Conclusion

Based on the analysis and results of this study, the housing price has a significant andPositive relationship

with the need of home loan in Krishnagiri. The results of this study are consistent with the previous

researches. The housing prices has a positive relationship with the requirement of home loan in the long-

term (Addae-Dapaah, 2014). So, it can be finalized as the housing price is important factor that is affecting

requirement of home loan in Krishnagiri District.

The relationship between requirement of home loan and interest rate is significant and indicates that the

interest rate is positively influencing the need for home loan. According to Wolswijk (2006), the findings

are inconsistent where increased cost of financing will reduce the willingness of customers to take loan.

As per the hypothesis results, the relationship between requirement of home loan and taxation benefits is

with the p-value of 0.000, which is less than alpha value of 0.05. it shows there is a significant relationship

between need for home loan and taxationbenefits. It can be concluded that, the taxation benefits provided

by the government will significantly affects the need for home loan.

The hypothesis results revealed that, there is a significant relationship between the requirement of home

loan and income level. There is a positive relationship between requirement of home loan and income level.

These results are consistent with the previous studies like Kim (2010), Bandyopadhya (2016), Shahini

(2014) and Ismail et al. (2015). So, it is proved that, higher the income level, higher the need of home loan.

Limitations and Future research directions

The acknowledgement of limitations is important as it can improve the future research.It gives an

opportunity to the researchers to explain and overcome the limitations.This study focuses only on

Krishnagiri District, so the results from this research only represents the demand requirement of home loan

in that particular city alone.Moreover, the sample does not represent the whole population of the study area.

Apart from that this study has included only four factors like housing prices, interest rate, taxation benefits

and income level which has studied with requirement of home loan. These four factors are not enough to

explain the customer perception on home loan. So lacking variables will affect the final results of the

research. Future research can be carried out in Cities like Salem, Dharmapuri, Namakkal, Erode,

Coimbatore Vellore, Madurai, Chennai and so on. This will help the researchers to compare and know

which city required higher home loan. This will also helpful for the bankers and housing finance companies

to make appropriate marketing strategies and to adjust with their type of loans. Researchers can include

more variable like pattern of spending, inflation rate, documents filing, approvals, geographical factors.




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customer perception on home loan finance: an analytical study...

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