MUMBAI: The housing finance sector is set to see higher growth in the next few years, with an increase in the demand and supply of housing projects.
According to estimates, the total housing credit outstanding in India as of June 30, 2013, was over Rs 7.99 lakh crore, against Rs 7.59 lakh crore on March 31, 2013. That is an annualised growth rate of 21 per cent, against 18 per cent in 2012-13.
Although, there was a slight decline in net interest margins and stability on the non-performing-loan front, overall, declining net interest margins and increasing credit provisions could lead to a 20-30 basis point reduction in profitability for housing finance companies. However, profits could still be reasonable.
Housing finance companies are expected to grow 24 per cent, while banks are pegged to grow 14 per cent. Experts say this trend is expected to continue over the next five years.
Consequently, these finance companies, including LIC Housing Finance and Housing Development Finance Corporation (HDFC), have been gaining share over banks over the last few years. According to a leading credit rating agency, disbursals of home loans are projected to grow by 19 per cent in the next financial year.
Year-on-year, the industry saw home loans grow 20 per cent as of June 30, 2013, over June last year. Banks recorded 17 per cent growth, while housing finance companies and non-banking finance companies saw 26 per cent growth, according to ICRA Research.
Recently, HDFC Chairman Deepak Parekh was reported saying he doesn’t see a bubble. Real estate prices have come down significantly in the commercial, office, SEZ (special economic zone) and IT space, retail and shopping malls, but not the residential segment. But residential prices, which have not moved up, are tending to go softer, he added.
Experts believe housing supply is increasing and prices will come down with new projects coming up in major metros and tier-II cities.
On regulatory changes, such as reduction in risk weights for home loans higher than Rs 30 lakh, ICRA said borrowers will likely benefit in a marginal way. There will be lower risk weights, and thus, lower capital allocation could lead to some lenders reducing the lending rate for borrowers in higher ticket sizes.
From the lenders’ perspective, lower risk weights would translate into higher regulatory capital adequacy. Thus, with the same capital base, lenders can achieve much larger portfolio growth.
According to ICRA, there could be some increase in the portfolio yields, if lenders shift their portfolio in favour of builders of residential projects. With a lower standard provisioning requirement for commercial real estate–residential housing, there could be some reduction in the credit costs for players who are active in this segment. Also, the flow of funds to builders might improve, owing to lower risk weights and lower standard asset provisioning.
Bridging the shortfall
According to an expert, India’s ratio of housing loans to GDP is seven per cent, among the lowest in the world. Most purchases of homes are still made out of savings.
The shortfall of dwelling units has been growing and is now estimated at over 25 million units. Bridging this gap, entails the creation of the quantum of housing that currently exists in Mumbai, Delhi, Kolkata and Chennai together.
Banks serve customers in their catchment area by offering a variety of financial products, while housing finance companies (HFCs) focus on offering housing loans and facilitating the creation of housing through loans for construction. This focus and specialisation enables HFCs achieve economies of scale and cater to the market more effectively.
Further, on August 14, 2013, the Government of India and the World Bank signed a $100-million credit agreement aimed at helping low-income households secure loans to purchase, build or upgrade their dwellings. The project will be implemented by the National Housing Board to reach a higher proportion of lower-income households, while maintaining portfolio quality standards.
This adds to the assurance that the housing industry will get a boost, making it easier for borrowers and lenders to meet their demands for housing and loans, respectively.