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Affordable Housing : The Concept Which Has Brought Much Cheer Among Real Estate Players, HFCs

| 3/16/2017 4:12 PM Thursday

The Indian housing finance sector is one of the fastest growing sectors in India and comprises of banks and housing finance companies.

The recent steps taken by the government in the Centre and also various state governments, have been pushing the real estate players towards much positivism from earlier negativism. Suddenly, there is a sense of euphoria among the builders since the time government agencies started believing and talking about the affordable housing seriously. Net results-- benefit for both the small, medium real estate players and also the HFCs.

Efficient mortgage lending is a strong driver acting as a growth catalyst for both housing demand and construction of houses in India.

Housing Finance Companies (HFCs) have witnessed an increase in total outstanding loans with a CAGR of 26 per cent between financial years 2009-2010 and 2014-2015. During the same period, the growth in total loans outstanding in the industry (i.e. banks and HFCs) was 19-20 per cent.

Indian housing sector remains relatively under-penetrated compared not only to other advanced economies but also to its emerging market peers. The mortgageto- GDP ratio stood at 9 per cent for India as on March 2015. This compares awfully with the ratiosjavascript:void(0); for countries like Denmark where the mortgage-to-GDP ratio is almost 100 per cent. This ratio for the US and the UK stand at around 80 per cent.

HFCs have been successfully able to gain market share at the expense of banks, being specialised lending institutions for housing. Due to their strong origination skills, focused approach, niche marketing, customer service orientation and diverse channels of sourcing business, HFCs are able to gain market share despite banks showing healthy growth in their lending portfolios. What can work wonders for the sector is further easing of interest rates that can spur housing loan demand and drive the end-user market. Following are the key growth drivers for the sector:-

RISING DISPOSABLE INCOME

Housing demand is directly correlated with increase in household income. The housing finance sector has witnessed in the past few years an increase in movement of households into higher income categories.

The number of households with annual income less than Rs.1 lakh was approximately 53 per cent of total population in FY 2013-14, compared to approximately 63 per cent in 2008-09.

The number of households with an annual income between Rs.2 lakh and Rs.5 lakh has increased by a CAGR of 9 per cent between FY 2008-09 and FY 2013-14.

INCREASING URBANISATION & HOUSING SHORTAGE

Due to ever growing urbanisation trend in India, there is a huge demand for housing in urban areas and this is exactly where the shortage is for affordable housing. India's urban population has grown over the past four decades from 109 million in 1971 to 377 million in 2011 and is expected to grow to almost 600 million by 2030.

The urban population has been increasing steadily, from approximately 28.8 per cent in 2004 to approximately 31.8 per cent in 2014. Urbanisation is expected to accelerate at a CAGR of 2.0-2.5 per cent between 2015 and 2021, compared to the overall population growth of 1.2 per cent during the similar time frame.

India's urban population has grown over the past four decades from 109 million in 1971 to 377 million in 2011 and is expected to grow to almost 600 million by 2030. This urbanisation trend is expected to create further shortages in housing market.

The Ministry of Housing and Urban Poverty Alleviation has estimated the housing shortage in urban India at 18.78 million units and increasing. The housing shortage problem is especially faced by the economically weaker sections and low income grousp of the urban population. A study highlights there is housing shortage problem even in rural India, pegging the shortage at 43.67 million units in 2012.

INCREASING PENETRATION

One of the major developments in the last five years has been the increased finance penetration in India.

Access to financial services in urban areas increased from approximately 39 per cent in the financial year 2011-12 to approximately 42.2 per cent in financial year 2014-15, while finance penetration in rural areas increased from approximately 8.2 per cent in the financial year 2011-12 to approximately 8.6 per cent in the financial year 2014-15.

HOUSING FINANCE COMPANIES

With an overall improvement in operating environment for HFCs and the Indian economy mending its way post demonetisation, the credit off-take is expected to be healthy in the upcoming quarters.

HFCs have been the darling of investors for several years now. The housing finance sector has been on a growth trajectory and indeed has grown by nearly 18-19 per cent on an annualised basis over the past three years.

As on March 31, 2016, the total housing credit outstanding in India was around Rs.12.5 lakh crore as against Rs.10.5 lakh crore as on March 31, 2015. This reflects a growth of almost 19 per cent in FY16.

Demand from Tier II/III cities, disbursements of loans linked to construction and growth in small ticket affordable housing segment all pushed the housing credit growth closer to 20 per cent. Ramnath Venkateswaran, Fund Manager-Equity, LIC Mutual Fund, says,"Potential for housing demand continues to remain high in India and as per official statistics, there was a shortage of 19 mn houses in urban areas and 44 mn houses in rural areas. This coupled with the population growth and trend of nuclear family will be the drivers of housing demand. India lags in terms of mortgage penetration (currently ~10 per cent of GDP) against 18-40 per cent for its emerging market peers. Thus, the growth potential for HFCs is robust in India both from a final demand and finance penetration perspective."

While commenting on the growth for the HFCs, Ramnath Venkateshwaran says, " We estimate that the overall retail housing finance market will grow by ~14-15 per cent CAGR over the next five years from the current ~Rs.10-11 tn. HFCs account for ~40 per cent of this overall market and the remainder is on the books of commercial banks. HFCs have steadily gained ~8 per cent market share over the past decade."

Within HFCs, the large HFCs with assets over Rs.45,000 crore have grown by not more than 15 per cent, whereas the smaller HFCs have grown by nearly 36 per cent.

The smaller HFCs gained market share due to increased focus on affordable housing finance which was also the faster growing segment. The smaller HFCs that focused on self-employed borrower segment also witnessed superior growth in FY16.

Various triggers such as softening interest rates, increasing housing demand and mushrooming affordable housing schemes have been instrumental in shaping the housing finance industry growth in India recently.

Softening interest rate has indeed been one of the major factors helping HFCs grow. HFCs are the biggest beneficiaries among the finance companies as the cost of funds have been falling for these companies at a faster rate than the lending rates.

 

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