Affordable housing segment to remain key growth driver
With most homebuyers and investors deferring their decision to purchase a house hoping prices will fall further following the ban on ` 500 and ` 1000 notes, the growth in home loans is expected to be low. It’s expected to range between 16% to 18% this financial year as compared to the earlier expectated level of 18% to 20%, as per ICRA estimates.
“While growth in the prime home loan segment could witness moderation, the affordable housing segment is likely to grow at a faster pace than industry with efforts being made to address the supply, demand and affordability issues,” says Rohit Inamdar, group head financial sector ratings, ICRA.
Post demonetisation, the delinquencies in the affordable housing and self-employed segments would increase given the borrowers’ reliance on cash transactions. What this means is that after demonetisation, cash incomes have been impacted and some self-employed homebuyers may have found it difficult to pay at least two to three installments. They may have missed payments giving rise to increased delinquencies but the situation has now been normalised.
Further, given the expected correction in property prices liquidity of properties may get hampered, impacting the loss given default (loss in shares of an asset if a borrower defaults) .
Despite rising portfolio vulnerability owing to increasing share of non housing loans, higher share of self-employed and low-income borrowers within housing loan segment and high competitive intensity leading to dilution in lending norms, gross NPAs are expeted for housing finance companies (HFCs) to remain range-bound between 0.9% to 1.3% over the medium term, says Inamdar.
Having said that, the infrastructure status accorded to affordable housing projects will stimulate wider investor community and improve the access to funding avenues like insurance and pension funds thereby boosting the supply of affordable homes.
Further, extension of the credit-linked subsidy scheme to loans of value upto ` 12 lakh will expand the eligible borrower base and also improve affordability of the borrowers owing to lower equated monthly installments (EMIs) and lead to better debt burden ratios.
Incremental funding costs for HFCs have come down considerably in the second half of the financial year 2017 with many HFCs raising funds at median rates of 7.5% to 8%. Therefore, cost of funds is likely to moderate further for HFCs.
The reported capital adequacy for HFCs remained comfortable, due to the benefit from relatively lower risk weights for home loans and commercial real estate loans for residential projects.
Infrastructure status accorded to affordable housing projects will stimulate wider investor community.