HFCs on a Bud­get High Won’t Find Easy Growth

Face is­sues like lower real es­tate prices, com­pe­ti­tion from banks that cut rates post de­mon­eti­sa­tion

The Economic Times - - Smart -

ET In­tel­li­gence Group: Stocks of hous­ing fi­nance com­pa­nies (HFCs) are ex­pected to gain from the sops an­nounced in Bud­get for low-cost hous­ing. While most HFCs have ral­lied over 5% since Fe­bru­ary 1, more ap­pre­ci­a­tion may not hap­pen since the Bud­get also dis­cour­ages in­vest­ment de­mand in the hous­ing mar­ket. HFCs face struc­tural hur­dles of lower real es­tate prices and in­creased com­pe­ti­tion from banks, which have cut home loan rates.

It is not sur­pris­ing then that only a hand­ful of listed play­ers have seen earn­ing­sup­gradess­inceNovem­ber8.

There are sev­eral favourable an­nounce­ments for af­ford­able hous­ing in the Bud­get. Grant­ing of “in­fra­struc­ture” sta­tus may bring more re­fi­nanc­ing op­por­tu­ni­ties for HFCs. Higher al­lo­ca­tion of ₹ 1,400 crore to­wards in­ter­est sub­ven­tion for the Prad­han Mantri Awas Yo­jna (PMAY) and the change in def­i­ni­tion of af­ford­able hous­ing from built-up area to car­pet area are good op­por­tu­ni­ties for the ₹ 8.2-lakh crore hous­ing loan mar­ket.

How­ever, the Bud­get has also put a limit of ₹ 2 lakh for de­duc­tion of loss un­der in­come from house prop­erty for sec­ond homes. This mea­sure may im­pact the in­vest­ment de­mand, es­pe­cially in top 7-10 cities, which ac­count for 45-65% of HFC loan books.

Fur­ther­more, de­mon­eti­sa­tion is ex­pected to bring about struc­tural changes in the realty mar­ket, in­clud­ing down­ward pres­sure on prices. In thiss­ce­nario,the­high­eryield­in­gloan seg­ments — de­vel­oper or con­struc­tion loans and loan against prop­erty (LAP)—maygetim­pacted.Th­e­seseg­ments com­mand higher yields in the range of 13-15% and 11-13%, re­spec­tively com­pared with in­di­vid­ual hous­ing loans that yield 9-10%.

In Jan­uary, banks ag­gres­sively cut their in­cre­men­tal lend­ing rates termed as MCLR (mar­ginal cost of funds based lend­ing rate). This is likely to af­fect yields of the hous­ing loan seg­ment. HFCs, in­clud­ing In­di­a­b­ulls Hous­ing Fi­nance and LIC Hous­ing Fi­nance, have re­ported about 90 bps drop in in­cre­men­tal yields in the seg­ment since Jan­uary com­pared with the pre­vi­ous quar­ter.

While a drop in cost of funds may com­men­su­rate with the yield de­cline, HFCs such as HDFC, LIC Hous­ing Fi­nance, and Gruh Fi­nance that have lower pro­por­tion of bank bor­row­ings are less likely to en­joy the di­rect ben­e­fit of lower MCLRs.

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