Housing finance & realty sector should collaborate
HOUSING finance & realty sector should collaborate for mutual benefit in 2015. 2014 was a year of hope. Along with the overall sense of optimism the new Prime Minister brought in, he specifically gave a positive nudge to the real estate industry through his hope of 'a home for all by 2022'. This in turn created an eco-system of opportunity for every connected industry, including the housing finance segment. Riding on the high, lenders, developers and the government worked hard with a renewed sense of passion to boost the housing finance segment, and ultimately the real estate industry. With various industry reports estimating real estate contributing 8-10% to the national GDP, this hard work will look to impact the entire economy as well.
Banks and NBFCs had a keen interest to accelerate their growth in the housing finance industry in 2014. Even large corporations, such as Aditya Birla & Manapurram Finance, looked to enter and expand into the consumer home loan segment. With lenders realizing the customization of innovation consumer home loan products being key in a highly competitive environment, they targeted products such Axis Bank's Asha Home Loan for the lower income strata, SBI's ' Her Ghar' Loan aimed at women, or even BNP Paribas launching a mortgage product aimed at rural SC/ST women. Lenders also added special features to their products such as the popular 'Over-Draft', enabling customers to earn optimal yield on their saving by reducing interest burden on home loans. As the interest rates softened and the chatter of further rate cuts spread, lenders pushed hard to ensure to develop the best product for prospective borrowers.
The government was not far behind in pushing this sector. Many new initiatives and policies were put in place, specifically focused on lending for housing. Perhaps the biggest highlight was moving to bring housing loans of up to Rs.50 lakh under priority sector lending, against loans of up to Rs.25 lakh earlier. The RBI also abolished any pre-payment penalty on floating-rate housing loans in 2014. This was aimed to be a shot in the arm for developers and increase demand in real estate. The increasing of the tax deduction limit on interest of home loans to Rs 2 lakh by Mr. Jaitley gave the prospective homebuyers & industry more reason to cheer.
Apart from these, the launch of REITs can be a game-changer for the industry going forward. To add, the government also relaxed the FDI norms for the construction and real estate sector as well as easing exit for global investors. The easing of FDI and REIT were both great highlights of the year in a sector with a high need for capital for growth. A definitive & visual effort was put in by the new incoming government to establish policies, standards, and framework to support the growth of this industry.
The developers had the most to gain from the hard work of the lenders and the new government, but they did put in their fair share to ensure the push was not let up. Creation of innovative finance schemes, customized housing products, and a strong focus on affordable housing looked to be a major fillip for the industry. The developers put in great effort to couple the work of lenders and policy to strengthen this sector.
This tremendous passion and dedication put in by all the entities involved in the housing finance segment would seem to have set the stage for a major acceleration in this industry. But while there was growth, it was definitely not at the level expected. Each entity, namely the lenders, government/RBI, and developers, focused on doing their bit to grow the industry, but while each initiative was done with growth approach in mind, it was not necessarily agreed upon by the other entities. For example, while the ceiling under priority sector lending was raised to Rs 50L, many developers thought it was still too low in relation to the high property prices, especially in metros.
While the lenders tried to develop industry-friendly products, the government and builders wanted more. In fact, there was an official statement by the RBI to urge lenders to structure more innovative home loan instruments. Developers offered more innovative products and schemes, but the government urged them to focus on reducing costs to ensure more achievable price points for consumers apart from the heavy push for affordable housing.
In fact, the government came down hard on some of the financial schemes offered by these builders. While all the entities had the right intention of growth in mind, one may wonder why they never sat down and discussed the needs of the sector together!