Af­ford­able Hous­ing be­com­ing main­stay for HFCs

be­com­ing main­stay for HFCs

Banking Frontiers - - Highlights - Mo­han@bank­ingfron­

HFCs are ben­e­fit­ing from the three ma­jor re­form mea­sures – de­mon­e­ti­za­tion, RERA and GST

HFCs are ben­e­fit­ing from the three ma­jor re­form mea­sures – de­mon­e­ti­za­tion, RERA and GST:

Hous­ing and hous­ing fi­nance are the two re­lated in­dus­try seg­ments that are fore­cast to grow phe­nom­e­nally in the years ahead, what with the govern­ment’s thrust on Hous­ing for All by 2022 and fund­ing mas­sive con­struc­tion ac­tiv­i­ties. The es­ti­mate is that the coun­try needs around 1 crore new houses at this point of time and with the pop­u­la­tion ex­pected to grow, this is fig­ure is set to go up.

There are 71 hous­ing fi­nance com­pa­nies reg­is­tered un­der the Na­tional Hous­ing Bank Act 1987 and op­er­a­tional, in­clud­ing those with to­tal fo­cus on ru­ral hous­ing. Fi­nance min­is­ter Arun Jait­ley had an­nounced in the bud­get for 201819 that the govern­ment would es­tab­lish a ded­i­cated af­ford­able hous­ing fund in the Na­tional Hous­ing Bank through var­i­ous fund­ing mea­sures. This mea­sure is likely to in­crease fund­ing op­tions for hous­ing fi­nance com­pa­nies (HFCs) op­er­at­ing in the af­ford­able hous­ing space


The govern­ment is also of­fer­ing all the sops pos­si­ble to re­al­ize the aim of hous­ing for all by 2022 like var­i­ous con­ces­sions, the most im­por­tant of them be­ing a lower Goods and Ser­vices (GST) rate. Be­sides, two other ma­jor re­forms - de­mon­e­ti­za­tion and the en­act­ment of the Real Es­tate (Reg­u­la­tion & De­vel­op­ment) Act (RERA) have im­pacted the in­dus­try in a pos­i­tive man­ner.

Renu Kar­nad, man­ag­ing di­rec­tor, HDFC, which is the No 1 provider of hous­ing fi­nance in the coun­try, says the hous­ing sec­tor has positively im­pacted by the re­forms. “De­mon­e­ti­za­tion has helped the sec­tor in re­duc­ing the black money men­ace. Also, due to higher in­come dis­clo­sures and the so-called un­pro­duc­tive money mov­ing into the for­mal econ­omy, the prospects for homebuyers have im­proved in the pri­mary and sec­ondary mar­kets. RERA and GST are both wel­come mea­sures. It is in­evitable that in the ini­tial stage, all ma­jor leg­isla­tive re­forms will pose chal­lenges as they do re­quire re­cal­i­bra­tion and struc­tural ad­just­ments. Yet, these mea­sures will bring in the much-needed trans­parency into the sec­tor and will be ben­e­fi­cial over the longert­erm,” she says.


Ac­cord­ing to Harshil Me­hta, joint man­ag­ing di­rec­tor and CEO, DHFL, hous­ing in­dus­try has re­ceived a boost from the aug­mented growth in the af­ford­able hous­ing seg­ment in the last few years, which has been driven by the govern­ment’s vi­sion of ‘Hous­ing for all by 2022’. “This has also been led by in­dus­try-build­ing ini­tia­tives like the Credit Linked Sub­sidy Scheme (CLSS) un­der the Prad­han Mantri Awaas Yo­jana (PMAY) and the dou­bling of the bud­get al­lo­ca­tion for af­ford­able hous­ing to `8 bil­lion. The govern­ment has also granted in­fra­struc­ture sta­tus to af­ford­able hous­ing, which has en­abled the projects to avail

ben­e­fits such as lower bor­row­ing rates, tax con­ces­sions and in­creased flow of for­eign and pri­vate cap­i­tal. Poli­cies and struc­tural re­forms, such as RERA and GST are play­ing a trans­for­ma­tional role in open­ing op­por­tu­ni­ties, im­prov­ing trans­parency and en­hanc­ing con­sumer trust, thus evolv­ing the real es­tate in­dus­try out­look. Through these ini­tia­tives and the drive to cre­ate smart cities and Dig­i­tal In­dia, the govern­ment is trans­form­ing the hous­ing sec­tor to­wards higher con­sol­i­da­tion, greater ef­fi­ciency, in­creased trans­parency and bet­ter con­nec­tiv­ity through dig­i­ti­za­tion,” he says.


Ash­wini Ku­mar Hooda, deputy man­ag­ing di­rec­tor, In­di­a­b­ulls Hous­ing Fi­nance, be­lieves the in­tro­duc­tion of sev­eral path break­ing ini­tia­tives by the govern­ment has brought about tec­tonic changes within the coun­try. The in­tro­duc­tion of RERA has cre­ated in­creas­ing trans­parency and thus cus­tomer con­fi­dence within the in­dus­try, he says, adding: “Un­der RERA, the devel­oper will not be able to di­vert funds re­ceived from flat buy­ers to out­side the project, with 70% of re­ceipts ear­marked to­wards the project. Sim­i­larly, de­liv­ery time­lines are mon­i­tored by the reg­u­la­tor with pe­nal pro­vi­sions for fail­ure to de­liver within com­mit­ted time­lines. Prospec­tive buy­ers will have ac­cess to this in­for­ma­tion and vi­o­la­tions by the builder will have ad­verse im­pact on sales off­take. De­vel­op­ers will thus have to launch projects where they are sure of com­ple­tion and have good vis­i­bil­ity of sales. Also, his­tor­i­cally, the af­ford­able hous­ing space has been dom­i­nated by small, un­or­ga­nized play­ers, who are not full-time de­vel­op­ers but own­ers of small parcels of land, on which they con­struct and sell res­i­den­tial apart­ments. Such de­vel­op­ers may not have the or­ga­ni­za­tional ca­pa­bil­i­ties to com­ply with RERA pro­vi­sions and have the op­er­a­tional band­width and ma­tu­rity to man­age the com­pli­ance re­quire­ments. The mar­ket is al­ready wit­ness­ing many such sin­gle land par­cel own­ers en­ter­ing into JVs with larger builders to jointly de­velop their projects and such JVs will open these projects for credit from large or­ga­nized lenders, es­pe­cially HFCs and banks.”


Khushru Ji­jina, man­ag­ing di­rec­tor, Pi­ra­mal Fi­nance and Pi­ra­mal Hous­ing Fi­nance, con­curs. Says he: “All these govern­ment mea­sures were dis­rup­tive in the short term but nec­es­sary for the longer term. Once the ini­tial con­fu­sion fol­low­ing the im­ple­men­ta­tion of RERA and GST has died down, the in­dus­try has seen re­newed con­fi­dence and in­ter­est from in­vestors who have viewed this positively as a move to­wards higher stan­dards of trans­parency and in­sti­tu­tion­al­iza­tion. Con­sol­i­da­tion of de­vel­op­ers is an­other de­riv­a­tive as there is now an in­her­ent re­quire­ment to be more ac­count­able and to have en­hanced cor­po­rate gov­er­nance and cap­i­tal struc­ture. We have also seen new tar­get­ing the af­ford­able hous­ing seg­ment as driven and de­sired by the govern­ment. Af­ford­able hous­ing has emerged as the so­lu­tion to the coun­try’s prob­lem of hous­ing for all, and with wellde­fined in­cen­tives is now be­ing taken up in earnest by all de­vel­op­ers as an op­por­tu­nity.”

Anil Kothuri, pres­i­dent and head, Edel­weiss Re­tail Fi­nance, is of the view that the broad im­pact of the re­cent govern­ment ini­tia­tives is to bring about for­mal­iza­tion in the econ­omy and to make real es­tate trans­ac­tions more se­cure. “While there are pangs of tran­si­tion that have gripped the real es­tate sec­tor, the long-term im­pact of all these changes is pos­i­tive. RERA will en­able pur­chasers of prop­erty to em­bark on the ex­er­cise with greater con­fi­dence and im­part cer­tainty to the home buy­ing process. GST will en­sure greater num­ber po­ten­tial buy­ers have a fi­nan­cial foot­print, thereby mak­ing them eas­ier to lend to,” he says.


Arvind Hali, man­ag­ing di­rec­tor and CEO, ART Af­ford­able Hous­ing Fi­nance, a com­pany pro­vid­ing long-term hous­ing loans to cus­tomers be­long­ing to the eco­nom­i­cally weaker sec­tions, low and mid­dle in­come groups in pe­riph­er­als of ur­ban and semi­ur­ban In­dia, says the 3 ini­tia­tives of de­mon­e­ti­za­tion, RERA and GST have had an ad­verse im­pact on the hous­ing de­vel­op­ment and hous­ing fi­nance in the im­me­di­ate af­ter­math, but these mea­sures will ul­ti­mately prove to be key driv­ers of the real growth in real es­tate. “De­mon­e­ti­za­tion has brought a lot of work­ing pop­u­la­tion into doc­u­mented in­come pa­pers, cre­ation of bank­ing records and im­proved bank­ing habits. This will have a di­rect bear­ing on the cred­it­wor­thi­ness of these cus­tomers and will pro­vide con­fi­dence to the lender to pro­vide loans. GST, sim­i­larly, brings in uni­for­mity and low­er­ing of cost due to in­put credit ben­e­fit that gets trans­ferred to the cus­tomers. The govern­ment has al­ready low­ered the ap­pli­ca­ble GDST from 12% to 8% for af­ford­able hous­ing as well as ad­vi­sory that even this 8% will get off­set for the builder by in­put credit. RERA pro­vides for the rights and obli­ga­tions of the cus­tomer, devel­oper / builder and real es­tate agents as well. It pro­vides for clear roles and de­fines rights apart from defin­ing the stan­dards of de­vel­op­ment of res­i­den­tial and com­mer­cial com­plexes. The stan­dard­iza­tion so cre­ated will ul­ti­mately come as res­cue of the cus­tomers who felt hap­less at the hands of de­vel­op­ers in the ear­lier regime. It will also en­force dis­ci­pline in the devel­oper / builder seg­ment and cre­ate a win-win sit­u­a­tion for seller and buyer in the long run,” says he.

Deo Shankar Tri­pathi, man­ag­ing di­rec­tor and CEO, Aad­har Hous­ing Fi­nance (for­merly DHFL Vysya Hous­ing

Fi­nance), which is also into the af­ford­able hous­ing seg­ment, says the hous­ing mar­ket across the coun­try has shown good im­prove­ment dur­ing the last 6 months and is poised to come back to its full scale. He says de­mon­e­ti­za­tion was one of the un­prece­dented dis­rup­tive move, which ini­tially hit many sec­tors, par­tic­u­larly the hous­ing sec­tor, and cre­ated lots of un­cer­tainty among de­vel­op­ers, buy­ers and in­vestors. But, the sur­plus liq­uid­ity in the bank­ing sys­tem aris­ing out of de­mo­niza­tion trig­gered in­ter­est rate cut by the banks and both these events sig­naled re­vival of sen­ti­ments in hous­ing mar­ket, he adds.

“And while de­mon­e­ti­za­tion cleansed the hous­ing sec­tor, RERA and GST brought about much needed trans­parency. These mea­sures boosted the con­fi­dence of ac­tual home buy­ers and dis­cour­aged the spec­u­la­tors and in­vestors. Grad­u­ally de­vel­op­ers have also aligned with these re­forms. Flow of in­sti­tu­tional and for­eign funds are ex­pected to im­prove in the hous­ing sec­tor,” he says.


Kar­nad of HDFC, while con­ced­ing that RERA had led to some slow­down in new launches, the dif­fi­cul­ties faced ini­tially are al­ready fad­ing as the de­vel­op­ers are align­ing them­selves in ac­cor­dance with RERA. She stresses that RERA will add more con­fi­dence as it is largely tilted to­wards pro­tect­ing cus­tomer in­ter­est. “Buy­ers are con­fi­dent while buy­ing houses and this is clearly re­flected in our re­tail loan book, which has been see­ing a healthy growth,” she points out.

DHFL’s Me­hta too points out that postim­ple­men­ta­tion of RERA, there has been no slow­down in the real es­tate and the hous­ing fi­nance sec­tor and in fact the mea­sure has given the In­dian hous­ing in­dus­try its first reg­u­la­tor. “The im­ple­men­ta­tion (of RERA) has been ex­tremely ben­e­fi­cial in pro­tect­ing con­sumer in­ter­ests, in­creas­ing clar­ity, en­sur­ing ef­fi­ciency in prop­erty-re­lated trans­ac­tions, im­prov­ing ac­count­abil­ity of de­vel­op­ers, en­hanc­ing trans­parency, boost­ing con­sumer con­fi­dence. This pos­i­tive sce­nario is at­tract­ing more in­vest­ments to the real es­tate sec­tor and thus, bol­ster­ing de­mand for the hous­ing sec­tor and hence the hous­ing fi­nance sec­tor,” he says.

Says Ji­jina of Pi­ra­mal Hous­ing Fi­nance: “The slow­down is in the res­i­den­tial space and is pri­mar­ily due to the end buyer’s con­fu­sion of whether to pur­chase now or wait. This con­fu­sion has been on ac­count of mul­ti­ple things, which in­clude RERA and cer­tain in­con­sis­ten­cies (be­tween com­pleted and un­der con­struc­tion units) in the GST regime. This was also clubbed with an ex­pec­ta­tion of fur­ther re­duc­tion in in­ter­est rates, which has not tran­spired. Sales have been af­fected through­out mar­kets, pri­mar­ily in the higher end lux­ury projects and on a more gen­eral ba­sis for tier 2 de­vel­op­ers. This has led to re­verse JDAs be­ing en­tered into with top tier branded de­vel­op­ers as well as newer launches fo­cus­ing on end user af­ford­abil­ity. With lim­ited stock and slow growth in the ex­ist­ing lux­ury space, the con­sol­i­da­tion phase seems to be ta­per­ing off. The next de­mand cy­cle will surely be led by af­ford­able hous­ing and will fur­ther de­pend on the devel­oper’s ca­pa­bil­ity of work­ing on lower mar­gins and quick ex­e­cu­tion.”


Kothuri of Edel­weiss Re­tail Fi­nance de­scribes it as the tran­si­tion from be­ing an un­reg­u­lated sec­tor to a reg­u­lated one and this has been sud­den. “The real es­tate in­dus­try is com­ing to grips with it. There has been a lot of trac­tion af­ter a slow start. Both builders and buy­ers have be­gun to em­brace RERA ow­ing to the clar­ity and ad­van­tages that it pro­vides,” says he.


The govern­ment has given a whole lot of em­pha­sis on af­ford­able hous­ing. Is such a pol­icy ben­e­fi­cial to hous­ing fi­nance com­pa­nies? What are the is­sues in gen­eral in fi­nanc­ing this sec­tor?

Kar­nad be­lieves the op­por­tu­nity in af­ford­able hous­ing seg­ment is huge and the govern­ment has provided the right thrust on en­cour­ag­ing peo­ple to buy houses, par­tic­u­larly af­ford­able houses. This, she says, is re­flected in a num­ber of govern­ment pro­grams and in­cen­tives such as grant­ing ‘in­fra­struc­ture’ sta­tus to af­ford­able hous­ing, 100% tax de­duc­tion to de­vel­op­ers, credit linked sub­sidy scheme, etc. “This mas­sive boost from the govern­ment to af­ford­able hous­ing has made it fa­vor­able for homebuyers to buy homes and this in turn has provided huge op­por­tu­nity for hous­ing fi­nance com­pa­nies,” says she.

Me­hta of DHFL feels the In­dian econ­omy and the af­ford­able hous­ing fi­nance in­dus­try within it are at very exciting stages. “The re­cent push by the govern­ment to achieve its ob­jec­tive of ‘Hous­ing for all by 2022’ and var­i­ous pol­icy re­forms, struc­tural shifts, de­vel­op­ment ini­tia­tives to­wards this ob­jec­tive are ex­pected to boost sale of af­ford­able and low-cost hous­ing units and con­se­quently, boost the hous­ing fi­nance in­dus­try. Ad­di­tion­ally, the govern­ment has been tak­ing the right steps to build strong con­ducive pol­icy frame­works to­wards greater fi­nan­cial in­clu­sion to sup­port the af­ford­able hous­ing fi­nance sec­tor. Rise in af­ford­able hous­ing projects is one of the fac­tors driv­ing dis­burse­ments up post de­mon­e­ti­za­tion over short to medium term. As a re­sult, In­dia’s af­ford­able hous­ing sec­tor is emerg­ing with re­newed con­fi­dence, stronger in­vestor sen­ti­ment and a fa­vor­able macro-eco­nomic en­vi­ron­ment,” he says.


For Hooda, the im­por­tant thing is that the govern­ment has changed its per­cep­tion of hous­ing from that of a so­cial ob­jec­tive to that of a pri­mary re­quire­ment of the

pop­u­la­tion. “The govern­ment has made hous­ing, es­pe­cially af­ford­able hous­ing, the cen­ter piece of its eco­nomic pol­icy. It has con­cen­trated its sin­gu­lar fo­cus on the hous­ing sec­tor through var­i­ous schemes like ‘Hous­ing for all by 2022’, ‘Prad­han Mantri Awaas Yo­jana’, ‘Af­ford­able Hous­ing Plan’, etc. In ad­di­tion, it has taken con­certed steps with var­i­ous sec­toral reg­u­la­tors to align poli­cies and fis­cal in­cen­tives to in­cen­tivize the hous­ing sec­tor. It has en­hanced the scope of af­ford­able hous­ing for all stake­hold­ers buy­ers, lenders and de­vel­op­ers, through var­i­ous pol­icy mea­sures,” he elab­o­rates.


Ji­jina also sees af­ford­able hous­ing to be­come the in­dus­try’s de­mand driver in the years to come. He says a devel­oper’s chal­lenge of ac­cess to low cost cap­i­tal has been ad­dressed by the govern­ment in mul­ti­ple ways now, like in­fra­struc­ture sta­tus to af­ford­able hous­ing and the set­ting up of ded­i­cated af­ford­able hous­ing fund. “With more than 50% of the launches over the last one year in the af­ford­able cat­e­gory, hous­ing fi­nance com­pa­nies have al­ready started to fo­cus on cre­at­ing cus­tom­ized prod­ucts for the el­i­gi­ble clien­tele.

Kothuri of Edel­weiss Re­tail Fi­nance says the govern­ment has an­nounced that it will con­struct over 50 lakh homes in the com­ing year and the con­struc­tion of af­ford­able homes has been given the sta­tus of an in­fra­struc­ture in­dus­try, which means lower cost of funds. “All these will sig­nif­i­cantly en­hance the stock of new homes that HFCs can fund. There are also in­ter­ven­tions on the de­mand side. Loans for af­ford­able homes are sub­si­dized by the govern­ment un­der PMAY mak­ing home pur­chase and loan ser­vic­ing more af­ford­able,” says he.


Hali of ART Af­ford­able Hous­ing Fi­nance points out to the fact that all govern­ment agencies re­spon­si­ble for hous­ing growth like NHB are un­der di­rect re­view by PMO and this in­di­cates the se­ri­ous­ness of the govern­ment. “Cus­tomer ben­e­fit schemes like CLSS for EWS and LIG have been ex­panded to MIG-I and MIG-II as well and de­ci­sions have come fast to ex­tend the scheme dates and in­clude higher prop­erty sizes un­der the gamut of CLSS. On the other hand, ben­e­fit schemes of Reg­u­lar Re­fi­nance Fund, Ur­ban Hous­ing Fund, Ru­ral Hous­ing Fund, World Bank Ur­ban Hous­ing / Low In­come Hous­ing Fund, Re­fi­nance for Con­struc­tion Fi­nance are all set to pro­vide im­pe­tus to af­ford­able hous­ing fi­nance sec­tor,” says he.


One of the fall­outs of the NPA prob­lem fac­ing banks is that banks are less will­ing to lend. This has hit the hous­ing sec­tor as well leading to a sit­u­a­tion where credit and de­mand for hous­ing are still grow­ing, the fi­nances are not forth­com­ing. Do HFC per­ceive an in­creased role in this sit­u­a­tion?

Ji­jina of Pi­ra­mal Fi­nance be­lieves HFCs have a role here in bridg­ing the de­mand gap. “With the ben­e­fit of hav­ing a reg­u­la­tory ar­bi­trage and be­ing closer to the mar­ket, we are bet­ter equipped to of­fer cus­tom­ized so­lu­tions to our clients. How­ever, as the re­cent study from RBI pointed out that NPAs in af­ford­able hous­ing loans also in­creased dur­ing 2016-17, it is im­por­tant to have the where­withal to iden­tify the right client. We work on a part­ner­ship ap­proach and have iden­ti­fied de­vel­op­ers who have learnt to con­trol costs and are look­ing at higher vol­umes and quicker sales through af­ford­able hous­ing projects i.e. an un­com­pro­mised fo­cus on ex­e­cu­tion. With our ca­pa­bil­ity to help de­vel­op­ers to achieve fi­nan­cial clo­sure in a post RERA world, cou­pled with a unique abil­ity to also fund the tar­get end buyer through our HFC, we feel we are strongly placed to drive fur­ther growth in this seg­ment,” he ex­plains.


Hooda of In­di­a­b­ulls Hous­ing Fi­nance says the NPA prob­lems per­tain largely to cor­po­rate lend­ing by banks and home loans rep­re­sent the low­est risk as­set and so ev­ery home loan lender con­tin­ues to fo­cus on this seg­ment. “How­ever, over the past decade, PSU banks have been los­ing mar­ket share and this has not been for rea­sons of short­age of cap­i­tal or NPA prob­lems. There has been only 11% growth in banks’ home loans credit year-on-year. These banks’ com­pet­i­tive po­si­tion has been de­te­ri­o­rat­ing vis a vis ICRA/ CRISIL rated AAA HFCs. The ad­van­tage that banks have on low cost of funds from CASA is lost in high opex from an ex­ten­sive branch net­work that they need to main­tain to raise the low-cost CASA in the first place. Even banks like SBI, Axis Bank and ICICI Bank, which are the only rel­e­vant home loan lenders among banks, op­er­ate on very thin mar­gins, as low as one-third that of AAA rated HFCs, in the prime home loan seg­ment. For PSU banks, the mar­gins are fur­ther com­pressed due to high credit costs and hence their op­er­at­ing mar­gins are even lower. Even new age banks that are oth­er­wise very suc­cess­ful lenders find home loans un­vi­able as many op­er­ate at even higher cost-to-in­come and of­fer higher rates on their sav­ings ac­count,” says he.

Hooda also ex­plains that PSU banks are hand­i­capped in their dis­tri­bu­tion abil­ity since the dis­tri­bu­tion point of a home loan is cur­rently the point of sale, ie the con­struc­tion sites.

“I feel that the com­ing decade will be­long to HFCs who will in­cre­men­tally con­tinue to take mar­ket share away from banks,” says he.

Kothuri of Edel­weiss ar­gues that the pen­e­tra­tion of mort­gage loans has been in­creas­ing year af­ter year and no bor­rower

who is look­ing for a loan has to go with­out one since there are mul­ti­ple in­sti­tu­tions vy­ing for busi­ness in each lo­ca­tion.


Hali of ART Af­ford­able Hous­ing Fi­nance states NPA prob­lems faced by banks are not re­lated with re­tail lend­ing and es­pe­cially hous­ing sec­tor. All banks are equally chas­ing the home loan prospects like any other HFC, he says. How­ever, he be­lieves af­ford­able hous­ing sec­tor is a dif­fer­ent ball game al­to­gether since it has its own sets of temp­ta­tions – small ticket sizes, govern­ment push, end-user cus­tomer pro­file, govern­ment sub­sidy to cus­tomers, re­fi­nance op­tions to fi­nanciers, PSL cat­e­go­riza­tion for lenders and in­fra sta­tus for projects etc. “This has let all stake­hold­ers to, kind of, cel­e­brate the move­ment with am­bi­tious and exciting strides,” he says.

Hali says the ap­prox­i­mately `16 lakh crore In­dian hous­ing fi­nance book is di­vided among banks and HFCs with banks hav­ing a share of 62% of the loans dis­bursed. How­ever, re­cently, HFCs have made big strides and al­most 78% of this share is with the top 7-8 HFCs. “We as an HFC are poised for growth with di­rec­tion of pedi­gree pro­mot­ers, young team with proven track record and con­tin­u­ous in­no­va­tion rid­ing on tech­nol­ogy in the con­ge­nial en­vi­ron­ment of hous­ing de­vel­op­ment in In­dia. We have am­bi­tious plans for 3 -5 years in phased ex­e­cu­tion,” says he.

Tri­pathi of Aad­har Hous­ing Fi­nance says the high level of NPAs has in­deed forced pub­lic sec­tor banks to change their fo­cus. But this is ac­tu­ally from big loans to cor­po­rates to of­fer­ing hous­ing and re­tail loans. “Hence, the flow of fi­nance for hous­ing has rather in­creased. There is grow­ing com­pe­ti­tion in hous­ing loan mar­ket be­cause of the pres­ence of large num­ber of play­ers. But, HFCs play a very ac­tive role in reach­ing out to all cat­e­gories rang­ing from high net worth to mid in­come and to low in­come group. Quick turn around and door step ap­proach of the HFCs give them an edge over banks,” says he.


Kar­nad of HDFC says the real es­tate sec­tor in the last few years has gone through a mas­sive trans­for­ma­tion. “The sec­tor has wit­nessed a plethora of re­forms such as PMAY, GST, RERA, de­mon­e­ti­za­tion, etc. Af­ford­able hous­ing has been granted in­fra­struc­ture sta­tus. Also, with rapid eco­nomic growth, easy avail­abil­ity of fi­nance cou­pled with high dis­pos­able in­come has made many In­di­ans look fa­vor­ably at buy­ing a home of their own,” says she.

She also main­tains that the govern­ment’s thrust on af­ford­able hous­ing by way of CLSS for EWS, LIG and MIG seg­ments, in­ter­est ben­e­fits on home loans and plethora of other ini­tia­tives such as smart city and AMRUT project puts hous­ing es­pe­cially the af­ford­able hous­ing seg­ment in sweet spot for com­ing years. “There is a huge scope for growth (for hous­ing sec­tor) in In­dia es­pe­cially since the hous­ing loans to GDP ra­tio is at an abysmally low at 9%, while China is at 18% and most of the ad­vanced economies at 60-85%,” says she.


Me­hta of DHFL says his com­pany has iden­ti­fied its role slightly dif­fer­ently. “Over the last 3 decades, we have been en­abling home own­er­ship dreams of the low and mid­dle-in­come seg­ment in the tier 2 & 3 towns. Our pow­er­ful com­mu­ni­ca­tion to en­gage with po­ten­tial cus­tomers and the com­mu­nity at large has proved ef­fec­tive in seed­ing the thought of home own­er­ship. We are com­mit­ted to cus­tomer cen­tric prod­ucts and pro­cesses. Proac­tive com­mu­ni­ca­tion with ex­ist­ing and new cus­tomers, best-in­class tech­nol­ogy and pro­cesses for en­hanced ef­fi­ciency have all bun­dled to of­fer a ro­bust cus­tomer cen­tric de­liv­ery mech­a­nism. We of­fer wider sup­port to cus­tomer ac­cess through tie-ups with se­lect pub­lic and pri­vate sec­tor banks to widen reach. Apart from home loans, we also of­fer other mort­gage backed prop­erty (non-hous­ing) loans, SME loan prod­ucts and project fund­ing es­pe­cially tar­geted to­wards the af­ford­able seg­ment,” he says.


Hooda says in­creas­ing af­ford­abil­ity on the back of steady wage in­fla­tion com­bined with rock bot­tom home loan in­ter­est rates and tepid prop­erty price in­fla­tion has re­sulted in higher de­mands for home loans es­pe­cially from tier 2, 3 and 4 cities. Peo­ple from lower tier cities who were ear­lier in­el­i­gi­ble to take a home loan have now enough dis­pos­able in­come and qual­ify to get a home loan. “We could not cater to this seg­ment ear­lier due to the high cost of set­ting up op­er­a­tions in such cities. The costs out­weighed the op­por­tu­ni­ties avail­able in this mar­ket. To over­come this road­block, we have dig­i­tized our of­fer­ings with leaner tech-ef­fi­cient home loan branches in these cities. Sup­ported strongly by the dig­i­tal in­fra­struc­ture of eHome loans, our Smart City ini­tia­tive which is to spread into tier 2, 3 and 4I lo­ca­tions con­tin­ues to have strong trac­tion. Our ge­o­graph­i­cal mix of home loan sourc­ing shows that in 2012 we had 85% of the loans com­ing from top 20 cities. Now 70% of the loans come from the top 20 cities. By FY20, this will fur­ther shift to only 50% of the loans com­ing from top 20 cities while the rest com­ing from smaller cities, thus gain­ing im­mensely from the vast un­ful­filled hous­ing de­mand in these smaller cities.,” he says.

With af­ford­able hous­ing as the fo­cus of the govern­ment and all sops around it, most of the de­vel­op­ers are look­ing to this sec­tor for their next de­vel­op­ment plans. Ji­jina says even fi­nan­cial in­sti­tu­tions are bet­ting big

with an­nounce­ments to in­vest around $4 bil­lion in af­ford­able hous­ing projects. “We are typ­i­cally fo­cused on fund­ing projects in ma­jor met­ros; how­ever, we see tier 2 cities wit­ness­ing lot of ac­tiv­ity on the af­ford­able hous­ing front. Hence en­ter­ing these mar­kets is the next plan of ac­tion. On the hous­ing fi­nance side, while we have started by rolling out our branches in the met­ros, the plan was al­ways to es­tab­lish our pres­ence in tier 2 and 3 cities. In fact, we have fast tracked our own in­ter­nal plans of ex­pand­ing into these cities and you will see some an­nounce­ments be­ing made in due course.

Kothuri of Edel­weiss Fi­nance af­firms that cities out­side of the top 10 largest ones is where the mar­ket is get­ting cre­ated. He says Edel­weiss cur­rently has branches in over 100 cities across south and west In­dia. There are an­other 50 branches on the anvil which will help the com­pany op­ti­mize its pres­ence across the coun­try, says he.


Kar­nad sees more de­mand for hous­ing fi­nance com­ing from tier 2, 3 and 4 cen­ters and pe­riph­eries of big cities, ba­si­cally on ac­count of fa­vor­able de­mo­graph­ics and in­her­ent de­mand for hous­ing. She says the PMAY has been a real booster to meet the de­mand of hous­ing in these cities. “We have been part­ner­ing with the govern­ment whole­heart­edly. We have also been ed­u­cat­ing the cus­tomers about the ben­e­fits of these schemes by con­duct­ing sem­i­nars, pre­sen­ta­tions, Q&A ses­sions and on the spot coun­sel­ing across the coun­try. We have trained over 1000 de­vel­op­ers, trained and reached over 30,000 chan­nel em­ploy­ees and de­vel­op­ers’ staff, and over 2000 of our in-house staff. We have a fully de­vel­oped train­ing mod­ule and have con­ducted on­line campaign on var­i­ous so­cial me­dia plat­forms to reach out to a wider au­di­ence,” says she.

HDFC, says Kar­nad, has been on an av­er­age ap­prov­ing 8000 loans on a monthly ba­sis to the EWS (house­hold in­come up to `3 lakh pa) and LIG (house­hold in­come be­tween `3 lakh and `6 lakh pa) seg­ment, with monthly av­er­age ap­provals at ap­prox­i­mately `1300 crore. Dur­ing the 9 months ended 31 De­cem­ber 2017, in value terms, loans to the EWS and LIG seg­ment grew by 32% and 39% re­spec­tively over the cor­re­spond­ing pe­riod in the pre­vi­ous year. The av­er­age home loan to the EWS and LIG seg­ment stood at `10.24 lakh and `17.38 lakh re­spec­tively.

Me­hta also fore­sees higher de­mand from tier 2,3 and 4 mar­kets. He says higher trans­ac­tion vol­umes in non-metro cen­ters and fis­cal in­cen­tives on hous­ing loans along with more op­tions in the af­ford­able hous­ing seg­ment have led to a ro­bust off­take of the hous­ing fi­nance in­dus­try. “We fo­cus pri­mar­ily on the lower and mid­dle in­come, groups which are con­cen­trated in tier 2 and 3 mar­kets across In­dia and we have de­vel­oped a busi­ness model and an at­trac­tive suite of prod­ucts to cater to them. We main­tain pan-In­dia pres­ence and mar­ket­ing in over 350 lo­ca­tions in In­dia which fur­ther ser­vices 500+ lo­ca­tions,” says he.

Hali of ART Af­ford­able Hous­ing Fi­nance says af­ford­able hous­ing is sewn closely to de­vel­op­ment in RURBAN ar­eas. A large sec­tion of af­ford­able home buy­ers in the EWS and LIG seg­ment mi­grate from ru­ral ar­eas to­wards ar­eas see­ing de­vel­op­ment thus cre­ate nu­cle­ariza­tion of fam­ily and a planned fil­lip, there­fore, in agrar­ian econ­omy em­bed­ded with so­cial in­fra de­vel­op­ment, eco­nomic boost for job cre­ation, health schemes to ab­sorb eco­nomic shocks, etc.

Aad­har Hous­ing Fi­nance has been reach­ing out to the tier 2,3 and 4 mark­ers through a hub and spoke model. The com­pany, says Tri­pathi, has been see­ing a grow­ing de­mand in these mar­kets and it has set up branches at 275 cen­ters and through these branches it cov­ers about 1500 lo­ca­tion in 19 states.


Ear­lier, it used to be in­ter­est rates that were the de­cid­ing fac­tor for a cus­tomer to se­lect a HFC. But, now there are other con­sid­er­a­tions, in­clud­ing TAT, ease of deal­ing etc. What are the ma­jor sops that HFCs of­fer to the cus­tomers to at­tract them?

Kar­nad says in­ter­est rate, though an im­por­tant fac­tor in en­tire the value chain, is only one link in the chain. “There is lot more a home­buyer needs to con­sider keep­ing in mind long-term im­pli­ca­tions of the en­tire trans­ac­tion, prop­erty value, builder’s track record and most im­por­tantly the right in­for­ma­tion to make a sound de­ci­sion. Cus­tomers come to us be­cause we also of­fer ‘HOME LOANS’. What this means is a home loan is some­thing ev­ery­one in­clud­ing us of­fers but what is dif­fer­ent is the value ad­di­tion we bring to the ta­ble. We are a spe­cial­ized and fo­cused home loan provider. We pro­vide our cus­tomers the ben­e­fit of our ex­pe­ri­ence by as­sist­ing them on the doc­u­men­ta­tion, loan op­tions, le­gal and tech­ni­cal guid­ance. A home loan from HDFC is not just about money but a whole lot of things that goes to make the ex­pe­ri­ence of buy­ing a house a mem­o­rable one for our cus­tomers,” she elab­o­rates.

Me­hta says DHFL, while of­fer­ing a range of home loan prod­ucts to suit bor­row­ing ca­pa­bil­i­ties across dif­fer­ent classes of bor­row­ers, it takes special care to en­able the LMI seg­ment to ac­cess home loans. This is done by de­sign­ing the prod­ucts and pro­cesses. “To fa­cil­i­tate af­ford­able hous­ing fi­nance for the eco­nom­i­cally weaker sec­tions, we ac­tively par­tic­i­pate in NHB’s var­i­ous schemes, such as the Golden Ju­bilee Ru­ral Hous­ing Re­fi­nance scheme and Prad­han Mantri Awas Yo­jana; and of­fers range of cus­tom­ized prod­ucts and

ben­e­fits es­pe­cially suited to this seg­ment,” says Me­hta.


Hooda says since all the HFCs of­fer al­most the same rate of in­ter­est, the dif­fer­en­ti­at­ing fac­tor for a cus­tomer would be the con­ve­nience with which he can trans­act and the fastest turn­around time he can get. “Tech­nol­ogy plays a ma­jor role in en­abling a lender like us to ex­tend such fa­cil­i­ties to a bor­rower,” says he.

He ex­plains the cur­rent sce­nario” “We have com­pletely rev­o­lu­tion­ized the home loans dis­tri­bu­tion model. A decade ago, home loans sourc­ing was branch cen­tric typ­i­cally in­volv­ing mul­ti­ple visits to the lender’s branch to even com­plete the loan ap­pli­ca­tion process. A typical home loan would take 7 to 10 work­ing days to get pro­cessed and ap­proved. By the end of the last decade, pri­vate banks and HFCs like our­selves drove cus­tomer cen­tric sourc­ing and as with other re­tail lend­ing prod­ucts, home loan orig­i­na­tion moved to point of sale which for home loans meant pres­ence of sourc­ing staff at res­i­den­tial con­struc­tions sites. The sales per­sons en­gage with the cus­tomer right from the stage when they are yet to fi­nal­ize the prop­erty. Un­der­writ­ing and credit de­ci­sion­ing was pen-and-pa­per based. In the mid of 2016, we in­tro­duced an in­dus­try pi­o­neer­ing, global first, end-to-end on­line home loan ful­fil­ment plat­form pro­vid­ing ac­cess to In­di­a­b­ulls’ home loans at cus­tomers’ fin­ger­tips. With eHome loans, we took the first step to­wards dig­i­tiz­ing the process and made a pi­o­neer­ing move for the home loan in­dus­try.”

Ji­jina says Pi­ra­mal Hous­ing Fi­nance was launched with a dif­fer­en­ti­ated ap­proach of meet­ing the trans­ac­tional re­quire­ments of home loan buy­ers. “While most of the play­ers have been fo­cus­ing on the emo­tional as­pect of own­ing a home, our pri­mary fo­cus has been to work on our clients’ as­pi­ra­tions and ex­pec­ta­tions from a home loan. We have heav­ily in­vested into tech­nol­ogy to pro­vide a seam­less ex­pe­ri­ence to our clients and our tag line ‘Loan Se Pehle Log’ is the over­rid­ing prin­ci­ple. Prod­ucts like ‘SU­PER’ loans whereby a cus­tomer is able to get up to 20% higher loan eli­gi­bil­ity and sim­ple mea­sures like charg­ing a client only on han­dover of dis­burse­ment cheque, are few ex­am­ples where we are try­ing to meet our clients’ as­pi­ra­tional re­quire­ment from a home loan. Our tra­di­tional prod­ucts like LAP (loan against prop­erty) and con­struc­tion fi­nance have also been re-ex­am­ined in the con­text of the mar­ket’s cur­rent needs. ‘Pi­ra­mal Ver­i­fied’ is an­other key at­tribute that gives projects a sta­tus that im­plies that the project meets all le­gal­i­ties and tech­ni­cal re­quire­ments such that the cus­tomer can in­vest with com­plete con­fi­dence in the project,” says he.

Edel­weiss Re­tail Fi­nance dif­fer­en­ti­ate it­self based on its su­pe­rior ser­vice and the abil­ity to un­der­write cus­tomers who do not have pa­pers to ev­i­dence their in­come. “We in­vest a lot of time in un­der­stand­ing the cus­tomers in­come and pro­file and make a loan pos­si­ble,” says Kothuri.


ART Af­ford­able Hous­ing Fi­nance, ac­cord­ing to Hali, is a dig­i­tized or­ga­ni­za­tion that leads to sav­ing time and cost for the cus­tomer apart from a has­sle-free ex­pe­ri­ence. “For ex­am­ple, we do not make the cus­tomer fill the te­dious phys­i­cal form; in­stead we do it on a tab so the ap­pli­ca­tion reaches the com­pany in real time. We do not ask for photo copies of doc­u­ments, but we take pho­tos on the spot, we in­form the cus­tomer about the sta­tus. We are un­der­tak­ing an end to end dig­i­ti­za­tion with use of e-KYC, e-Sign and dig­i­tized doc­u­men­ta­tion process along­with au­to­mated de­ci­sion mak­ing in­volv­ing use of score­cards based on tra­di­tional and non-tra­di­tional data anal­y­sis.” says he.

Tri­pathi, how­ever, main­tains that the in­ter­est rate has been and will re­main one of im­por­tant de­cid­ing fac­tors but timely avail­abil­ity of credit with ease will be equally im­por­tant. “Banks or HFCs, which are hav­ing com­pet­i­tive in­ter­est rates with short TAT from lo­gin to dis­burse­ment will have the edge. How­ever, in­for­mal seg­ment cus­tomers in af­ford­able hous­ing do not possess all the re­quired in­come doc­u­ments. For such cus­tomers, get­ting credit with ease is the pri­or­ity, not the in­ter­est rate. Hence, HFCs fo­cus­ing on this seg­ment have an edge over other HFCs and banks,” says he.

He men­tions that the Aad­har Hous­ing Fi­nance has a unique ap­proach to reach out to cus­tomers by car­ry­ing out high im­pact low cost fi­nan­cial lit­er­acy and aware­ness ac­tiv­i­ties on reg­u­lar ba­sis in new lo­ca­tions. Its sales teams main­tain good con­nect with the cus­tomers be­fore and af­ter the loans are dis­bursed. Be­sides, the com­pany’s ex­ist­ing cus­tomers are its brand am­bas­sadors.

Renu Kar­nad is sure RERA will add more con­fi­dence as it is largely tilted to­wards pro­tect­ing cus­tomer in­ter­est

Harshil Me­hta fore­sees higher de­mand for hous­ing fi­nance from tier 2,3 and 4 cities in the days to come

Ash­wini Ku­mar Hooda un­der­scores the changed per­cep­tion of hous­ing as a so­cial ob­jec­tive to that of a pri­mary re­quire­ment of peo­ple

Anil Kothuri be­lieves hous­ing sec­tor is sud­denly turn­ing to be a reg­u­lated sec­tor with the in­tro­duc­tion of re­forms like RERA

Khushru Ji­jina is con­fi­dent that af­ford­able hous­ing will be­come the in­dus­try’s de­mand driver in fu­ture times

Arvind Hali is con­fi­dent that mea­sures like GST and RERA will bring in stan­dard­iza­tion in the hous­ing in­dus­try

Deo Shankar Tri­pathi main­tains that NPAs forced banks to turn to hous­ing fi­nance in a big way

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