‘Mortgage-gdp ratio, at less than 10%, is poor’
Housing finance companies (HFCS) are at the crossroads, given the slowdown in primary real-estate demand, especially in the top five cities — they comprise 60 per cent of the market. Economic uncertainty will further make access to capital challenging; plus, you have the moratorium-led unpredictability.
Just how do the Reserve Bank of India’s (RBI’S) draft regulations to harmonise regulations between banks and HFCS fit in the larger industry setting?
This is a welcome step and long overdue given that 59 per cent of originations were by banks. This development now leaves the National Housing Bank with greater bandwidth to focus on the all-important developmental mandate. The draft regulations prescribe a gradual step-up in the netowned funds to ~20 crore from ~10 crore. This, we believe, is a prudent step and the quantum of increase is not crippling. Also, only 75 per cent of “qualifying assets” (defined as 50 per cent of total assets) are required to be individual home loans. Large HFCS can, therefore, continue direct lending to the real-estate sector. There is an argument on the timing and intent. However, the punch-bowl stays in the party!
The winds are in favour of tier-3 and tier-4 towns. Demand resumption will be faster in these locations. Inconsistent lockdown guidelines across states during the pandemic have exposed firms to the perils of high resource-concentration in select geographies.
The transition to workfrom-home has been unexpectedly smooth. This will ensure greater employment opportunities from “non-office” hubs. The real impetus to mortgage lending in these towns will come by providing stimulus to smaller HFCS.
Nearly 40 per cent of the 100-plus HFCS are less than six years old. Active licensing was encouraged to spur sectoral growth. Most of them cater to small home buyers and contribute significantly to the “housingfor-all” mission. The tide is against this lender-set now. Scarcer capital is likely to impact liquidity. Portfolio stress and enhanced capital adequacy are added pressure points. There are a few measures that can provide a fillip to affordable housing.
Pradhan Mantri Awas Yojana (PMAY) has been a key catalyst in promoting affordable housing. Over 10.6 million homes have been sanctioned with central assistance of ~1.66 trillion. It is currently promoted exclusively via a passedthrough borrower subsidy. Lenders get indirect benefits via demand creation. There is scope to additionally incentivise small lenders if, say, 75 per cent of their portfolio comprises loans below ~7.5 lakh. A substantial portion of these borrowers self-construct on small plots of land. They are de-linked from the completion or diversion risks that some developers carry.
State-run banks are the other important weapon in the arsenal. They have deep geographical reach, but currently have a home-loan ticketsize as high as ~20 lakh. They are understandably conservative owing to potential punitive consequences of high-risk lending. Alternatively, recapitalisation can be linked to a minimum fresh origination commitment of home loans less than ~10 lakh. Another mechanism to promote low-ticket housing is through a safeguard quite like the credit guarantee scheme for micro, small and medium enterprises, which has seen decent offtake. The government could provide the backstop directly or lean upon private organisations and development finance institutions to devise a collaborative mechanism.
The mortgage-to-gdp ratio is widely accepted as a reliable pointer to the depth of financial intermediation. There is considerable headroom at our current sub-10 per cent levels. For context, comparable Asian economies are in the 20-25 per cent range, while it is greater than 50 per cent in many developed countries. Housing is the one industry that can re-ignite the economic engine at a quicker pace than currently anticipated.
Another mechanism to promote low-ticket housing is through a safeguard quite like the credit guarantee scheme for micro, small and medium enterprises, which has seen a decent offtake