HOUSING FINANCE MARKET IN INDIA

Covid-19 is an extraordinary incident with no equivalents which has triggered medical issues, humanitarian challenges and financial crunch simultaneously.

Top it all, the Indian economy was preliminarily facing gusts pre-COVID and this has enraged the state but evidently, numerous efforts were being made by the governments’ worldwide, medical research is being whisked and there are no speedy recoveries.

The home finance business was also affected by these factors in the challenging times as real estate business has been spinning under one crisis after another in the past few years.

Markets are at this time on a break and any relevant action can be seen only in the upcoming quarters. Activity levels have commenced but there is still a long journey to cover before we get green signal.

Since 1985, the Union government has been endeavouring to address the housing scarcity by a number of policies and provisions and from the time when housing finance schemes have been promptly affecting such strategy intrusions.

Acknowledged by its elasticity, the housing finance market has appealed a lot of investors due to its favourable nature and this further has made home loans counting up to 10% of the country’s GDP. The business is divided into three chunks with banks, NBFCs and HFCs, each catering to the requirements of different types of borrowers.

PRE COVID-19 SCENARIO

The Home loan market, by the end of March, 2018, was nearly uniformly shared between banks and HFCs making the banks covering for 55% of unsettled loans, while HFCs covered for the remaining 45%. A further detailed depiction of FY 2018-19 loaning trends is yet to surface, still the data upheld by National Housing Bank, the apex body which controls housing finance companies (HFCs) displays the total loan assortment of HFCs had escalated by 27% year over year by March, 2018.

The total loan outlaid by HFCs amounted to ₹ 8.19 lakh crore during FY 2016-17, which surged up to ₹ 10.38 crore in FY 2017-18 implying structural deviations, the report also illustrates that distribution of HFCs was evenly concentrated on both housing and non-housing loans such as Loan against Property (LAP), Loan against Lease Rental Discounting (LAR), Project Finance or Developer Financing.

THE CATASTROPHE

Conversely, uncertainties about asset standard and soared prices have stroked the loaning business. The circumstances has started deteriorating from September 2018, shortly after ILFS backlashed and due to this a stagnation has been observed in the home loan business meanwhile.

NPAs began collision leading to poor decisions about properties also, the unreasonable price of land banks resulted in asset quality matters. An NHB report declared that GNPAs on the books of HFCs escalated from ₹ 9,126 crores in FY 2016-17 to ₹ 13,555 crores during FY 2017-18, which is an overall growth of 48% over the year.

The total loans and advances expended by HFCs also increased considerably in the same period.

POST COVID-19 SCENARIO

On the account of limited supply and prospective demand catch-up post COVID, unsold inventory levels should, in fact, show a marginal decline. Over-supply conditions continue even when there have been no fresh launch in the last few months in 2020.

With new launches arrival to a pause, homebuyers might get choosy or picky into purchasing mode in the second-half and choose from the unsold inventory from projects throughout several phases of construction.

By a chance, the drive to the cheap housing fragment as part of the Covid-19 package will have a significant effect in the short-term.

Almost 40-45% of new launches in the top seven cities have come in the reasonably priced housing subsection as there has been a robust impulsion from the government on the “Housing for All” operation and some concessions delivered to the home buyers and the developers of this sector.

Property prices are also likely to be cut by developers by 10%-15%, therefore the demand for housing by structured sector employees for houses from the range ₹ 25 lakh to ₹ 75 lakh is estimated to be reviewed shortly after the lockdown ends.

However, low-income affordable housing demand which is below ₹15 lakh will take a slightly more time and will be determined by government assistance. In my understanding, people who decide for this housing section will find it grim to control their own involvement which has now turned into a more challenging task.

This can be fixed if the government squeezes the current procedure for the discharge of applicable credit related subsidy of ₹2.67 lakh to classify recipients through creditors before loan pay-out and as a result this change will redefine affordable housing growth as pictured in Housing for All by 2022.

With the ongoing COVID-19 outburst, the reasonably priced housing customer fragment is the most affected because these are home shoppers with restricted income and do not have the option for ‘work from home’ conveniences and many of them are having suffering from pay decrement or even job loss and due to these reasons this group will reconsider their purchase decisions.

There are also intrinsic problems present in this segment such as financial affordability, location, closeness to place of work and related infrastructure confronts, since these cannot be resolved instantaneously either. So, the exceptional COVID package may not have instant-term influence but surely, we can witness the outcomes in the medium-term.

CONCLUSION

At a time like this, when the fears about asset quality are mounting, diligent and careful selection of land banks along with that of developers will be crucial for sustaining a healthy balance sheet because greater NPAs with poor credit profile can turn into higher cost of funding. In such conditions, it is imperative to implement an Overview of Risk Management as well as a detailed Appraisal of Housing Loans (Financial, Legal and Technical).

Using online data repository and tools such as RESSEX, Desktop Valuation, Developers Performance Tracking and Rating, Micro-market Reports, Catchment/Location Analyses, bankers and housing finance companies can pull down the risk related with asset quality. Actually, the National Housing Bank (NHB) has assigned the job to arrange and circulate its housing market index RESIDEX to Liases Foras.

COMPANIES PROFILED

• INDIABULLS
• SBI
• HDFC
• PNB
• ICICI