Strides will get bigger on the home run

Backed by economic revival, record low interest rates and stable prices, India's residential real estate market is set to see growing demand

Positive momentum continues to gather steam, and the residential realty and home-financing sector, too, have begun to show signs of revival, due to rising consumer income, stable property rates, record low interest rates and concessions such as stamp-duty cuts. What does the future look like for the mortgage industry?

Owing to the global pandemic and the resulting nationwide lockdown, most business and lending activities were suspended. The housing finance sector experienced flat growth in the quarters ending March, June, and September this year. However, a steep recovery was observed towards the end of the third quarter, as Covid-induced uncertainty made consumers desire financial security and stability.

Stamp-duty reductions and lower interest rates aided consumer demand by lowering EMIs by around 15 per cent compared to previous years. Further, as permanent and hybrid work-from-home models become lasting, consumers are increasingly driven to purchase their first home, or upgrade to a larger home, at affordable rates. Coupled with developers’ lucrative offers, it is an ideal time for home purchasing and ownership. 

The pandemic changed the very nature of how business is done for several sectors — for the conventional paper-heavy and relationship-dependent housing finance sector, catering to the increased demand in a restricted environment altered the very tenets of the industry. As Covid-induced limitations and concerns gripped consumers, housing finance companies (HFCs) were compelled to innovate and improvise consumer engagements through digital innovations. 

This further accelerated the digitisation of financial services —for customer acquisition and operational efficiency alike.

The pandemic triggered a wave of innovation and adaptability across sectors, as businesses explored new ways to operate and stay relevant to customers. End-to-end consumer on-boarding right from loan application and documentation to sanctioning of loans became contactless. Re-designing of physical processes to video-based sanctions and presence-less loan disbursals put the focus back on customer convenience. However, many Covid-induced changes will outlast the pandemic itself, as customer perceptions and consumption patterns continue to evolve. Customer data will provide organisations with more learnings and insights into these changes.

Backed by economic revival, low interest rates and stable prices, India’s residential real estate market is set to see growing demand. Lowered restrictions and increasing vaccination are driving customers who are looking at residential properties for personal dwelling as well as an asset class. Attractive offers by several developers during festive seasons are making it a lucrative time for buying a home. We expect this increase in demand to result in a corresponding rise in demand for home loans, a key enabler for home purchases.

Going ahead, we could expect HFCs to return to the growth path, as some players are redefining their business models to reduce exposure to wholesale lending; most are reducing their reliance on short-term borrowings, a higher quantum of securitisation and exploring co-lending with banks. Additionally, measures like the partial credit guarantee scheme to improve liquidity and support to the affordable housing segment should further accelerate the growth of the housing finance sector. 

Given the retail focus of the sector, growth of fintechs and the increased awareness and preference among customers for digital processes and transactions, the digital lending space will offer more innovative products and services, improved accessibility and efficiency and reduced processing time for applications.

There are several learnings so far — product designs will not only factor in virtual relationships with the end-customers, but will also consider the need for customisation and making payments affordable. A data-driven decision-making approach will improve risk analysis for quick disbursal of loans to creditworthy customers. Businesses will need to leverage technical integration to enable end-to-end digital solutions that are agile, efficient, simple, and deliver value to customers.

The writer is managing director and chief executive officer of Godrej Housing Finance