Why buyers should choose lenders that are unlikely to face fund crunch

A recent report from Nomura warns the current liquidity crisis non-banking financial companies (NBFCs) are facing will lead to them disbursing fewer loans in the near future. Developers dependent on their loans could face trouble. NBFCs may also go slow on giving home loans. The trend of NBFCs gaining market share over banks is expected to reverse. Price recovery within the housing market could get further delayed. 

With banks facing non-performing asset (NPA) issues, NBFCs/housing finance companies (HFCs) had become an important source of funding for developers. “The NBFC crisis is going to have a more severe impact than the combined effect of the Real Estate Regulation Act and goods and services tax. We could see more consolidation in the real estate sector,” says Anuj Puri, chairman, Anarock Property Consultants.

The credit flow from private equity (PE) funds to realty is also expected to slow as they turn more cautious. Puri says funding for greenfield projects may cease in the short term because lenders prefer to give money to projects nearing completion. As a result, new launches may remain muted in 2019.

Developers clocking steady sales and reducing their debt will weather these conditions better. “Those opting for an under-construction project should do due diligence on the builder's financial situation. Builders with a diverse portfolio that includes commercial real estate will be a safer bet because this segment is doing better currently,” says Puri, adding, to be safe, buyers, especially the first-time ones, should go for ready-to-move-in properties.

The home loan market too has been hit by the liquidity crunch. Many HFCs have stopped giving new loans and are conserving cash to service their loans. Home loan rates may harden. Even though the Reserve Bank of India did not hike the repo rate in its last monetary policy review, many banks and HFCs revised home loan rates upward.

Not all HFCs have been affected equally by the liquidity crisis. “Those with strong private or public sector parents are still in good shape. Customers should turn to them,” says Aditya Mishra, founder and chief executive officer, SwitchMe, a digital home loan broker. 

If you have borrowed from an HFC that lends to the developer you are buying your property from, check with the developer whether loan disbursals to him have been affected. This will provide an indication about the HFC's health.

Prospective borrowers should watch out for lenders who have hiked their lending rates by a big margin recently. “Opt for a lender that has either not hiked its lending rate, or hiked it only marginally,” says Ratan Chaudhary, associate director and head of home loan, Paisabazaar.com. Treat sudden and large hikes as signals of distress.

Many HFCs were aggressive about lending to riskier market segments, such as the self-employed and those with lower credit scores. These segments of borrowers may face greater difficulties in getting loans. “Try to leverage your banking relationship to get a loan. If your credit score is below 675, try to improve it,” says Arun Ramamurthy, co-founder, Credit Sudhaar. He suggests that to do so, prospective borrowers should avoid using the limit on their credit cards to the maximum. Those who need a loan should avoid applying to many lenders simultaneously, because this makes you appear credit-hungry and depresses your credit score further.