High Interest Costs And The Absence Of A Debt Market Are Keeping

Yet, except for the Housing Development and Finance Corporation, few NBFCs have bothered to get into the housing finance industry. And even HDFC has been able to expand only because half its income is exempt from tax. The exposure of NBFCs to housing finance as a percentage of their total exposure is less than one per cent.

Why this shyness to enter what could be a highly lucrative, and on the face of it at least, a risk-free industry? After all, what could be safer collateral than a mortgage? The reason lies in the old problem: nothing is what it seems on the face of it.

 

Housing finance is very risky, says Mahesh Thakkar of the Association of Leasing and Financial Services Companies. If your loan turns sticky, it is virtually impossible to repossess the property. Amitabh Jhunjhunwala of Reliance Capital agrees and adds , If your cost of capital is around 15 per cent even at the best of times, how much would you have to lend it out at to get a decent return? Housing finance is simply too expensive for most people. Canfin Homes, a housing-finance company owned by Canara Bank for instance, lends at an average of 18 per cent. For a Rs 2-lakh loan, this works out to an equated monthly repayment liability of almost Rs 3,500. But you need at least Rs 4 lakh these days to even begin talking about owning a house. That means a repayment liability of Rs 7,000 per month, which few can afford.

There are other difficulties as well. Most states these days have land-allotment rules weighed in favour of cooperative societies, to whom the state leases out land instead of selling outright. Free-hold land, thus, forms less than a quarter of the total area on which new homes are being built.

This creates a whole range of legal problems when it comes to transfers of titles. This problem, along with the ban on second mortgages, has also deterred NBFCs from entering the housing finance business.

The absence of a secondary market in debt and securitisation, too, has held the NBFCs back. Unlike in the case of cars and trucks, where such a market is slowly growing, in the housing-debt market, securitisation is completely absent. No one, thus, wants to assume any risk, though the default rate is not significantly more than for autos