 "housing, housing finance")
“At no point in time has affordable housing finance (AHF) looked better despite all the rate hikes and talk of a slowdown,” says Ravi Subramaniam. The managing director (MD) and chief executive officer (CEO) of Shriram Housing has seen his firm’s book size cross Rs 10,000 crore, making it the third-largest player in the AHF space. Tight underwriting and collection efforts have led to a 125-basis-points (bps) fall in delinquencies in the one-day-past due (DPD) bucket to 4.01 per cent, and by 34 bps in 90-DPD to 0.58 per cent.
HFCs’ loans stood at Rs 13.42 trillion in FY22; and according to J M Financial, AHFs’ share (up to Rs 25 lakh ticket-size) made up for 34 per cent. Such loans increased at a compounded annual growth rate of 15 per cent between FY15 and FY20, driven by rising demand from the Tier-II and -III cities, rising disposable incomes and government initiatives such as the Pradhan Mantri Awas Yojana, interest-rate subvention schemes and fiscal incentives.
First things first, what is AHF? It is a housing project using at least 50 per cent floor space index (FSI) with a carpet area of not more than 60 sq m. The banking regulator has defined affordable housing loans as eligible under priority sector lending. Housing loans to individuals up to Rs 50 lakh for houses of values up to Rs 65 lakh in Mumbai, New Delhi, Chennai, Kolkata, Bengaluru and Hyderabad); and the same is Rs 40 lakh and Rs 50 lakh for other centres in the country.
The potential is huge. The Reserve Bank of India’s (RBI’s) report of the Committee on the Development of Housing Finance Securitisation Market (2019) had noted that as cities expanded to take in more people, “business will start to shift towards the current peri-urban areas”. Take Vastu Housing Finance: It offers loans to the lower and middle-income households with an annual income of generally up to Rs 6 lakh; the average being Rs 12-13 lakh. In many ways this segment is not very different from the new-to-credit in other parts of retail finance. How does Vastu go about it? “We have historically looked at a 700-plus Cibil score bracket with reasonable vintage on bureau self-construction and resale properties in the self-employed segments,” says Sandeep Menon, the company’s founder-MD and CEO. “Let me also state here that what is affordable varies across cities. But we are also looking at the Rs 5-7 lakh ticket-sizes in the smaller markets.” Or what the RBI report mentions as “peri-urban areas”.
Can more be done?
A recent report by ANAROCK Group, a realty consultancy, calls attention to what’s boiling below the surface. Of the approximately 229,000 affordable housing units sold across the top seven cities in H1FY23, those priced less than Rs 40 lakh made up for a mere 20 per cent share. A year ago, 184,000 units were sold, or 31 per cent. There’s also a skew: Of the top seven cities, the Mumbai Metropolitan Region’s share was 37 per cent, next came Pune (21 per cent), and the National Capital Region (19 per cent). Hyderabad sold the least — a mere two per cent. The share of new supply in this category (across the top 7 cities) fell to 18 per cent from 23 per cent. The drivers behind this were (besides the pandemic-induced dip in demand) the high cost of land in the country, deficient support infrastructure, and construction not using modern low-cost techniques.
“The short supply of land makes it very expensive in precisely those areas where affordable housing is needed the most – namely urban areas, close to, or well connected to workplace hubs,” says Anuj Puri, chairman of ANAROCK Group. The point being that as on date, from a business perspective, financing mid-range and luxury properties makes more sense. “One of the things the authorities could do to attract developers to this segment is to release urban land held by government agencies, expressly for the creation of affordable housing, along with other incentives like higher FSI for mass housing.”
Under-served market
Another peeve among HFCs in the AHF segment is that they do all the heavy lifting. From locking into this under-served market with little by way of credit histories; and taking on high operating costs compared to banks: Arising from field collections to higher “bounce rates” (that is, the percentage of customers with missed instalments; this can be nearly 11 per cent for some firms compared to banks’ 4-5 per cent). And then having to grin and bear as the “better” customers in the pack switch over to banks which offer finer rates on balance-transfers. This typically happens because, unlike banks, HFCs can’t press prepayment charges (balance-transfer by a customer amounts to prepaying the original lender).
HFCs may soon clamour that they too be allowed to have to ask pre-payment charges from customers, say after three years of staying put. This is because the situation can only worsen when the account aggregator (AA) framework matures. An AA is an RBI-regulated entity (a non-banking financial company with such a licence) that helps an individual securely and digitally access and share information from one financial player they have an account with to any other in the AA network (data cannot be shared without the consent of the individual though).
That said, a key development to watch for is the initiative of the India Mortgage Guarantee Corporation (IMGC), in which the Brookfield-owned Sagen picked up a 31 per cent stake last year. "We are on the verge of rolling out a credit score for housing loans, drawing from our experience with nearly 23 lending partners,” says Mahesh Misra, MD and CEO of IMGC. He appears to make a case for mortgage guarantee as a compulsory product like in Canada and in the United States. “But more and more lenders are seeing the value of expanding the risk box with a mortgage guarantee, especially with the expected credit loss model for banks.” Affordable housing can become even more so with a few tweaks.
