The housing finance industry has grown significantly both in terms of size and numbers in the last 20 years.
From only a few housing finance companies such as Housing Development Finance Corporation (HDFC) and Dewan Housing Finance Ltd (DHFL), the industry has grown to accommodate a host of new dedicated housing finance companies and non-banking financial institutions.
With the proliferation of HFCs and banks, customers now have a wider option to choose their financial partner compared with 20 years ago.
Even the rate of interest has fallen from the highs of 14-16 per cent about 20 years ago to about 10 per cent now. Also, about 20 years ago, banks were not too keen on financing buying homes.
This changed during the turn of the century as more banks wanted to get a pie of the relatively safe option of financing a home.
Affordable housing
However, one must not mistake the growth in the number of HFCs with the access to funds for the affordable housing segment.
While India's rising middle-class and builders found easier access to cleaner finance, the bottom 40-50 per cent of the population has not been so lucky.
This is simply because there are not enough affordable houses being built. While many houses were built by the Government in the affordable segment, demand has kept outstripping the supply. One way to solve this gap could have been by involving the private sector, but due to lack of incentives and desire for higher profits the private sector has kept away from the affordable housing segment.
Trends in the industry show that in the last 20 years, there has been little improvement in the stock of affordable housing in the country. The addressable gap in this segment has grown to 19 million units in 2013 from about 15 million units two decades ago.
While housing finance companies have grown in number, people still find it difficult to get finance for their homes because of the insistence on mandatory 20 per cent equity requirement from buyers. For instance, for a Rs 50 lakh house, buyers will have to cough up at least Rs 10 lakh initially. This is not a small amount for the average middle-class family, and more often than not limits buying opportunities.
HDFC, which started doing business in 1977, has till now cumulatively financed about 45 lakh units. As prices are rising, the HFCs find the size of a loan going up every year. Moreover, the demand for home loans is immense (even in a slowing economy) given the acute shortage of housing.
For instance, HDFC’s loan disbursements have grown by about four times in the last seven years. From 1994 to 2006, the loan disbursements grew steadily from Rs 1,212 crore to Rs 20,679 crore. Its loan outstanding grew to Rs 1.70 lakh crore in March 2013 from just Rs 3,748 crore in March 1995. This trend has been observed among other HFCs and some major banks too.
According to Keki Mistry, Chief Executive Officer of HDFC, “The growth in the past 15-20 years has been massive and this emanates from the growing population and requirement of housing. Though the rates of buying a house have increased, so has the cost of labour, raw material and land prices.”
Over the last seven years house prices have increased significantly, much beyond the rate of increase in the cost of raw materials and other input costs. This has left the average aspirational Indian more disillusioned.
Mistry defended this saying, the income levels too have risen, which has increased purchasing power. Also, it is not correct to compare Mumbai and other metros to tier-I and II cities. The potential and purchasing power exists in those cities, he argued.
Another major trend that has been observed is that much of the housing in major cities such as Pune, Mumbai and Delhi are cornered by investors, who collectively come together and invest in real estate. This has led to a sizeable chunk of housing stock being purchased but remaining unoccupied.
Regulations
One positive development during the last 20 years was the establishment of four credit bureaus. All of them were set up after 2000. This has resulted in a more thorough, although not fool proof, appraisal of credit requirement of a borrower. In most cases, where the HFCs lend to builders and developers, the information obtained from credit bureaus have come in handy.
Another positive development was the establishment of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) — 2002, which allowed HFCs to go after defaulters. Till then there were no foreclosure norms in the country which meant long drawn court battles between the HFCs and the borrowers.
With government help in providing the benefits to middle-income households with better interest rates and financing facilities, HFCs may see a surge in demand for housing loans, he added.
beena.p@thehindu.co.in