Lokesh Tripathi

The author is working in the NBFC sector

Housing Finance Companies (HFCs) have been a lucrative business since decades. They have been integral to the Indian financial system and play a very significant role in nation building and financial inclusion by complementing the banking sector in reaching out the credit to unbanked segments of the society (especially in semi-urban markets and unorganized markets). HFCs’ ground level understanding of the cradle of the customers’ profile, and their credit needs gives them an edge, as does their ability to innovate and customize products as per their clients’ needs. This makes them the perfect conduit for delivering in unorganized and semi-organized markets.

HFCs have been growing at a tremendous pace. Home loan sector alone is growing at 19 per cent per annum (since financial year 2012) at an operating margin of 2.20-2.35 per cent.

Current Scenario:

Since September 2018, HFC market has succumbed under the pressure of liquidity which was just recovering from the GNPAs in the loans of previous decade (2004-2014). In September 2018, IL&FS (a lender to HFCs) has defaulted on its loans. Since then, the HFC market has tumbled due to cut down in capital inflow. Capital adequacy is what all HFCs are trying to attain since then.

Future Outlook:
1. Supportive demographics (Growing working age population)

‘By 2050, India’s working-age population will cross one billion’. From 0.86 billion people aged between 15 and 64 years in 2015, India’s working-age population will grow to over a billion by 2050, suggests the Regional Human Development Report of the United Nations Development Programme (UNDP) on April 26.

This will mean that over 280 million more people will enter the job market in India by 2050, which again is a prospect for HFCs.

2. Mortgage to GDP ratio:

With a young workforce and an improving economy, Mortgage volumes expected to rise, housing finance companies could draw more investment interest. Morgan Stanley estimates that India’s 9 per cent mortgage-to-GDP ratio in 2016 could increase to around 17 per cent in 2026. This means market size will be 3.5 times in just one decade.

3. Supportive policy framework

‘Government and the Reserve Bank of India have undertaken a number of initiatives to boost affordable housing’. Loan disbursements and launch of new projects in the affordable housing segment have risen sharply over few years.

The credit linked subsidy scheme was found to be effective in improving the housing affordability of the economically weaker sections and had helped unlock wider opportunities for the masses.

4. Focus on affordable housing

Affordable housing is likely to be the next big story for the Indian investment scenario. According to preliminary estimates, the low-cost housing opportunity in India is estimated to be worth $1.2 trillion. ‘One can imagine the multiplier effect that it will have on demand for housing and for housing finance companies’.

Also, Pradhan Mantri Awas Yojana (PMAY) has been in existence for more than four years now and thousands of citizens have already benefited from it. Even though the government’s ambitious plan to provide affordable housing to the urban poor of the country is yet to fire on all cylinders, it is fair to say that it is moving in the right direction. All it needs is a little push, which is likely to happen post election year (i.e; 2020)

5. Disposable income

‘On purchasing power parity (PPP) basis, India is already the third largest economy’. As per the estimates of Central Statistics Office (CSO), Indian economy is expected to grow at 6.5% in the current fiscal. This again indicates that more disposable income will boost real estate investments, and HFCs at large.

6. Urbanization

Even if the population growth slows down, urbanization is witnessing a steady growth. Thus, demand for new houses is steady.

7. Unorganized Indian market where banks cannot tap into

With rising rural income and govt investing heavily in enhancing rural demand, we could see big demand coming from rural and semi-urban areas. This will hugely benefit the HFCs.

8. Population Growth

Per capita house ownership in India is still one of the lowest. At a macro level, if you compare with other Asian countries, India lags behind other nations in per capita housing ownership. Hence, blend of rising population and higher disposable income shall catapult HFCs’ growth.

Developments after IL&FS event:

1. Stringent regulatory norms and rigid policy frameworks

2. Industry will witness a clear slump in P2P lending

3. With rising GNPAs in the past decade, this will incept practice of vigilant underwriting

4. In the past months, we have witnessed a number of mergers and acquisitions; this will condense number of players in market space.


‘When the government had announced Housing For All scheme, housing finance companies went for a dream ride stretching well ahead of their fundamentals. The dream run continued till mid 2018’. Somewhere, it had to consolidate to bridge the gap. Year 2019 will be an year of consolidation.

However, this also being an election year, there is no doubt that the upcoming government will also redirecting its schemes more towards rural and semi urban areas and in unorganized markets. So, we assume year 2020 will bring a big boost to HFCs and real-estate industry.

1. Regional Human Development Report of the UNDP
2. Morgan Stanley Estimates
3. RBI Press release
4. Housing Finance Industry Outlook 2018
5. Union Budget 2018
image credit: Pixabay
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