The housing finance sector has started witnessing a moderation in growth post the Infrastructure Leasing and Financial Services crisis that occurred in September 2018. However, proactive initiatives as well as targeted measures undertaken by the government, a low-interest rate regime and subdued prices have helped the sector in gaining momentum.
While banks have been the key players in the housing finance segment, over the years several new players in the form of housing finance companies (HFCs) have emerged in this space, especially in the affordable housing segment. Although banks have a presence in the smaller-ticket home loan market, their lending to the economically weaker sections and low-income group segments and borrowers without any formal income proof is limited. In this scenario, these specialised HFCs have emerged as key players and are tapping this underserved market segment. Even large HFCs have now set up dedicated verticals focused on the affordable housing segment.
The Reserve Bank of India has granted priority sector lending status to housing. This makes it mandatory for domestic scheduled commercial banks and foreign banks with 20 branches and above to lend 40 per cent of their adjusted net bank credit to sectors including housing, agriculture, exports, education, social infrastructure, renewable energy, and micro, small and medium enterprises. The outstanding deployment of gross bank credit to the housing sector is Rs 4.81 trillion as on January 28, 2022, compared to Rs 4.89 the trillion as on January 29, 2021.
The Ministry of Housing and Urban Affairs has designated the National Housing Bank (NHB) and Housing and Urban Development Corporation (HUDCO) to monitor the progress and to channelise the subsidy to the beneficiaries through lending institutions. The NHB is the principal housing agency in India mandated to promote and develop housing finance institutions in the country. Some of the key operations of the NHB are resource mobilisation, refinancing, project finance, regulation and supervision, promotion and development, and risk management. HUDCO was established as a techno-financial institution to provide long-term finance to undertake housing and urban infrastructure development programmes in the country. HUDCO is also a central nodal agency for the credit-linked subsidy scheme (CLSS) under the Pradhan Mantri Awas Yojana (Urban). Under the CLSS, interest subsidy on home loans is provided through central nodal agencies and primary lending institutions to eligible beneficiaries in the economically weaker sections, and low- and middle-income group segments. Under the HUDCO NIWAS Scheme, housing finance services are provided to individuals at competitive interest rates.
The real estate sector has attracted private equity (PE) investments of over $45 billion during the last decade. PE investments include real estate funds, pure PE funds, sector-focused funds, pension funds, sovereign funds and alternative investment funds. According to property consultant Anarock, PE investment in Indian real estate rose 27 per cent to $1.79 billion in the first six months of fiscal year 2021-22, mainly driven by domestic funds. The residential sector witnessed investments to the tune of $394 million, which is 22 per cent of the total PE funds.
According to JLL India, real estate attracted around $4.3 billion worth of institutional investments from entities including PE firms, family offices as well as pension and sovereign funds during the year 2021. However, this was down 14 per cent as against 2020. The residential sector attracted 2.3 times more investments at $1.08 billion as compared to $460 million in 2020. The significant comeback, reflected in a healthy sales gain of 47 per cent over the first nine months of 2021 as compared to the same period in 2020, has reignited interest in the sector. Even structured funds were offered to the sector by investors because they were closer to equity returns.
The way ahead
Housing demand is related to an individual’s annual income and housing affordability. In the years to come, India’s housing finance business is likely to see significant growth. Government programmes for the sector as well as the country’s expanding need for affordable housing will fuel these prospects. Further, changing lifestyles, the rise of individual consciousness, social attitudes and increased labour mobility trends are expected to continue in the future.
Going forward, higher affordability, increased transparency, growing urbanisation and government incentives will drive the growth of the housing finance market.