Although sales of homes may not been booming, mortgage finance has been growing at 25%-30% annually. Which is why an increasing number of private equity (PE) players are keen to get a share of the home loan market. Already, PE funding in the BFSI space, of which, housing finance is a major part, has gone up sharply; according to data from Grant Thornton, it has increased by almost 50% in the past three years from Rs 1,257 crore to Rs 1,878 crore.
A string of PE investments into fund housing finance companies in recent months suggests more funds are flowing in. IndoStar Capital—a non-banking financial company—has found support from Goldman Sachs and will soon make a foray into the home loan space. Again, Everstone and Incred, both funded by IDFC, will also explore the home loan market. True North PE is understood to be eyeing a majority stake in a housing finance company.
In the past six months, PE players that have invested in the housing finance segment include Motilal Oswal PE, True North PE ASK PE, Fairfax India and Paragon Partners. Home sales have fallen 35% year-on-year in the January to March quarter, according to JLL, India. Even the affordable category, —approximately Rs 25 lakh or so—is not insulated and has seen some sluggishness in the past 6 months, Jerry Rao, executive chairman and director of value and budget housing corporation (VBHC), told FE.
However, more than 90% of the housing shortage in the country is in the affordable category and PE funds are hoping to tap this market. A few large mortgage players have raised money via masala bonds, giving PE funds the confidence there is capital moving into the sector, Ambar Maheswari, CEO of Indiabulls AIF, said.
Moreover, some segments are seeing a pick-up in demand. Documentation for mortgages is becoming easier.
“Mobile bills and Aadhaar have made the KYC process far easier,” said Anil Sachidanand. In 30 months, around 30 home loan companies have been set up, Sachidanand added.
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PE funds are encouraged by the government push for affordable housing, Neeraj Sharma, director at Grant Thornton, explained. Rohit Poddar, MD, Poddar Housing, which builds apartments priced under Rs 30 lakh, pointed out, however, the return on capital is still low in the affordable housing piece. Moreover, approvals can take two to three years, which deters larger real estate developers from operating in the segment.
In the budget session held in early February, the government said the affordable housing segment would get infrastructure status, making it a priority sector for lending. Following the previous year’s announcement when it allowed 100% deduction in profits for projects with apartments measuring up to 30 sq meters in the four metro cities and 60 sq meters otherwise, the finance minister also clarified that such areas will now be calculated in terms of carpet area.