The housing sector in India appears well positioned to sustain its momentum led by the pre-existing drivers, such as favorable demographics (large proportion of young population), huge unmet housing demand and improving affordability (wage inflation steady at 10%-11%, and falling inflation in India). This, coupled with the government’s focus on the “Housing for All” initiative, should boost demand for loans and support the housing sector over the next decade or so. Moreover, driven by the conducive policy framework for the sector, management expects housing industry growth to inch up from 18% to 22%, and mid-size and smaller HFCs to continue outpacing industry growth.
Management is bullish on the prospects for retail loans, given the government’s thrust on affordable housing via various tax incentives, greater affordability of homes due to largely stable prices and many new project launches over the past few years, low effective rate of interest of ~4% for borrowers (led by tax benefits), and increased commercial real estate demand, which has historically proved beneficial for residential real estate.
Management targets a reduction in bank borrowings to 25% by FY20 (but would not go below 25%). With the borrowing profile migrating to low-cost funds, the yield impact from a higher share of retail loans should be mitigated. Thus, spreads are expected to remain stable at 3.2%.