Budget 2018: Housing finance is perceived to be the third most impactful industry contributing significantly to the economy and with tremendous future potential. It is the second-largest loan portfolio for NBFCs and an important employment generating sector, accounting for 5-6% of India’s GDP and capital formation. While Budget 2018 announced several incentives for poor, the government’s commitment towards creating a dedicated affordable housing fund in collaboration with the National Housing Bank, will further boost the affordable ‘Housing for All’ scheme.
Policies and structural reforms, such as Real Estate Regulatory Act (RERA), bestowal of infrastructure status and GST are also leading to a change in industry outlook for the real estate sector. The affordable housing segment is likely to grow over 30% and is emerging as the key growth driver for the mortgage finance market.
Homes priced below Rs 50 lakh accounted for about 71% of total launches between January to June 2017, a significant 52% increase from the corresponding period in 2016. More real estate developers are now focusing on the affordable segment, as they can avail tax relief on unsold stock, several tax-linked incentives and benefit from a renewed policy and financial thrust. Driven by reforms and robust growth of the affordable segment, housing trends on an overall basis have been very encouraging as mortgage rates have dropped to 8.5% and prices have remained stable. India’s rank in the Global House Price Index has jumped from 13th to the 9th position among 55 international markets, making the Indian real estate industry one of the most globally recognised sectors.
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The housing sector is set to be the economy’s next big growth driver, with the catalyst being the government’s big push for Housing for All by 2022. This is expected to unleash a $1.3 trillion wave of investment in housing over the next seven years. With a rapidly developing Indian economy, the country faces an urgent need for jobs, physical infrastructure and housing, that can be delivered by the real estate industry which has strong multiplier effects on other complementing industries.
Housing finance companies (HFCs) have been significantly contributing to the industry’s growth. They have been at the forefront addressing financial needs of the segment at the base of the pyramid and have gained a significant market share in India’s mortgage market. If these trends are well leveraged, HFCs will continue to strengthen their market share through wider finance penetration and expanding reach in Tier II and III cities. Driven by these aspects the demand for affordable housing, loan disbursement is expected to record five-year CAGR of 17-18% to reach Rs 9 trillion by 2020-21.
Achieving a national housing goal of such tremendous scale calls for the industry to share a unified vision. A strong collaborative approach amongst all participants can supplement the path already paved for the sector and unleash its true potential to not only serve the LMI segment, but also set in motion a growth-driven domino effect to other related industries and speed up economic development.
The writer is JMD & CEO, DHFL