The real estate market has become more structured and accountable owing to the introduction of RERA and GST. This has slowed down primary sales over the past few quarters as end users have become a lot more selective. However, despite this temporary slowdown, the demand for housing finance remains robust, says Khushru Jijina, Managing Director, Piramal Capital & Housing Finance. In an exclusive interview with Sanjeev Sinha, he talks about the impact of slowdown in real estate on housing finance, and shares his business outlook. Excerpts:
Real estate is facing slowdown for some time now. How has it impacted the housing finance segment in India?
Housing finance has long been a significant and predictable percentage of overall retail lending in India. Given the large overall need for housing that exists across the country, end users have always been responsible for driving demand for home loans, even as the real estate industry goes through cycles. Culturally, there is also a strong affinity for real estate as an investible asset class which further adds to the demand for housing finance. Also, historically, defaults have been the lowest in this segment.
Within the wholesale segment, however, the introduction of RERA and GST has made the real estate market more structured and accountable. This has slowed down primary sales over the past few quarters as end users have become a lot more selective in their purchase considerations. Despite this temporary slowdown in the real estate cycle, however, the demand for housing finance is still robust within the retail segment. Moreover, indicators also suggest that demand is picking up especially as evidenced in recent successful launches that have taken place, e.g. Piramal Mahalaxmi.
Do you think the Modi government’s push for affordable housing will give a boost to the housing finance business?
Affordable housing is poised to be a major demand driver for housing finance in the years to come. Last year’s announcement of awarding infrastructure status to affordable housing and the latest budget announcement of establishing a dedicated affordable housing fund are steps in the right direction. The demand for affordable housing is expected to touch Rs 6.25 trillion by 2022, supported by growing population, young demographic profile, shift towards nuclear families and rapid urbanisation. Given the wide disparity in household income in the country and the high real estate prices acting as a deterrent for buyers, a predominant share of this demand would be concentrated in the low cost and affordable housing segments.
With more than 50% of the launches over the last one year in the affordable category, housing finance companies have already started to focus on creating customized products for eligible end users. We at Piramal Capital and Housing Finance strongly believe that targeting an ever-expanding set of borrowers, across both salaries and the non-salaried class, is the need of the hour for affordable housing and hence have created products, and curated credit assessment metrics that rely strongly on analytics, to meet the funding requirements of such clients.
Are housing finance companies doing anything to revive their business or widen their reach? What about you?
Even within the housing finance space, Data suggests that there are over 100 companies operating, but there are only 10 players of scale, with AUM more than Rs 10,000 crore. We launched our business in Sept 2017 and in the span of 7 months, our AUM is over Rs 1300 crore. Our housing finance business has a differentiated approach.
1. We are in the position to leverage our strong relationship with developers on our wholesale platform. The model we have adopted is B2B2C – Business to Builder to Consumer. Here, builders play a key role for us in facilitating the housing finance business.
2. Brickex, our distributor base of ~10,000 agents, will help us in sourcing HFC loans and its relationship with several developers can help us in building a small Construction Finance book.
3. We use technology and analytics to provide quick turnaround time in underwriting and disbursement
4. We will be extending loans beyond salaried class to cover the self-employed segment which is 50% of the workforce in India.
5. With penetration in Tier I cities being significantly high, next phase of growth is more likely to be driven by Tier II & III cities. We are targeting to open 24 branches by 2020; of which 50% will be in Tier II & Tier III cities.
6. We will continue to introduce customised innovative products such as Super Loans etc. to suite different types of customers.
What are the latest trends in housing finance in India? Are new products on anvil? Your company has also diversified into retail lending. What kinds of products do you offer and what are their USP?
Housing Finance was launched with a differentiated approach of meeting the transactional requirements of home loan buyers. While most of the players have been focusing on the emotional aspect of owning a home, our primary focus has been to work on our clients’ aspirations and expectations from a home loan. We have heavily invested into technology to provide a seamless experience to our clients and our tag line “Loan Se Pehle Log” is the overriding principle. Products like “SUPER” loans whereby a customer is able to get up to 20% higher loan eligibility and simple measures like charging a client only on handover of disbursement cheque, are a few examples where we are trying to meet our client’s aspirational requirement from a home loan. At PHF, traditional products like LAP (loan against property) and construction finance have also been re-examined in the context of the market’s current needs. “Piramal Verified” is another key attribute that gives projects a status that implies that the project meets all legalities and technical requirements such that the customer can invest with complete confidence in the project. We believe that these are a few aspects that will help us differentiate from others and change the experience of seeking a home loan amongst consumers.
You have launched a new product called ‘SuperLoan’. What is it all about?
‘SuperLoan’ is an innovative product which factors future income potential whilst assessing the credit parameters for a retail loan and, thereby, enables the consumer to purchase an ideal home. It enables individuals to buy their first home at a much younger age (28 years as opposed to the earlier average of 35 years as the first time home buyers’ average age).
What is the role of technology in housing finance?
The country’s NBFC sector is experiencing a rapid growth, due to macroeconomic conditions and high credit penetration. It is also witnessing major disruptions through adoption of tech-driven innovations.
Technology has also played a significant role in aiding our growth. We adopted a customized and built to suit technology platform that spans the entire wholesale finance business and helped us achieve enhanced operational efficiency by eliminating data duplication, reducing paperwork, facilitating a seamless data flow for effective monitoring and control, and in implementing a robust compliance environment.
For housing finance, again we have relied extremely heavily on a technology-led solution in both customer acquisition and stakeholder (distributors and developer) management. We have the ability to send out well-targeted propositions, provide more personal access to customers, lower turnaround time and provide more efficient service. In fact, the primary project level data that we mine through the existing wholesale funding relationships coupled with our unique reliance on technology as an enabler for our HFC credit assessment and onboarding have resulted in one of the lowest turnaround time (TAT) in the industry. Over the medium term, this would significantly impact our ability to scale the size of our book, whilst also creating a USP, through our reliance on technology, when compared against the other players of scale that operate in this industry.