Affordable housing to be growth driver for housing finance market

Mumbai: Domestic rating agency Icra on Wednesday said affordable housing segment is likely to grow over 30 percent over the medium term and will be the key growth driver for the mortgage finance market.

"With focus of the government on affordable housing segment including a number of initiatives such as 39 per cent higher allocations vis-a-vis financial year 2016-17 under the Pradhan Mantri Awas Yojana (PMAY), extension of the Credit Linked Subsidy scheme to loans of value upto Rs 1.2 million, efforts are being made to address the supply side, demand side and affordability issues and are likely to expand the borrower base," rating agency's senior vice president and group head (financial sector ratings), Rohit Inamdar, said in a report here today.

The rating agency said it expects affordable housing segment to grow at a faster pace than industry at over 30 per cent over the medium term.

It said post demonetisation, the delinquencies in the affordable housing and self-employed segments reported some increase, owing to their relatively higher share of self employed segment which got more impacted due to note ban, from 1.07 per cent as on September 2016 to 1.25 per cent as on December 31, 2016.

Inamdar said there could be some further increase in delinquencies especially in the affordable housing and self-employed segments going ahead.

"Liquidity of properties may get impacted post demonetisation given the expected correction in property prices impacting the loss given default. Overall, we expect gross NPAs for Housing Finance Companies (HFCs) to remain range bound between 0.9-1.3 per cent over the medium term," Inamdar said.

The report said incremental funding costs for HFCs have come down considerably in the second half of the current financial year with many HFCs raising funds at median rates of 7.5-8 per cent.

The rating agency said HFCs will require around Rs 16,000-27,500 crore of external capital (30-50 per cent of the existing net worth of the HFCs) to grow at a CAGR of 18-20 per cent for the next three years at internal capital generation levels, of 15-16 per cent and at gearing levels of 8.5-9 times.