• Wed. Dec 6th, 2023

Housing Finance Bank

Housing Finance Bank, The Real Thing

Home financiers eye bigger affordable housing pie

Several large-ticket housing financiers are keen on growing their affordable-housing portfolio given the strong demand. For instance, PNB Housing Finance has set up 82 specialised branches in 2022-23 to cater to this particular segment.

“We see a lot of opportunity in affordable housing and prime. We want to capitalise on this opportunity and that is why we have started affordable housing as a separate vertical,” says Girish Kousgi, managing director and chief executive officer, PNB Housing. “Generally, a company that is focusing on prime will also do a bit of affordable lending, or an affordable housing focused company will do a bit of prime. We want to focus on both.”

Experts attribute the strong demand in the affordable housing segment to various government initiatives aimed at ‘housing for all’.

While policies like Pradhan Mantri Awas Yojana is no longer in operation, it has provided a fillip to large-ticket financiers to explore affordable housing. In terms of volume, around 60-65% of fresh home loans are in the affordable segment, say bankers.

While the maximum ticket size in this segment hovers around Rs 30 lakh, the main differentiator between the affordable and prime segments is the profile of borrowers.

“When you go to affordable housing, you find that there is no document that is primarily available from customers to support the cash flow…” says Rahul Mehrotra, managing director and chief executive officer, Religare Housing Development Finance Corporation. “Hence, the risk that the housing finance company takes is a little higher and an interest rate is charged in accordance with this risk. So, the margin is lucrative and that is attracting big-ticket housing financiers to this segment.”

Typically, customers in the affordable segment are first-time borrowers without any credit history. With banks being reluctant to offer loans, they are left with no option but to borrow from housing finance companies even in a rising interest rate environment, say experts.

“Large housing financiers are typically vulnerable to rate cycles as they largely operate in the prime housing loan segments, and are thus subject to intense competition from banks which have an inherent cost-of-funds advantage.” brokerage Morgan Stanley said in a recent report. “Affordable housing financiers operate in a niche, difficult-to-assess customer segment and have significantly higher margins, enabling them to better navigate rate cycles and protect margins.”

Going ahead, analysts believe that the growth opportunity for housing financiers is higher in regions outside the top-four states.  

“In tier-II and tier-III cities, affordable housing is strong and a good traction is there. We are hopeful that this year we get around 15-20% business in that segment. We continue to focus on that segment” says Viswanatha Gowd, managing director and chief executive officer, LIC Housing Finance.


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