• HDFC
• 06 Sep 2018
• Knowledge Centre

HDFC, Tester

The real estate sector may not be on terra firma yet, but affordable housing could come as a much-needed breather for thesegment. According to a report by rating agency ICRA, incentives to boost the residential real estate sector, especially affordable housing, might push housing credit growth to 17-19% in the current fiscal.

 

“Growing affordability for the first-time homebuyers, supported by Government incentives, like the Pradhan Mantri Awas Yojana, is expected to result in a rise in primary home purchases, especially in the affordable housing segment, which will help take segmental loan growth to 17-19%,” the agency said in a report.

 

Some positives

 

According to the report, the quantum of loans to the residential segment has increased substantially. It grew 16% in FY18, taking the mortgage penetration (housing credit as a percentage of the gross domestic product) to 10% for the first time in FY18. The growth registered in FY17 was 9.5%. New players in the affordable housing segment helped overall housing credit to grow 39% in FY18. “We expect the mortgage penetration level to go up by 300-500 bps (basis points) over the next five years,” the report stated.

 

Overall asset quality indicators for all housing finance firms have remained stable, with gross NPAs at 1.1% in FY18, better than 1.2% in December 2017, but worse than the number for FY17 at 0.8%.The ICRA report expects overall gross NPAs for housing finance companies (HFCs) to remain range-bound between 1.2 and 1.5% this year.“The retail home loan asset quality of HFCs is likely to be benefited by the recent Cabinet decision to treat home buyers as financial creditors,” it said.

 

However, gross NPAs in the sub-segment deteriorated from 3.3% in FY17 to 4.1% in FY18. This was driven by greater portfolio seasoning, entity-specific factors in some cases, and external events such as the note ban and GST rollout, which has impacted cash flows of borrowers.

 

Regarding funding, the report said HFCs would need to source incremental funds worth Rs 4 lakh crore to fund their growth plans and replace maturing liabilities in FY19.

 

The trio

 

Demonetization, along with other reforms like the Real Estate Regulatory Act (RERA) and the Goods and Services Tax (GST), has disrupted the real estate market.

 

Under GST, buying under-construction properties attracts a net effective rate of 12% as against the earlier rate of ~5.5% (including value-added tax and service tax). The real estate sector, known as a safe haven for parking black money, was hit hard by demonetization.

 

A publication quoted Mr. Anuj Puri, Chairman of Anarock Property Consultants as saying, “The funneling of unaccounted monies into the real estate sector has become virtually impossible because of the demonetization move, which means that future growth in the sector will be based on much sounder and more sustainable fundamentals than ever before.

 

In fact, all property purchases today are already taking place on the basis of transparent cheque payments and legal online payment gateways in the post-RERA period. Real estate transactions happening on the basis of cash, or with any significant cash component, are inevitably going to be questioned by the authorities. Nobody wants their property investment to fall under scrutiny for untoward practices.”