Where is the housing finance market headed? and how CAN the banks/HFCs tackle asset quality issues?

The Housing Finance market

Since 1985, the Union government has been striving to address the housing shortage through various policies and provisions. And since then housing finance schemes have been directly impacting such policy interventions.

Known for its resilience, the housing finance market has attracted a lot of financiers due to its promising nature. Home loans account for about 10% of the country’s GDP. The business is split into three parts with banks, NBFCs and HFCs catering to the needs of borrowers.

The Home loan market, by the end of March 31, 2018, was almost proportionately divided between banks and HFCs. The banks accounted for 55% of outstanding loans, whereas HFCs made for the remaining 45%.

A more comprehensive picture of FY 2018-19 lending trends is yet to emerge. However, the data maintained by National Housing Bank, the apex body which regulates housing finance companies (HFCs) shows the total loan portfolio of HFCs had increased by 27% YoY by March 31, 2018 (FY 2017-18).

The total loan disbursed by HFCs stood at ₹ 8.19 lakh crore during FY 2016-17, which increased to ₹ 10.38 crore in FY 2017-18. Indicating structural changes, the report also shows that disbursement of HFCs was equally focused on both housing and non-housing loans such as Loan against Property (LAP), Loan against Lease Rental Discounting (LAR), Project Finance or Developer Financing.

The crisis

However, lately, fears about asset quality and overheated prices have hit the lending business. The situation has started worsening from September 2018, soon after ILFS defaulted. A slowdown has been witnessed in the home loan business since then.

In the present scenario lowering leverage is the key question for HFCs. NPAs started piling up, owing to poor decisions regarding locations. Also, the excessive value of land banks resulted in asset quality issues.

The latest NHB report reveals that GNPAs on the books of HFCs increased from ₹ 9,126 crores in FY 2016-17 to ₹ 13,555 crores during FY 2017-18. This is an increase of 48% over the year. The total loans and advances disbursed by HFCs also went up significantly in the same period.

Importance of market research and studies

At a time, when the apprehensions about asset quality are growing, careful selection of land banks as well as that of developers will be essential for maintaining a healthy balance sheet. Higher NPAs and poor credit profile can lead to higher cost of funding.

In such a scenario, it is important to carry out an Overview of Risk Management as well as a thorough Appraisal of Housing Loans (Financial, Legal and Technical). Liases Foras has designed data products to gauge market reality and to determine the correct valuation. The Data-driven property market analytics tools identify potential opportunity and underlying risk factors.

With online data repository and tools such as RESSEX, Desktop Valuation (web-based valuation of comparables), Developers Performance Tracking and Rating, Micro-market Reports, Catchment/Location Analyses, bankers and housing finance companies can bring down the risk associated with asset quality.

In fact, the National Housing Bank (NHB) has entrusted the job to prepare and publish its residential market index RESIDEX to Liases Foras. RESIDEX represents residential market demand and supply spanning across 60 Indian cities.

Key financial indicators of HFCs
Key financial indicators of HFCs
HFC Performance- Public and Private
Performance of Public Ltd. and Private Ltd. HFCs
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