Rising disposable income, increasing real estate prices and benign interest rates facilitated the Indian housing finance sector to witness a 56% rise in CAGR during 2003-07. “Mortgage penetration levels in the country slowed down from 2008-09 onwards, following skyrocketing property prices, high interest rates, economic meltdown and withdrawal of investors from the market,” says Kamal Bhansal, region head of Bonanza Portfolio Limited, a leading financial services firm in New Delhi. Of late, the domestic mortgage market is witnessing a revival aided by factors such as improving economy, significant property price corrections across major cities in Banks dominating mortgage market The domestic mortgage market is currently dominated by banks and this is expected to continue over the coming years, primarily in view of their wide network and access to stable low-cost funds. At present, the major players in the Indian housing finance sector are State Bank of The housing finance companies (HFCs) reported an annual growth of 25% from 2004-07, while the mortgage portfolios of Indian banks grew at higher rates during the corresponding period. Banks as well as HFCs recorded a steep decline in mortgage penetration levels during 2008-09, however both are witnessing a revival at present. “The introduction of 8% interest rate scheme by most banks since the beginning of 2009, coupled with declining realty prices across the country, have led to a significant growth in the home loan segment, consequently improving the credit scenario of the banks,” says Sohom Dutta, a senior executive of Allahabad Bank, Shyambazar Branch, Kolkata. HFCs diversifying portfolio Following stiff competition from banks regarding home loans, HFCs are willing to diversify their mortgage portfolio in order to increase their portfolio yields. Therefore, the emerging trend noticed among HFCs is to venture into segments such as loans against property (LAP), builder loans and lease rental discounting. Although the aforementioned segments involve higher risks as against the home loan segment, stringent lending norms followed by the HFCs are likely to mitigate the risks. Moreover, with increased emphasis on superior service levels and aggressive tapping of the underdeveloped segments, HFCs may also witness considerable growth over the foreseeable future. Road ahead According to a report by ICRA Limited, a leading investment information service provider, the domestic mortgage market is likely to witness more than 20% growth annually in the next 5 years, provided there is a 10% rise in mortgage penetration level during the corresponding period. This growth will be driven by factors such as economic growth, stable interest rates, increasing supply of affordable homes and rationalisation of property prices. Furthermore, the report points out that lack of transparency in the mortgage market is also adversely affecting the profit margins of most mortgage lenders. This calls for a stringent regulatory initiative to align the lending terms for an existing borrower with that for a new borrower, which in turn will significantly contribute to the overall growth of the domestic mortgage market. Jeeta Bandopadhyay |
