‘Despite temporary slowdown in housing credit growth, long term prospects remain favourable’

The total housing credit growth slowed down to 14 per cent for the twelve months ended June 2017 (16 per cent in FY2017) taking overall housing credit to Rs 14.6 trillion as on June 30, 2017.

According to Rohit Inamdar, Group Head Financial Sector Ratings ICRA, “The growth in the sector was impacted by a slowdown in new project launches and buyers and investors deferring their home purchase decisions in expectation of a decline in real prices.”

“In addition disruptions in the real estate market owing to implementation of real estate regulation and development act (RERA) and; goods and service tax (GST) and preference of end users for finished inventory /RERA approved projects also resulted in a slowdown.”

There has been deterioration in asset quality indicators for housing finance companies (HFCs) in Q1FY2018 with the gross (non-performing assets) NPAs increasing from 0.84 per cent as on March 31, 2017 to 1.15 per cent as on June 30, 2017, largely attributed to the increase in non-housing book NPAs.

ICRA expects HFCs’ gross NPAs to remain range bound between 0.9 per cent and 1.3 per cent for FY2018 as some of the risks such as relaxation of LTVs/FOIRs, increased loan tenures and ballooning of repayments could impact asset quality indicators negatively over the medium term.

These risks will partly get mitigated by the strong monitoring and control processes of HFCs, borrowers’ own equity in the properties and the large proportion of the properties being financed for self-occupation especially in the affordable segment.

As for funding requirements, large HFCs continued to rely more on debt market instruments and fixed deposits while small HFCs depended largely on bank borrowings and debt market instruments. Small HFCs were also able to draw substantial NHB funding.

As per ICRA’s estimates, HFCs will require around Rs 90-160 billion of external capital (11-19 per cent of their existing net worth) to grow at a CAGR of 20 per cent-22 per cent for the next three years with internal capital generation levels (post dividend) of 15-16 per cent and gearing levels of 8-9 times.

Most of this incremental capital requirement HFCs would be for the small HFCs including those operating in affordable housing space.