New housing finance firms eye affordable housing space

Bengaluru: New entrants in the mortgage lending space are focusing on providing small home loans to customers in cities and small towns, aided by government schemes and initiatives to promote affordable housing.

New lenders such as Lodha Ventures, Centrum Housing Finance Ltd, JM Financial Ltd, Piramal Finance Pvt. Ltd and Capri Global Housing Finance Ltd have either started lending this year or are awaiting licences to begin operations.

Centrum Housing Finance began lending in February starting with Madhya Pradesh, and plans to cover Gujarat soon. “We realized there is a huge opportunity in Tier 3 and 4 towns where there is a lot of end-user demand for housing loans. In the affordable housing segment, we needed to look beyond the traditional lending model without comprising on collateral,” said Sanjay Shukla, managing director and chief executive of Centrum Housing Finance.

Centrum provides home loans between Rs5 lakh and Rs40 lakh, and its average loan size is Rs11 lakh. Shukla said the company plans to have a loan book of Rs250 crore by the end of 2017-18.

Financial services firm Lodha Ventures has obtained licence to operate a housing finance company and plans to launch it in November. The company, plans to offer home loans of up to Rs25 lakh in Mumbai and up to Rs15 lakh in other markets.

“The affordable housing segment is growing very fast, and is helped by the various tax benefits and incentives given by the government,” said Lodha Ventures founder Abhinandan Lodha. “The risk to reward ratio in this space is also very attractive. We are looking at a buyer segment which is outside the typical salaried class of people, which is catered by large HFCs (home finance companies) and there is huge demand in that space,” Lodha said.

“We have aligned our housing finance business primarily with Pradhan Mantri Awas Yojana because of two main reasons; one, since it will become part of building the nation with Prime Minister Narendra Modi’s most ambitious project of Housing For All by 2022 and secondly, it will empower the weaker section of the society who can fulfil their dream of owning a house,” said Rajesh Sharma, director, Capri Global Capital Ltd.

Affordable housing finance is set to be a Rs6 trillion opportunity by 2022, said a 23 June India Ratings and Research report. The research agency anticipates demand for 25 million homes over FY17-FY22 in the medium-income group (MIG) and lower-income group (LIG) categories.

A combination of factors such as government financial and policy thrust, regulatory support, rising urbanization, increasing nuclearization of families and increasing affordability is converting latent demand into a commercially lucrative business opportunity, the report said.

“...Demand creation largely by regional or focused players will further boost the existing latent demand. A large size of the incremental customer sets could be introduced to formal credit for the first time. This could primarily be on account of lack of customer awareness for eligibility to the formal credit channel as well formal documents. The Jan Dhan-Aadhaar-Mobile trinity could be an enabler in this step,” the India Ratings and Research report said. 

This year, two large financial services firms JM Financial Ltd and Piramal Finance Ltd said they will enter housing finance, with a focus on affordable housing. Both are awaiting licences from the National Housing Bank. JM Financial, which provides real estate lending in other categories, plans to extend loans of Rs10-15 lakh. It expects to grow the business to around Rs2,500-3,000 crore in around three years, managing director Vishal Kampani told Mint in an interview in May.