The year 2019 promises to be the best year to buy your dream home. Affordability has increased in the recent times aided by stagnant property prices, steady annual wage inflation of over 10% in the last decade and lower effective interest rates, due to tax incentives and Pradhan Mantri Awas Yojana (PMAY) subsidy. With rapid urbanisation, low mortgage penetration, nuclearisation of families and having two-thirds of our population below 35 years of age, we expect good demand for housing in 2019. The year 2018 was a good one for commercial leasing with absorption of over 43 million sq.ft of new office space, a lead indicator for job creation in the service sector. With fiscal deficit and inflation expected to be within the Reserve Bank of India’s (RBI) estimates, the 10-year G-sec (government securities) now off its highs, stable currency and lower oil prices, the interest rates for a home loan borrower are expected to be stable in 2019. Thus, favourable macroeconomic conditions coupled with conducive demographic factors and increasing affordability augurs well for the housing sector.
One of the most important factors for any retail loan borrower is the rate of interest. While overall home loan rates are expected to be stable in 2019, a major change that home loan borrowers would see this year is that banks will have to switch to an external benchmark to determine rates. Since short-term benchmark rates move a lot, this will introduce volatility. However, in the long term, this will be a positive move for home loan borrowers. Those who have taken home loans from non-banking finance companies (NBFCs) and housing finance companies (HFCs), on the other hand, are protected from any rate hikes that may happen in 2019. As per RBI’s mandate, only banks are required to link their retail loans to external benchmarks, which will protect NBFC/HFC home loan borrows from future rate volatility.
Another important factor in a country like India where mortgage is so under-penetrated is availability of loan to a prospective home buyer, especially in unbanked regions. NBFCs and HFCs have been the biggest drivers of housing finance growth in the country over the past decade on the back of their multi-pronged distribution model and their last-mile connectivity in tier II and tier III cities. They have developed efficient loan processing capabilities through the use of analytics-based technology platform and big data-driven processes, and have faster loan turnaround time.
In such a backdrop, the recent pause in home loan disbursals, for over three months, by NBFCs and HFCs has been a point of concern. Though banks have continued to disburse home loans during the liquidity crisis faced by NBFCs and HFCs, their limitation in distribution and slower processing ability will surely impact the housing finance growth in the country, especially in tier 11 and tier III cities. However, with the liquidity situation now close to normalising, NBFCs and HFCs are expected to restart disbursals. In 2019, housing finance is expected to pick up pace, and combined with structural increase in home loan demand on the back of stable macroeconomic conditions and strong demographic factors, the 2019 growth will match or even outpace previous year’s growth.
The last and biggest concern bound to arise during an election year is the new government’s policies on the housing sector. Unlike the previous governments, the current government has viewed housing as its centrepiece economic policy and announced various schemes and policies to increase home ownership. It has been realised that in addition to its social aspects, housing is also a key driver of economic growth with its ability to create employment and its linkages to multiple other sectors. Housing is the fourth largest contributor to Indian GDP and the sector has the potential to become the engine of domestic growth for the Indian economy in the coming years. Thus, irrespective of who forms the next government, we expect housing to hold similar relevance as it did for the current government.
In all, based on how various parameters are panning out, India’s macroeconomic scenario will remain stable in 2019 and we expect the housing finance sector to play a pivotal role in the growth story of the country.
Ashwini Kumar Hooda is deputy managing director, Indiabulls Housing Finance Ltd