X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Housing Finance : Industry in transition - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Feb 8, 2003

    Housing Finance : Industry in transition

    If one were to study the sector-wise performance over the last five years, the housing finance industry has outperformed everyone’s expectations. Loan disbursals have grown at a CAGR of over 35% in the last five years. But the industry is still fragmented with a large number of players spread across different parts of the country. There are nearly 383 HFCs or housing finance companies in the country currently. This is apart from the numerous banks that have entered in to the fray. In this article we look at the nature of this industry, its trends, the major players involved and the prospects of the industry going forward.

    The housing finance industry is estimated to be worth nearly Rs 330 bn (FY02) and is estimated to have grown by nearly 28% compared to FY01. Healthy growth in this industry has been mainly due to a consistent decline in interest rates, tax incentives given by the government and changing income profile of the Indian middleclass population. A huge deficit of nearly 40 m (FY02E) dwelling units is likely to ensure that the robust growth rates in this sector will continue in the future.

    Source: LICHF

    Before going any further, a brief view at the level of fragmentation in the industry is of significance. The graph above gives us the breakup of market share based on outstanding housing loans as on March 31, 2002. The split up pie of the market share indicates that HDFC is still the market leader followed by SBI. But in terms of the housing loan assets, LIC Housing Finance limited (LICHF) occupies second spot next to HDFC. What is significant is the fact that banks have stepped in to the domain of these HFCs and are capturing market share of the incremental loans disbursed.

    Currently, banks have garnered close to 35% share of the housing finance market by offering competitive rates of interest. Among banks, SBI and ICICI Bank have been the most aggressive as far as loan disbursals are concerned. We expect the trend to continue with banks gaining a larger share in incremental loan disbursals.

    Performance of HFCs
    Particulars FY98 FY99 FY00 FY01
    Growth in income 15.1% 17.0% 14.2% 21.4%
    Growth in net profits 16.6% 3.4% 17.1% 17.9%
    Source: NHB % change compared to corresponding previous period

    The housing finance industry boom has been due to a host of factors. Real estate prices have dipped to the lowest in several years, making investment in real estate very economical at the moment. Houses for the middle-income group have become more affordable in the last five years. Earlier, houses would cost on an average 20 years of salary, which has now come down to just 8-10 years' salary.

    Fall in interest rates has changed the way the salaried class view housing loans. Interest rates for housing loans have declined from an average 17-18% in 1994 to 10%-11% now, thereby making loans cheaper. Changing demographics of the Indian populace has also played an important role in the development of this industry. The emergence of a new class of families called DINK or ‘double income no kids’ has played its part. In the recent years, housing has also become more affordable due to increasing urbanisation and higher consumer incomes. Income tax incentives have also played a major role in stimulating housing demand. Interest expense to the tune of Rs 150,000 per annum is exempt from taxes.

    Prospects of the housing finance industry look encouraging mainly due to the fact that the gap in demand and supply has not been corrected adequately. At the end of the ninth five-year plan period i.e. FY02, the shortfall in dwelling units was in the region of 40 m. In terms of dwelling units the Urban Affairs and Employment Ministry has stated that cumulatively India will have to add a minimum of 6.5 m houses per year to add 33 m houses in order to bridge the current gap. At present the supply of houses stands at close to 2.5 m per year. Apart from that the Indian economy may have reached a stage where interest rates may continue to remain soft over the long-term. This is likely to ensure a steady demand for housing loans.

    Housing shortage continues
    (million units) FY71 FY81 FY91 FY01E
    Rural 11.6 16.3 14.7 12.8
    Urban 3.0 7.0 8.2 6.6
    Total 14.6 23.3 22.9 19.4
    Source: NHB

    Infrastructure status given to the housing finance companies will pave the way for large housing projects in future. The sector has now been recognized as an important engine for economic growth. The potential for the industry to grow is thus immense as can be seen in the survey conducted by National Housing Bank (NHB), which indicates that the housing shortage over the last two decades has largely been unmet.

    The housing finance industry is on solid ground and has interesting prospects. However, the industry has become over crowded, with players of all sizes. The entry of banks into the sector has further intensified competition. Only companies that have a strong brand image, large distribution network and a customer friendly approach stand to benefit in future.

     

     

    Equitymaster requests your view! Post a comment on "Housing Finance : Industry in transition". Click here!

    1 Responses to "Housing Finance : Industry in transition"

    Sharetipsinfo

    Nov 9, 2010

    Nse, bse, share market, share market tips, Indian stock market, Sharetipsinfo

    Like 
      
    Equitymaster requests your view! Post a comment on "Housing Finance : Industry in transition". Click here!
     

    More Views on News

    Insider at It Again. This Time Stealing from Buffett and Berkshire (The 5 Minute Wrapup)

    Aug 12, 2017

    What is Equitymaster Insider Ankit Shah stealing from Berkshire's success?

    HDFC: Red Flag in Developer Loans (Quarterly Results Update - Detailed)

    Aug 10, 2017

    HDFC starts FY18 on robust loan growth but asset quality slips on increased exposure to developer loans.

    Shriram Trans Fin: FY17 Ends on a Tepid Note due to Regulatory Headwinds (Quarterly Results Update - Detailed)

    Jun 22, 2017

    Demonetisation led slowdown coupled with shift to stringent bad loan norms keep Shriram Transport Finance on a slow wicket.

    Central Depository Services (India) Ltd. (IPO)

    Jun 19, 2017

    Should one subscribe to the IPO of CDSL Ltd?

    Power Finance Corp: Alignment with RBI Norms Knocks Down FY17 Earnings (Quarterly Results Update - Detailed)

    Jun 14, 2017

    Power Finance Corporation earnings hit by RBI mandated higher provision on state government power generation projects where the recovery continues to be 100%.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    COMPARE COMPANY

    MARKET STATS