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Housing Finance – Encouraging prospects - Views on News from Equitymaster
 
 
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  • Nov 10, 2000

    Housing Finance – Encouraging prospects

    The economy downturn in India in the last two years resulted in a slow down in construction activity, in turn affecting the prospects of the housing finance industry. The key sectors of the economy including cement, aluminium, steel and auto were impacted adversely.

    However, the outlook began to improve beginning financial year 2000. The economic performance has been much better than anticipated mainly due to a sharp rebound in the industrial and services sectors. But the acceleration in economic activity during financial year 2001 proved to be a short lived. The GDP growth rate slipped to 5.8% during the period April – June 2000 from 6.9% in the corresponding previous quarter. The slow down in industry growth has been witnessed across all the key sectors. The most recent concern however, has been a slowdown in demand for commodities like cement, in the states hit by drought.

    The housing finance industry has been in a slump in recent times with there being a low demand from builders and investors. However, the outlook for the housing finance sector seems very exciting going by the following:

    • Government has announced a number of concessions in the Union Budget for 2000 for the housing sector.
    • The real estate prices have declined, making the 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 an average 20 years of salary, now it has come down to just 8-10 years' salary.
    • Interest rates for housing loans have gone down from an average 17-18% in 1994 to 13-14% now, thereby making the loans cheaper.
    • Infrastructure status given to housing finance companies will pave the way for large housing projects in future.
    • Government has announced an action plan to construct 10 million houses every year.

    The above-mentioned developments are expected to result in increased activity in the housing construction but at a slower pace.

    HDFC is the market leader in the housing finance industry and commands a share in the vicinity of 45% of the total funds that are disbursed by all majors. The company's large depositor base gives it an edge over its competitors. On the financial front also the company has fared consistently over the years. HDFC with its near monopolistic position, strong brand image and high penetration will stand to benefit in this scenario. But increasing competition from SBI, ICICI and smaller housing finance companies could hurt HDFC’s dominant market share in the near term.

     

     

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