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 - A cornerstone for economic growth - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Nov 11, 2000

    Housing - A cornerstone for economic growth

    A spurt in housing activity generally reflects the health of the economy. A spurt in the economy invigorates the housing sector activity. Today, for India to achieve balanced economic growth, it is essential to boost construction activity in the housing sector.

    The outlook for the housing finance sector seems very exciting, going by the recent concessions given to the sector by the government in Union Budget 2000. The government has further repealed the ULCRA (Urban Land Ceiling and Regulation) Act, which was perceived to be a stumbling block for housing growth by the builders. Added to this the government has announced an action plan to construct 10 million houses every year. This will give a fillip to the sector. This push to housing will help India achieve a higher GDP growth.

    The other encouraging factors are that the real estate prices have dipped to their lowest in several years, making investment in real estate very economical at the moment. Secondly, 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. Also interest rates for housing loans have declined from an average 17-18% in 1994 to 12-13% now, thereby making the loans cheaper.

    In the recent years, housing has also become more affordable due to increasing urbanisation and higher consumer incomes. Interestingly there are an increasing proportion of younger people buying homes today. Housing finance companies (HFC) are setting up wide networks that operate efficiently throughout the country, providing finance at all levels of incomes. What will boost growth further are the value added services provided by these companies. HFCs today have diversified their role and help in identifying property according to individual requirements. It also assist in completing legal due diligence of the same.

    But there are certain factors, which could slow down the growth. One of them is the hike in interest rates. Since individuals are increasingly becoming rate sensitive, rising interest rates could dampen sentiment. Further, development in the housing sector depends on industrial revival, spurt in infrastructural activity and a positive trend in the core sectors like cement, aluminium and automobiles. The economy downturn in India resulted in a slow down in the construction activity. This led to a chain reaction wherein many core sector industries including cement, steel, aluminium etcetera were badly affected. The most recent concern however has been a slowdown in demand for commodities like cement, in the states hit by drought. Although, the growth phase has started for these core sectors, it will take some time for activity to gather momentum.

    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

    While infrastructure status given to the housing finance companies will pave the way for large housing projects in future, the government has not yet allowed foreign direct investment (FDI) to housing sector. The housing shortage in India is widening and domestic investors are facing a cash crunch. So it is only the foreign investors who can bring in the much-required money. The sector has now been recognized as an important engine of 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. Monetary benefits as well as fiscal concessions given by the government in the past have to some extent reduced the total housing shortage in India.

    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.

    Performance of HFCs
    Particulars FY98 FY99 FY00 1HFY01
    Growth in income 15.1% 17.0% 14.2% 21.4%
    Growth in net profits 16.6% 3.4% 17.1% 17.9%
    % change compared to corresponding previous period



    Equitymaster requests your view! Post a comment on "Housing - A cornerstone for economic growth". 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

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    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.

    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.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    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