PM Awas Yojana – HFA According to a report, the pure-play affordable housing finance companies are poised to grow at a CAGR of 40 percent over the next four years, mainly on the back of the initiatives taken by the government to give a boost to the sector under its housing for all by 2022 program.
As per the Crisil report, a new pure-play affordable home loan players have seen their assets under management jumping 50 per cent to Rs. 23,000 crore as of March 2017, from Rs. 15,000 crore in March 2016.
Crisil state that we expect AUMs of these new companies to grow at a CAGR (compounded annual growth rate) of 40 percent over the next four years, compared with 17-18 percent expected for the housing finance sector as a whole. A quarter of home loans today are for affordable housing.
The high growth has also led to increasing in market share of these new players in the overall segment from 10 per cent as in March 2016 to 15 percent in March 2017. Crisil defines affordable housing loans as those with a ticket size of under Rs. 15 lakh.
The facilitations that have spurred growth include government’s ‘housing for all by 2022’ scheme under the Prime Minister’s Awas Yojna (PMAY), the grant of infrastructure status to affordable housing, allowing additional investment limits to debt mutual funds to invest in housing finance companies, and lower risk weights for small ticket housing loans, Crisil noted.
The agency said the upshot has been three-pronged which includes existing players have seen capital infusions, more new players are entering the fray, and for borrowers, affordability has improved.
“Many of the new pure-play affordable housing loan companies are backed by private equities or strong promoters.
Over Rs. 2,000 crore of capital has been infused over past five years into these companies, with the number of PE players investing more than quadrupling from four to 18,” the agency said.
According to Crisil, these companies will need another Rs. 1,500 crore of growth capital over the next three years. “The underlying borrower profile in the affordable housing finance segment has led to sharply differentiated portfolio characteristics for these players compared with the overall housing loan market.
This includes factors such as the higher proportion of self-employed borrowers and borrowers with lower income levels,” it said. The underlying borrower profile, coupled with the limited financial flexibility of the borrowers leads to potentially higher volatility in portfolio performance.
This is evident in the two-year lagged gross non-performing assets of 3 percent as compared to one percent for the overall housing finance sector. Nevertheless, higher returns compensate for these risks to a large extent.
The report added that while government initiatives and huge market opportunity continue to make the segment attractive, the institutionalization of appropriate origination, credit assessment and underwriting practices and human resources will be the defining elements for long-term sustainability in the affordable housing finance space.