A series of hikes in key rates by the Reserve Bank of India has put the common man who aspires to own a home in a spot. What is in store for him?
What does the home mortgage business portent for housing finance firms? Srinivas Acharya, Managing Director, Sundaram BNP Paribas Home Finance Limited, puts the issues in perspective in an interview to K. T. Jagannathan.
How would you look at the year 2011?
Despite talks of slowdown, the year 2011 has been a good year for the home finance sector.
What were the big challenges faced by the sector?
Non-availability of long-term funds and frequent changes in interest rates were a couple of challenges the sector has had to grapple with this year.
The year saw also several rate hikes? What is your view on the current interest scenario?
Where do you see this moving in the medium-term? What impact will this have on the home buyers?
As the Reserve Bank of India itself has indicated, we do not expect any further rate increase unless there is any sudden adverse development not encountered so far.
You had indicated earlier this year that there is a lot of potential in Tier-2 and Tier-3 markets in the South and that there is still untapped potential. How different are those markets compared to the larger metros such as Chennai or Bangalore?
Is there any unique trend that you find in Tier-2 and Tier-3 towns in terms of home buyers and loan disbursement?
Availability of employable personnel in Tier-2 and Tier-3 towns will see offices spring up in these areas in a big way to avoid the metros. Besides, the cost of operations in the metros has gone up steeply and the infrastructure in the metros is not able to keep pace with the expanding horizons.
Better connectivity in terms of data and communication has made concentration in metros irrelevant.
Therefore, Tier-2 and Tier-3 towns will witness growth and together with this, there will be demand for housing.
What is the outlook for the home finance sector in the coming year? What will drive the growth in the sector next year?
Speaking for my company, the outlook continues to be bright. We believe there is still a lot of potential in the South.
We expect this market to continue to grow in the near- to medium-term.
What are the challenges going forward and opportunities for the sector?
Non-availability of long-term funds will continue to be a challenge. The housing demand in Tier-2 and Tier-3 towns will throw up a lot of opportunities.
What is the short-term solution to this long-term fund issue?
Excepting National Housing Bank (NHB), nobody is providing long-term funds for the housing finance firms. We don't have a mature debt market, where funds can be accessed for say a 10-year period. In the current environment, the long-term debt market simply does not exist. The government has to facilitate the development of the long-term debt market.
What is the solution?
Even NHB has now to raise funds from the market like everybody else. Earlier, it was able to raise capital gains bonds.
Now, it couldn't. May be the government could let NHB float long-term tax-free bonds. That could solve the problem to a certain extent.
What kind of initiatives / support do you expect from the industry body to drive faster growth in this sector?
There is no specific industry body for home finance industry. But, the initiatives taken by the NHB, our regulator, for creating a central registry for properties funded by housing finance companies (HFCs) and banks will go a long way in avoiding multiple funding against the same property.
State governments also need to provide some kind of authenticity to property registrations to avoid frauds. Besides, the laws on the anvil for the real estate sector will also bring in a lot of discipline among the builders and will lead to a greater level of comfort and confidence on the part of home-buyers and HFCs.
Specifically for your company, how has the growth been thus far this year? How do you see the next quarter? Also, what kind of growth do you envisage for the company over the next 12-18 months?
We crossed last full year's disbursements during the first nine months itself of the current year and have expanded our presence to 70 offices in India, including opening up newer locations outside the South. We do hope to reach our disbursement target of Rs.1,800 crore by March 31, 2012, which will represent a growth of 50 per cent over last year. In the next year (2012-13), we hope to grow by 40 per cent and settle down at a growth of 25 per cent once we reach annual disbursement of Rs.3,000 crore.
What is your view on the housing prices?
You haven't seen prices going up substantially. This has not happened in Chennai and Southern towns at least. Given the mindset of the buyers in the South, if you over-quote your price, it puts off a typically Chennai buyer. With Metro Rail and such things coming up in Chennai, I feel the population in Chennai will substantially grow and there will be increased demand.