Low Interest Rates, Wage Growth, Stable Property Prices To Drive HFCs’ Loan Growth

India Ratings and Research (Ind-Ra) has maintained a neutral sector outlook and a Stable rating Outlook for housing finance companies (HFCs) for FY23. The lowest interest rates seen in decades along with stable property prices and the low impact of the COVID-19 pandemic on job losses and wage growth in the salaried segment have led to improved affordability for borrowers. This accompanied with the need for a bigger housing space during the pandemic bodes well for financers to drive the overall assets under management (AUM) growth higher, despite high competition from banks. Ind-Ra believes affordable HFCs could witness strong loan growth due to increasing geographic penetration and a possible increase in ticket size (partly due to asset inflation), thereby driving loan growth higher in FY23.

Home loan borrowers have benefitted on multiple counts in terms of affordability based on following factors - 1) borrowing rates being among the lowest in the past two decades, even lower than the current 10-year G-Sec rates; 2) concessions offered in stamp duty rates by certain states; 3) government push through Credit Linked Subsidy Schemes along with continuing income tax exemptions; 4) relatively stable real estate prices for the past few years along with developers offering incentives to clear their inventories; and 5) wage growth maintaining its pace higher than property price rise for the past few years which bodes well for financiers to grows its AUM.