Financial Daily from THE HINDU group of publications
Wednesday, Mar 24, 2004
Financial Daily from THE HINDU group of publications Wednesday, Mar 24, 2004 |
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Money & Banking
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Housing Finance Beyond the threshold Rukmani Vishwanath
A home of one's own is no longer a dream. A file picture of children at a property fair.
The business of providing housing loans, which used to be the preserve of housing finance institutions earlier, is now one of the most profitable businesses, for public sector, private and foreign banks alike. In this scenario, the customer is obviously king! In their efforts to attract more customers and capture a larger market share, rate wars among banks and housing finance companies have brought down interest rates to newer and newer lows in the recent past. However, when the dust settles, the question at hand remains: Is interest rate the only determining factor that will ensure business in a situation where most banks and institutions end up offering similar interest rates with only marginal differences? Top players in the housing finance business contend that future trends will be determined largely by value-added services offered by the companies, not just interest rates. "We have been in this business for over 20 years. We are still learning so many facets of this business that are emerging everyday. This is a high involvement business and not like selling soaps and shampoos," said Mr Kapil Wadhawan, Managing Director, Deewan Housing Finance Corporation Ltd. Deewan Housing, one of the leading players in the sector, has since its inception in April 1984 evolved into a total home finance solutions provider. As one of its many initiatives towards providing value-added services to its customers, Deewan Housing has introduced Sampoorna Rakshak, a free-of-cost, comprehensive protection plan that not only protects the customer's property against unforeseen disasters, be it in the form of an earthquake, a gas cylinder explosion or a fire, but also from the loan outstanding in case of an accident leading to the death of the loan applicant. The plan also has an additional cover in the case of loss of job of the loan applicant. "There are issues to be taken care of, such as the legal aspects determining security, valuations of property, etc., to ensure that the value of the property covers the value of the loan. Customers also prefer one-on-one interactions with the company from which they are borrowing and not just agents and direct sales agents," said Deewan Housing's Mr Wadhawan, emphasising the need for high-service standards. Industry analysts concur that housing finance is a multifaceted business and cannot be treated like any other retail finance business. Players in this industry must have a lucid understanding of the sectoral demand pattern of housing stock in the country, processes involved in long-term lending, various checks and balances involved in minimising risks, etc. Highlighting the importance of maintaining long-term customer relationships as being fundamental to the nature of housing finance, Mr D. Krishnan, Chief Executive, LIC Housing Finance, said the housing loan business entails a relationship of anywhere between 10 and 20 years with the customer and the financial institution or bank. Therefore, pricing is not the only feature that the customer must look at while going in for a housing loan. They must also think and enquire about what kind of service the company is in a position to provide for all the needs and requirements that may crop up over this span of time. "The housing loan company must be in a position to provide specialised service to its customer at every contact point," he said. LIC Housing Finance Ltd, the second-largest housing finance company in the country, soon plans to finance acquisition of overseas housing properties and is seeking RBI approval to provide foreign currency loans to NRIs wanting to buy houses in Dubai. As of now, there also seems to be a conscious shift in the way the "market makers" are viewing this business. These days, it is not just about gaining market share but being able to sustain it. The past year has also been witness to a growing number of cases of migration of home loans. So much so, that at one point industry analysts felt that a significant portion of the so-called pick-up in retail credit with banks was actually the "re-positioning" of credit from one financial institution to another. However, with growing awareness for the need for high-quality service, it appears that loan migrations are on the decline, the experts said. In a recent interview with Business Line, Mr K.M. Mistry, Managing Director of HDFC, the country's largest mortgage financier, said, "We are not in the business to win market share. We are in the business of making profit and providing service to our customers." He said many of the newer entrants in the housing finance business today are looking at growth without looking at the fundamentals, such as security, asset quality, etc., which institutions such as HDFC have developed over the years. Meanwhile, another significant emerging trend is the growing interest of housing finance companies and banks to market their home loans in the so-called Tier-II and Tier-III cities. While metros are generally Tier-I cities, Tier-II cities can be broadly defined as state capitals and bustling towns; other semi-urban and rural centres are known as Tier-III areas. The reason for this increasing interest in these towns is that urban markets are deemed to be saturated. Added to this, the cut-throat competition in the metros, resulting in rate wars, has led a number of banks and financial institutions to lend below their cost of funds. The metro customer is more aware and aggressive when it comes to knocking down interest rates while customers in Tier-II cities still don't have much to choose from, according to analysts. Most industry players concur that going forward, what will determine the winners from the "also-rans" in this business is the level of customer service in these areas. While geographical reach, customer confidence and marketing are crucial to achieve growth, service levels have to be up to the mark.
More Stories on : Housing Finance | Real Estate & Construction
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