‘It looks unlikely that housing prices will come down’
The rise in housing prices has led to an increase in the size of home loan disbursements, according to Anil Kothuri, Chief Executive Officer, Edelweiss Housing Finance.
The non-banking finance company is planning to have a presence in 35 Indian cities in the next two years (up from current 13 locations), of which, 22-23 locations will be based in the South.
Roping in a strategic partner, who will bring in more capital and provide mortgage expertise, are high on the company’s agenda.
In an interaction with Business Line, Kothuri gives a perspective on the housing finance industry and the strategy that the housing finance arm of Edelweiss Finance is adopting to stay competitive.
How does Edelweiss Housing Finance compete with larger players such as SBI and HDFC, which also provide the same products in the same markets?
At Edelweiss Housing Finance, we give slightly higher- value loans to customers who have the appetite to pay.
So, if a customer earns Rs 50 lakh per annum, we do not mind giving loans where annual instalments can be as high as Rs 30 lakh, because the remaining Rs 20 lakh might be sufficient for other expenses. So, such customers come to us.
Second, some of the self-employed do not have published financials. So, informal methods are required to understand the cash flow of such a customer. We recreate the financials of such an individual and earn a premium for the services we offer.
There is a perception that the housing market is overheated. Do you think housing prices will come down?
As inflation has been going up for the past few years, housing prices have also increased. Construction costs have also increased. In 2008, construction cost was Rs 1,200 a square feet, and thisin 2012 rose to Rs 2,000 per sq.ft. However, incomes have also increased.
It is difficult to say if prices will come down, but it looks unlikely.
How is the demand for home loans?
The disbursement of home loans, which is a proxy for the housing sector’s growth, has been growing. In 2002, mortgages as a percentage of gross domestic product (GDP) was about 2.5 per cent. From then to now, it has grown to about 7.5 per cent of GDP.
In 2002, mortgage-loan disbursal was Rs 25,000 crore. By end-March 2013 it will be Rs 2.2-lakh crore. Last year, it was about Rs 1.70-lakh crore.
Demand for housing is growing. Prices of homes have also gone up. So, growing disbursals are also a factor of rising prices and not just rising number of dwelling units.
Value of homes is contributing more to rise in disbursements than the number of units. Housing finance companies are moving beyond the top few cities. Penetration of housing finance companies is increasing significantly in places such as Jabalpur and Erode, much more than in Mumbai.
What is the expansion strategy at Edelweiss Housing Finance?
By 2015 we plan to be expand our presence to 35 cities for both small- and large-value loans. About 22-23 of these cities will be in the South. The small loans business will be largely concentrated in Tamil Nadu, with some presence in Karnataka and Andhra-Pradesh as well. The large loans business will be spread across the top 19 cities.
Your company has a predominant presence in the South, especially for low-value loans? What is driving this strategy?
Tamil Nadu is a more evolved home loan market. Smaller towns in the State are more developed as far as home loan demand and home loan penetration are concerned as opposed to other parts of the country. Thus, for a company, there is not much requirement to sell the concept of home loans compared to small towns in States such as West Bengal.
Rajasthan, Gujarat and Tamil Nadu are more evolved home loan markets than others.