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Even as banks shy away from lending to the real estate sector for fear of mounting non-performing assets, Dewan Housing Finance Corporation (DHFL) has witnessed a steady traction in project loans — especially those to small developers building affordable housing units.
According to Santosh Sharma, Chief Financial Officer, DHFL, its project loan portfolio has seen a 20-30 per cent growth on a year-on-year basis. The segment currently accounts for nearly 15 per cent of its total assets under management (AUM), which stood at ₹1.1 lakh crore as on March 2018.
Small town developers
Under the project loan portfolio, the company primarily provides finance to developers opting for affordable housing units in Tier-II and Tier-III towns; and for properties located on the outskirts of city limits. The average price of each such unit comes at around ₹12-15 lakh.
According to industry sources, bank lending to the real estate sector came down to a mere 17 per cent in 2016 from 68 per cent in 2013, due to mounting non-performing assets (NPAs). “Unlike in Tier-I cities where the supply is more (primarily in the luxury segment), in Tier-II and -III cities, the demand is more (for affordable housing units) but the supply is less. So, it was one of our strategies to provide support to small developers in these towns,” Sharma told BusinessLine .
Cautious on new projects
According to Sharma, the company exercises adequate caution while lending to the sector. “We know how to underwrite these loans. We also look at the loan to value ratio, the viability of the project and its marketability. If required, we would take more asset cover, ask for more collaterals wherever it is available or take personal guarantee of promoters,” he said.
The company generally ring-fences its disbursals by refraining to opt for lending to greenfield projects and prefers those where at least 20-30 per cent of the work has progressed, or, all requisite approvals are in place. Project loans will continue to account for 15-16 per cent of its total AUM, moving forward, he added.
Project loans for building of affordable housing also help push demand for DHFL’s individual retail home loans portfolio, which currently accounts for 60 per cent of its total AUM.
Its gross non-performing loans (NPLs) ratio (from lending to the housing sector) is close to 0.96 per cent vis-a-vis the industry average of 1.1 per cent.
DHFL plans to disburse close to ₹48,000 crore in FY19; a majority of these would be to the ‘steadily growing housing market’. Its net interest margin improved to 3.04 per cent (2.96 per cent) as on March 2018. It expects to maintain its NIM at 2.9-3 per cent, moving forward.
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