Mahindra Rural to go full steam on affordable housing finance

Mahindra Rural Housing Finance Ltd expects loans for affordable housing to account for nearly half of its total loan book in the next four to five years.

According to Anuj Mehra, MD, Mahindra Rural Housing Finance, lending to the affordable housing sector currently accounts for 12 per cent of its loan book, which stands at ₹5,500 crore.

“We are very excited about this segment, it is going to be a key growth engine for us moving forward,” Mehra told BusinessLine in a telephonic conversation.

A subsidiary of Mahindra and Mahindra Financial Services Ltd, Mahindra Rural Housing Finance was set up in 2007, to cater the demand for home finance in rural markets.

The rural finance market has been clocking a year-on-year growth of nearly 50 per cent. While the company will continue to focus on the rural housing finance market, it is expecting to go ‘full steam’ on its affordable housing finance business.

“The rural housing finance segment will continue to grow but the urban market has the potential to grow faster because it is on a relatively lower base and a bigger ticket size,” he said.

In rural areas, where the demand is more for home completion or incremental construction, the average ticket size of loans is much smaller at ₹1 lakh. The loan-to-value ratio is low at 25-30 per cent.

But the average ticket size for its affordable housing finance portfolio is close to ₹8 lakh, for a property worth around ₹10 lakh, he said.

According to official estimates, there is a shortage of around 60 million housing units — 20 million in urban areas and 40 million in rural areas.

The biggest challenge in the case of affordable housing is the availability of land for building such units. While granting of infrastructure status to affordable housing will help developers raise funds at a reasonable cost, what is more important is to make land available for construction of such units.

“Cost of construction is not dramatically different but land cost is the killer. If the government can focus on providing reasonably priced land then the supply side will be taken care of and we can make rapid strides,” he said.

States such as Rajasthan have been taking steps to identify land and calling for bidders to build affordable housing units.

“The Central government has made its intention of providing affordable housing clear, a number of States like Rajasthan and Madhya Pradesh have been doing some good work and there is interest rate subvention on such loans. A big push on supply side will be a game changer in this segment,” he pointed out.

Having rolled out its rural housing finance services in the villages of Maharashtra and Gujarat, the company has been expanding its geographical presence, catering to six lakh customers from nearly 50,000 villages spread across nine States.

Diversification into newer geographies, bringing more villages under its ambit and a thrust on the affordable housing segment will help the company ‘mitigate risks’ and achieve a balanced portfolio.

Explaining the need for this diversification, Mehra said, “Customers in rural markets are primarily dependent on agriculture and their cash flows are bulky. Under affordable housing we are looking at customers with a steady monthly income. Once this business stabilises it can help us mitigate risk.”

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