Non-housing portfolios of HFCs seen growing faster than home loans

Non-housing portfolios of housing finance companies (HFCs) are seen growing faster than pure home loans given increased demand for such products and stabilisation in home loan growth.

Also read: Navigating the mortgage landscape: Vision for affordable housing finance

Growth in housing loans has been elevated for the most part of the last two years. However, the sustained impact of higher interest rates and a higher growth base is now leading to growth moderating and plateauing. On the other hand, HFCs’ non-housing portfolios are much smaller and are seen growing faster, according to industry players.

Non-housing loans includes loans against property (LAP), top-up or home improvement loans, lease rental discounting (LRD) and builder or developer finance, among others.

“We have seen periods of rapid growth in the past 3 years and a stabilisation may appear to give a sense of slowdown,” said Tribhuwan Adhikari, MD and CEO, LIC Housing Finance, adding that there is rising credit demand for segments beyond housing finance.

“LAP is a popular option for quick access to credit, and is growing. LRD is gaining traction with commercial activities and leasing for office space picking up. With demand for residential spaces on the upswing, need for construction finance is also going up, specially from top 8 cities,” Adhikari said.

It is estimated that home loan growth has moderated from the peak of around 13-15 per cent in FY23 and has plateaued around 10-12 per cent. In turn, growth for non-housing loans has risen from 9-10 per cent in FY23 to nearly 15 per cent in 9M FY24. These loan segments are also more margin accretive and are thus being favoured by HFCs to help diversify revenue streams and support their bottomline.

“Given the high competitive intensity in the housing finance market, returns are under pressure. While macro tailwinds have helped disbursement growth, RoAs and RoEs remain under pressure and hence HFCs are leveraging their skills in customer income assessment and mortgage creation towards higher margin products like LAP,” said Shantanu Rege, MD & CEO, Mahindra Rural Housing Finance. 

LAP is also seeing increased demand as a ‘quasi MSME loan’ for small businesses and self employed professionals to pledge their property against extended credit lines or working capital.

Rising share

“With personal loans becoming more expensive or tighter, there could be more growth in LAP, especially from the self-employed and business segments,” he said, adding that this segment will continue to grow,” said Sandeep Menon Founder, MD and CEO at Vastu Housing Finance.

He added that while self construction and home resales continue to grow steadily, some segments such as developer finance are slowing down to due to supply side challenges such as higher cost of borrowing and tightened system liquidity, especially in the case of urban and prime housing.

In its FY25 outlook for HFCs, India Ratings said that the non-housing segment has rebounded and its share is rising as a percentage of HFCs’ total loan book. The non-housing portfolio for the industry is currently around 23-24 per cent and incrementally “there is still a delta to move upto 30 per cent” the agency had then said, adding that going ahead, the loan delta would be higher for non-housing segments compared with pure home loans.

Also read: LIC HFL eyes 15% loan growth in FY25

For a lot of affordable housing companies, increased uptick for LAP is also being led by co-lending arrangements through which banks look to meet their priority sector loan (PSL) requirements, said Ravi Subramanian, MD and CEO, Shriram Housing Finance. “Our acquisitions on LAP have increased a bit due to our co-lending arrangements with a few banks. Further, as some part of LAP qualifies as PSL which can be assigned to banks, we also acquire that as an ongoing strategy.”

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