While the real estate segment is in a slump, the mortgage industry appears to be booming. A reality check by Bloomberg TV India with Indiabulls Housing Finance Vice-Chairman and Managing Director Gagan Banga reveals that hike in tax incentives coupled with RBI’s rate cut was reviving demand for housing. The company recently raised ₹4,000 crore in equity to sustain 25 per cent growth in business.

Your average ticket size of home loans is about ₹24 lakh. What type of growth are you seeing in that segment?

We cater to approximately ₹24-25 lakh of home loans and the wider range of that segment starts at ₹15 lakh and goes up to ₹75 lakh. The segment has witnessed a growth of approximately 18 per cent in the calendar years 2013 and 2014. Whatever we have seen of 2015, the segment has grown by about 22 per cent. Now on this growth, there are effectively three things happening which will definitely increase the momentum. One, as interest rates come down, affordability definitely goes up and the gap between what a person is paying as rent, which is approximately 3-3.5 per cent of the value of the asset, and the effective cost of mortgage is now down to about only 100-150 basis points. Last year same time, this used to be almost 300 basis points. So as interest rates have come down from 10.75 per cent to 9.5-9.6 per cent and the tax sops that the government has increased in the last Budget, this gap has narrowed. And this is the single biggest mover as far as actual consumption in the real estate sector is concerned where a genuine buyer and not an investor comes to invest in a house. The fact that he can now get a 90 per cent loan to value because of the recent change in RBI rule on October 9, should further increase affordability. What’s your expectation on growth from Tier-2 and -3 cities during FY16?

We continue to remain focused on the approximately ₹25 lakh segment. For that, we continue to employ more people on the ground and open more offices. But more importantly, I think the strategic step needed is to make sure that what we achieved in the last 5-6 years can be replicated over the next 24 quarters, was to raise more equity. We raised ₹4,000 crore. Now our networth is the second highest amongst all HFCs operating in India. We also reduced our cost of funds very significantly. With a combination of both physical infrastructure as well as balance sheet strength, we are well poised to grow by 25 per cent every year.

Do you see the cost of funds coming down further?

Yes, my sense is that by the same time next year the effective mortgage rate in the industry, which is closer to 9.6 per cent, will be down by another 60 basis points and home loans will be offered at about 9 per cent.

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