Big players compete for home loan segment

Improvement in middle class income and housing shortage prompted race in home loan segment.

Big groups of foreign and domestic players are entering the mortgage finance market and competing for a share of the strong home loans segment.

The major companies including US-based E*Trade (through IL&FS Investsmart), AIG, India Infoline, Mahindra & Mahindra Rural Housing Finance, DBS Chola, Fullerton India, Barclays Finance and Societe Generale, among others.

According to experts there is rapid growth in the mortgage sector along with the 10th Five-Year Plan, it is being anticipated that there will be a shortage of 22 million dwelling units, which is attracting these big groups, to finance the Indian middle class to fulfill their dreams of owning residential property.

Most global players are making there way in home loan segments through the acquisition route — Barclays bought Chennai’s Rank Investments, AIG bought Weizmann Homes, E*Trade bought into IL&FS Investsmart — while others are entering the home loan market through joint ventures. For instance, BNP Paribas formed a joint venture with Sundaram Home Finance and Societe Generale forged a tie-up with the Apeejay group.

Recently, India Infoline received $77 million (Rs 300 crore) from emerging markets expert Richard Chandler’s Orient Global, a part of which will be utilized for India Infoline Housing Finance “to provide support for the growth of housing for the Indian middle class”.

At present the market size of housing finance is anticipated to be close to Rs 1,50,000 crore, which accounts for only 30 per cent of the total market requirement (this is the formal sector).

There are around 42 players in the home loan segment, of which only seven are very active, including HDFC, LIC Housing, GIC Housing, Dewan Housing, Can Fin Homes, Gruha Finance, PNB Housing Finance and Hudco.

IL&FS Investsmart MD and CEO Leslie Whiteford in an interview given to Business Standard last week said, “We already have a non-banking finance company license and we will focus in the area of financing the customers’ needs and mortgages.”

Housing finance institutes come under the regulation of National Housing Bank (NHB). A senior executive of NHB said that they will allow stable players who have proper procedure of disciplined lending to tap the domestic market.

“We are looking at stable players with disciplined lending. The market should be served in a sustainable manner as the size of the market is huge and still quite under-penetrated,” he said.

Market players said there are good prospective in the mortgage segment, which is attracting a lot of new players into the segment.

In the long run players might keep 70 per cent of the risk in their books and will offload the rest 30 per cent in the market.