Tag - housing finance

Major housing demand is coming from first-time buyers – HDFC

Update on Indian Equity Market:

On Tuesday, NIFTY ended at 17,749 (-0.6%) as it closed near its high at 17,533. Among the sectoral indices, OIL & GAS (+1.3%), PSU BANK (+1.24), and METAL (+0.6%) ended higher, whereas REALTY (-3%), IT (-2.2%), and MEDIA (-1.7%) ended lower. Among the stocks POWERGRID (+4.4%), COALINDIA (+4.2%), and NTPC (+3.74%) led the gainers while BHARTIARTL (-3.7%), TECHM (-3.5%), and BAJFINANCE (-3.3%) led the losers.

Excerpts of an interview with Mr. Keki Mistry, Vice-Chairman and Managing Director of HDFC Ltd (HDFC) with CNBC TV18 on 27th September 2021:

  • Between 2017-2020, demand for housing was largely coming from Tier 2, Tier3 towns or outskirts of big cities but not that much in the center of big cities like Mumbai and Bengaluru.
  • In the last year, people in Mumbai, Delhi, and Bengaluru are buying houses because housing has become very affordable compared to what it has been in the last 20 years.
  • From 2017-20, prices in the center of big cities have remained the same or may have marginally come down. This was complemented by rising income levels of individuals. An average income level of 6-7% a year if compounded on a 3-year basis, gives an approximate increase of 25% against a 0% (virtual) increase in property prices.
  • So, the cost of a house as a multiple of the annual income of a typical customer has become a lot lesser.
  • Mistry believes that structural demand for housing will always remain strong since it is a very under-penetrated market. The factor that points towards a sustained growth of housing in the Indian market apart from increased affordability is a Mortgage-GDP ratio of less than 11%. This ratio ranges between 40-60% in Western countries.
  • Unlike people in the West, Indians prefer buying houses in their late 30s. From a demographic standpoint, two-thirds of India’s population falls in the under-35 age category which will eventually need to buy houses in the next 1-10 years. The average of a first-time buyer in Mumbai is between 37-39 years.
  • The pressure that this sector faced, particularly in big cities like Mumbai, has been quashed because bigger developers took over incomplete projects of smaller developers. But this process takes time because approvals from various authorities need to be obtained.
  • Demand in the industry is muted. Only the reputed developers are seeing traction because customers prefer buying an under-construction property from reputed developers rather than buying the same from a less reputed developer. That is because the risk of a project not getting completed is very little in the case of the former.
  • Collection numbers, from a retail standpoint, are back to pre-covid levels but, the distress that people encountered from April to June might not have gone away completely.
  • These problems are temporary as far as individual NPAs are concerned. He does not believe that the housing finance sector will see any severe loan losses because the security cover is huge and the average loan amount is a small component of the value of the property at origination.
  • The loan to value ratio (loan as a percent of the value of the property) for most lenders is less than 70% which means from day one the individual has a 30% equity in the property upfront.
  • Since all loans are paid equally in monthly installments, this ratio will keep declining every passing month as the installments get paid. Therefore, an individual’s equity in the property keeps rising, and the losses on a housing portfolio of any lender, as long as there is prudent lending, would be almost non-existent to very negligible.

Asset Multiplier Comments

  • The demand from homebuyers is picking up due to subdued interest rates and the government’s push towards the affordable housing segment.
  • Due to a higher focus on individual loans vs non-individual, and a greater share of lending to salaried individuals, HDFC’s loan portfolio did not suffer any major setbacks in terms of asset quality. Moreover, HDFC has a provision buffer in place which is higher than the regulatory requirement.
  • Due to increased demand and low interest rates, rising competition among housing finance companies could exert pressure on interest rates.

Consensus Estimate: (Source: market screener and tikr.com websites)

  • The closing price of HDFC was ₹ 2,802 /- as of 27-Sept-2021. It traded at 5x/4x/4x the consensus BVPS estimate of ₹ 651/703/769 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 3,016/- implies a P/BV multiple of 4x on FY24E BVPS of ₹ 769/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”



Indiabulls Housing Finance: Maintains healthy cash balance on the balance sheet

Update on the Indian Equity Market:

On Friday, NIFTY closed ~104 points lower at 11,908 points. International rating agency Moody’s Investors Service downgraded India’s outlook to negative from stable on concerns that the country’s economic growth will remain materially lower than in the past. The negative sentiment led to a selloff in the stock market. Amongst the NIFTY 50 Stocks, YESBANK (+4.8%), INDUSINDBK (+2.9%), ICICIBANK (+2.4%) were the largest gainers; while INFRATEL (-4.9%), SUNPHARMA (-4.3%) and GAIL (-3.9%) were the top losers. The government’s announcement to set up an Alternative Investment Fund (AIF) in aid of the stalled housing projects kept the sentiment positive for the NIFTY REALTY index which closed higher by 1.7%. PRIVATE BANK was the only other sector in the NIFTY sector indices, to close in the green. NIFTY Pharma (-2.2%), PSU BANK (-1.9%), FMCG (-1.8%) were amongst the top losers for the day.

Indiabulls Housing Finance: Maintains healthy cash balance on the balance sheet

Key takeaways from the interview of Mr Gagan Banga, MD Indiabulls Housing Finance; dated 8th November 2019 on CNBC TV-18:

  • Indiabulls Housing Finance (IBHFL) maintains 20% of the balance sheet in cash; covering around the next 12 months liabilities. The cash balance is monitored on a daily basis. IBHFL continues to carry cash at similar levels as Sept-2019 less the amount of buyback done in October and early November 2019.
  • Mr Banga mentioned that in the last 13-14 months, the Housing Finance Companies (HFC) suffered because of the liquidity crisis. The market lost confidence in HFC. IBHFL’s suffering got exaggerated because of the various allegations and the attempt to merge with Lakshmi Vilas Bank.
  • IBHFL’s stakeholders are confident about the solvency with 20% of the balance sheet as cash and a capital adequacy ratio of 29%. Risky perception of the book is due to wholesale lending. However, for the last 10 years; IBHFL’s business has been in line with what the HFC charter permits.
  • In the event of various allegations, IBHFL has subjected itself to diligence. Multiple regulators and agencies have looked at the transactions in question and the overall book of IBHFL.
  • Talking about the governments’ announcement to set up an Alternative Investment Fund (AIF) to help complete the stalled housing projects, Mr Banga mentioned that it is a positive development in the right direction. It may take a couple of months for implementation with the setting up of the fund and the money to start flowing. The lenders and developers are content to see the government thinking of de-clogging the real estate sector.

Consensus Estimate (Source: market screener and investing.com website)

  • The closing price of IBHFL was ₹ 242/- as of 8-November-19. It traded at 0.6x / 0.5x / 0.5x the consensus Book Value for FY20E / 21E / 22E of ₹ 437 / 487 / 475 respectively.
  • Consensus target price of ₹ 467/- implies a Price to Book multiple of 1x on FY22E Book Value of ₹ 475/-.