‘It Is The Best Time To Buy A House’

In a segment where DHFL has been one of the pioneers for the last three decades, demand has boomed thanks to the government’s initiatives. Kapil Wadhawan continues upbeat about this low and middle-income segment and avers that the country could see a double-digit mid-teen mortgage-to-GDP ratio in the next decade. In a free-wheeling conversation with Clifford Alvares, DHFL’s CMD discusses the housing finance sector, plans for the future, and why he is hopeful of growth in financial services. Edited excerpts:

How has the housing-finance business evolved from 1984, when you started, and how do you see housing demand increasing?

Housing has evolved from literally nothing to a 7.5-8 per cent mortgage-to-GDP ratio. We still have a long way to go, though.  Some east-Asian countries are at a 25-30 per cent mortgage-to-GDP ratio. We, in India, are still in single digits. As demographic changes are playing out, this ratio will go up. We are very certain that over the next decade this number will be in the teens.

You have been one of the first housing finance companies, but the pace of growth still appears slow.

It depends on what you define as slow. In 2000, the market was small, financial inclusion was limited, banking was not so evolved. We have gone from a Rs 350 crore-400 crore loan book to about Rs 1 lakh crore now. I wouldn’t term this as slow. That’s way above market trends. In fact, the market growth rate over 2000-10 was much lower than DHFL’s growth then. At one time, we grew 46-47 per cent for almost 5-6 years, till about 2010. Besides, property prices were lower at that time, and there were no basic things like core banking, people were still dependent on cheques. Amid those challenges, we were still able to penetrate markets where it was barely organised.

How is your business shaping up now?

We are building a strong franchise in 2-3 markets across the country in the lower- and middle-income segment. We keep the average ticket size smaller — essentially it is housing for the common man. We believe that there is value for us as an organisation that would be reflected whether in operations or sourcing customers. The market is big and supply continues to be a challenge. We probably are the largest in terms of physical footprint, with more than 350 branches and cover almost 500 locations. Inflation will keep raising the prices of houses. In early 2000, our average loan size was about Rs 7 lakh-8 lakh; this has moved up to Rs 15  lakh-17 lakh.

What are the growth rates you are targeting?

We think 20 per cent is an optimal growth rate. Further, we will be disbursing over Rs 28,000 crore in a year from now.

Many houses have been unsold in recent times; how does that affect your business? What has been the impact of demonetisation?

I would say that all good policy measures surely have some short-term setbacks. We are optimistic. In the last quarter, we have grown 29-30 per cent. Recent events will not affect housing finance. Someone who has to buy a home or build one will do so, irrespective; because it is not speculative buying.

Interest rates are down from double - to single-digit and at the same time, benefits around PMAY are extremely supportive. Second, real estate prices are helpful. I would say that this is the best time for anybody to invest in a home.

RERA is affecting developers. How do you see it influencing housing finance?

These are measures taken on governance and transparency. You will see a shake out, and some of the weak developers will move out. Smaller developers will find it difficult. We are going ahead with a string of projects and making sure that development is ongoing according to initial plans. We are not seeing any impact and are positive about the long term.

Are developer loans given being affected by demonetisation?

Not really. In fact, most developer loans today are being converted into individual retail home loans. We are doing Griha Utsavs on a national scale and including developers at the same time. Market operators are finding a very refreshing change that an institution of national scale has been assisting customers in helping them buy their dream homes. Therefore, I would say that there is minimal impact. As I said, these are short term. In the long term, we will see a positive outcome.

Isn’t affordability a huge factor? Mumbaikars have an average salary one tenth of a person in London but the price of the house is the same.

There is a bigger population residing outside Mumbai, or living on

the outskirts of bigger cities. We find that basing our assumptions on one or two cities to become a benchmark for the country is not correct. Overall, across the country, affordability is good.

Don’t you require capital infusion for future growth? What are your targets for the future?

By 2020 March, DHFL is aiming to grow its AUM to Rs  2 lakh crore. We don’t need equity capital for the next 18-20 months. At the same time, this is a strong sustainable business model. Housing finance has become fairly commoditised today. It is a thin-margin, high-volume business and clearly in the last couple of years, we have been doing extremely well. Our debt programme continues to raise resources with the consistent model on the back of an AAA rating. In March, we monetised our life

insurance stake. We will be keeping an eye on return on equity and improving it. We believe that there would be strong market realisation to bridge that gap on a relative basis. The idea is to keep on achieving growth rates without actually using fresh capital.