Housing push: On-the-ground checks

'India Market Strategy – Housing push : On-the-ground checks', report by Gautam Chhaochharia, Head of India Research, UBS Securities India



Policymakers in Delhi have opined that the key takeaways, in the recently announced middle-income group (MIG) urban housing scheme through interest rate subsidies, are that the government is looking at this scheme as a way to spur housing demand. This would thus help clear substantial unsold urban housing inventory,to unlock blocked capital (developers, investors, financial system).

Secondly, some policymakers indicated the government may be testing this as a 'pilot' and is ready to step up funding (currently a mere Rs 10 bn budget allocation) if there is demand, but does not yet have a concrete bigger number as of now.

However, our view is that Rs 275 bn is where the macro-level impact can be felt; until then it is a non-event.

What was missing was a holistic view of this scheme as a way to kickstart overall macro environment and willingness to spend beyond Rs 275-bn.

"Our discussions suggest that availability of funds may not be a constraint, as the government could apportion funds to this scheme taken out from other schemes. HUDCO could provide funding or some other bilateral funding agencies may also be interested to avail this opportunity," said Gautam Chhaochharia, Head of India Research, UBS Securities India Pvt. Ltd.



Builders and financiers optimistic, but consumer awareness is low



It is to be mentioned that the consumer demand and the government's willingness to fund massively on the scheme would remain a key to its macro impact.

Most builders and financiers were optimistic about the positive impact the housing scheme would generate on buyers. They indicated that they had not been given any cap on the amount of loans that could be sanctioned under the MIG benefit.

So far, loan approvals or subsidy disbursement under the scheme were not encouraging, not only in the middle-income interest subvention scheme, which is fairly recent, but also in the lower income group scheme, which has been running for a couple of years.

Consumer awareness is low, though the Ministry of Housing indicated that an advertising campaign is likely to be taken up. Mortgage finance companies' websites now have this as the first pop-up and developers are advertising through their sales teams, as per our checks. More mass media (via websites) and a pan-India communication initiative, especially by the government, would be the key metric to gauge its intent to go beyond the Rs 275 bn mark.



MIG housing is key to macro-level push, and not affordable housing

"We have been arguing the 'affordable' urban housing push may not yield any material macro benefits:

* Direct government funding (rather than inducing household leverage in the MIG scheme) means the government's fiscal position constrains in spending; and 2) execution constraints – low ticket size means lower returns for private developers, explaining the uninspiring track record.



* The MIG scheme doesn’t have such execution issues, and so it may kick-start the credit cycle and a macro growth recovery in India. Otherwise, disappointing growth and earnings cuts loom ahead."



Centre's Stand:

The Minister of Housing, Mr. Venkaiah Naidu, expects support for housing to boost the real estate sector and help create employment. He recently launched 352 housing projects across 17 States with an investment of Rs 380 bn to build over 2 lakh houses. The projects would be taken up by private developers – members of the Confederation of Real Estate Developers' Associations of India (CREDAI).



RBI comments suggest that the government support for realty and housing positively will have multiplier effects. RBI believes that the narrowing spread between bonds and home loans reflects a mix of late transmission, good credit culture, asset security and government support to make it affordable.



Mortgage Growth:



* Mortgage growth was strong in March; however, this was also supported by a pick-up in housing transactions. According to financiers, customers who delayed their purchases post-demonetisation are now returning to the realty market, which is supporting its growth.

* The allocation amount is very low at Rs 10 bn; however, financiers believe the government will increase it significantly.



Property Developers:



* Some of the developers indicated that financiers are giving instant in-principal approval for the MIG scheme at project sites.

* Banking officials are using the Aadhaar, CIBIL and PAN card databases at project sites to verify if the eligibility criteria are being met, whether it is the first property for the buyer and the income conditions/limits.

* Almost all the property salespersons (representing various developers) highlighted the MIG scheme and its benefits to buyers.

* While some developers have been vocal about their intention to enter the affordable housing segment, others (including those present in lower ticket size developments) highlighted that it was not a preferred segment for them given lower profitability.

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