Despite the stimulus measures from the government and the RBI, the near-term outlook for the housing sector looks challenging and the market may remain muted over the next couple of quarters. But there is hope of faster recovery in tier-2 and tier-3 towns. Lakshminarayanan Duraiswamy, Managing Director, Sundaram Home Finance, a leading lender to the housing segment, spoke to BusinessLine about the housing finance market, stimulus measures, and near-term challenges. Excerpts
Will the recent stimulus measures reduce liquidity stress for housing finance companies (HFCs)?
Based on the recent RBI announcement, the National Housing Bank has also sanctioned special refinance facility to housing finance companies to tide over the short-term liquidity challenges. These recent measures will certainly ease the liquidity stress for mid/large-sized HFCs.
However, for smaller HFCs with lower ratings, we have to watch whether the lenders will support them, and the mechanics of it. HFCs play a very important role in the transmission of credit from the banking system to the ultimate consumer. It will depend largely on the banking system’s willingness to take risks and support smaller HFCs.
What will be the immediate impact of the Centre’s and RBI’s stimulus packages on the housing sector?
The real estate sector has been facing headwinds over the last 18-24 months. Covid-19 has only aggravated the situation. Builders/developers continue to face liquidity constraints. Banks have become extremely risk-averse to lend to this sector, considering the already stressed portfolio of this segment. HFCs have liquidity constraints to extend support now.
On the construction side, they need to re-assess their labour situation and costs of construction. Further, I expect buying sentiment to stay soft in the immediate term; it will take a few months to slowly recover and for people to consider such long-term commitments. Employment status will be a concern amongst the salaried; capital required for business will rank high amongst self-employed. In addition, buy versus rent will also begin to play on their minds.
For the stimulus package to see desired results, we need demand pick-up. We will have to wait for at least a couple of quarters to assess this.
Will labour shortage due to reverse migration from key States be a constraint for pick-up in construction activities?
This will have a significant impact in all the States that depended on migrant labour. Majority of our big States use migrant labour. This is a key issue, and possibly the number-one priority of builders is to mobilise labour. This will push up costs and take time to settle as well.
Labour that reverse-migrated was amongst the worst affected and bore the brunt of this fallout. I don’t expect them to return immediately as they will wait to see job availability, the economics of return, and the confidence factor.
With expected ease in liquidity constraints, and other support measures, will the affordable housing segment see an early recovery?
Affordable housing is completely an end-user segment and people buy for their need for shelter. While the employment stability of such segment and confidence to make that long-term commitment will still be factors to consider, we expect this segment to recover first, especially in tier 2/3 locations.
How have you tweaked your business plan for this fiscal due to Covid-19 impact on the job market?
We are assessing the situation as it emerges and the impact it has on our constituency. But one thing is for sure, the next two quarters will remain muted. Our focus, post moratorium period, will be on recovery and getting the portfolio back to where it was. It is too early to make a call on the business plan as we have not even opened all our offices and are managing with minimum staff as mandated.
What is the company’s liquidity position?
Given the uncertainties around us, the need for cash has never been greater. Many of us in the financial sector have been through liquidity challenges over the last 18 months or so. We continue to look for opportunities to raise money despite the negative carry. We have been borrowing from banks and availed of the liquidity facility from NHB as well. Public deposits continue to be a consistent source of funding for us. Last year, there was a record accretion of ₹430 crore to our deposit base. Even during the two months of the lockdown, depositors have continued to repose their faith in us and deposits have been flowing in nicely.
How do you see the trend on the asset quality front?
When there is large-scale stress amongst the borrowers, we expect delays. We think the asset quality might deteriorate slightly in the short term but will bounce back soon thereafter. Once economic activity resumes, people will catch up. A moratorium is intended to soften the blow in the immediate term. Our focus would naturally shift to recovery efforts post moratorium. With book size likely to remain stagnant due to low incremental business, recovery would assume priority for the entire sector.