Although, prima facie, the 3% duty reduction looks immaterial, a 10% reduction in the upfront commitment for the homebuyer, is meaningful.
For HDFC, incrementally more than 1/3rd of fresh originations come from the affordable, low- and mid- income segment.By HSBC Global Research
To incentivise home buyers, Maharashtra state government has decided to lower stamp duty on housing units by 3% (currently major cities have 5% and others at 6%), from September 1 to December 31, and then by 2% till March 31, 2021, (a seven-month window in total).
A typical new home purchase constitutes ~20% upfront equity contribution by the homebuyer, and usually the balance 80% is financed. Over and above, the property consideration, the transaction costs, including stamp duty, registration, brokerage and taxes, hover around 6-12% depending on the nature of the property purchased (under-construction / completed projects). In our view, a 3% savings on the property value effectively translates into 10-12% savings on the upfront equity contribution (assuming 80% is financed) plus the transaction charges, which are to be borne by the borrower.
We believe, these are meaningful savings for a homebuyer in the current environment, especially in the affordable and mid-income segment and the limited nature of the benefit could act as an incentive for buyer to make the purchase decision, sooner than later.
Although, prima facie, the 3% duty reduction looks immaterial, a 10% reduction in the upfront commitment for the homebuyer, is meaningful. This could be used as a significant incentive by lenders in the current environment where demand otherwise has been lagging. For HDFC, incrementally more than 1/3rd of fresh originations come from the affordable, low- and mid- income segment. In our view, a well-capitalised balance sheet and falling marginal cost of funds make HDFC well positioned to tap any potential growth opportunities. HDFC is our preferred pick among mortgage lenders; retain ‘Buy’ with an unchanged SOTP-based TP of Rs 2,310.
Prolonged lockdown situation could hamper growth and pose an asset quality threat in developer loans; and aggressive product pricing by banks could impact margins in the medium term.
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