RERA’s Impact On Home Loans
RERA slowed down growth of home loan sales in the first quarter.
The implementation of the Real Estate (Regulation and Development) Act, 2016 brought with itself a lot of anxiety, both for the buyers and developers. The new law, which prohibits pre-launch sales, prompted many developers not to sign agreements with buyers before their projects were registered under RERA. Buyers too were skeptical to put their money in unregistered projects. This new realty landscape left its mark on home loan sales, which were down in the first quarter of the current financial year.
In an interview with BloombergQuint, Sudin Choksey, managing director of Gruh Finance Ltd., and MG Vaijinath, chief general manager, real estate & housing business of State Bank of India, shared more insights on the home loan sector.
Here are the edited excerpts:
Is there a marked slowdown in home loan offtake?
Choksey: Till date, we have not experienced any slowdown with respect to our internal growth. In the first quarter, we experienced 23 percent growth and this is likely to continue for two months of the second quarter.
For the industry, could the growth rates be as they were in the last 12-24 months or could there be a bit of a slowdown?
Choksey: At the higher end of the market, the rate of product launches has significantly come down. Post RERA, no pre-launch sales are allowed.
If you look at the past, a lot of developers used to do a lot for pre-launch bookings and allotments before delivery. Therefore, this could have been impacted. RERA also came into place in July. The possibility is that the higher end of the market could be slowing down.
Some news reports say that growth in the last quarter could have been driven by the transfer of home loans to private sector non-banking financial companies (NBFCs) from public sector banks. Did that happen at all? Or all the business that you are getting is predominantly new business?
Choksey: There is no doubt about movement of loans among lenders. In fact, there will be more movement from housing finance companies to public sector banks.
So you are saying the reverse is true and that there has been a transfer from NBFCs to public sector banks?
Choksey: Yes
Also Read: Is India’s Home Finance Juggernaut Slowing?
How was your experience in the past four to five months in terms of home loan disbursals? New disbursals as well as transfers that have come in from existing players
Vaijinath: During the last quarter, the growth in our loan book was very large. We have nearly a Rs 3 lakh crore home loan portfolio. We require huge disbursals. In the first quarter, many builders were very busy with filing their registration under RERA and buyers were waiting too. We came across many builders who did not enter agreements till they registered their projects under RERA. Many buyers had also not gone ahead with those where registration was under RERA. So there has been a reduction in volume in the first quarter. Since RERA has been implemented in more than 25 states, we expect the process to stabilise in coming months. Somewhere it has totally stabilised, somewhere it is in the process.
Other than the stripped-off transfer of home loans that may have happened to you, what would be your core grade in new business, predominantly in the home loan offtake?
Vaijinath: Because of RERA registration there is definitely some slowdown in the home loan sector.
How much of a slow down?
Vaijinath: During the first quarter of last year, we grew at 10 to 14 percent. This year, not only because of RERA but because of our internal merger, we were busy with organising our own things. So on account of all this, our first quarter loan growth was impacted.
While volume has not slowed down, the value of transactions has come down a bit. Are you sensing it, not only for your own market individually but for players which are predominantly in the high-end home loan bracket?
Choksey: I fully endorse that. The number of loan applications have shown a higher growth compared to value growth. Generally, value shows a five to seven percent growth. Volume numbers have definitely improved.
The industry saw a bit of pullback in the value of transactions. Volumes may have risen but perhaps got split among more and more players. Do you believe growth rate for the industry and for the players, barring one or two of them, could come down over the course of next three to five years?
Choksey: This particular year growth may have slowed down. With the environment created because of the government policy and the focus which has been brought, the economy has to be kick-started and pushed to a higher level. I think housing will have to grow. There will be high growth from next year onwards certainly.
What are the targets are you setting now for the financial year 2017-18
Choksey: We won’t be talking about guidance, but internally we have been talking about a loan growth in the vicinity of 20 to 25 percent. This year because demand is less, except for the subsidy-driven demand, there have been loan transfers among the lenders as you had mentioned before. Maintaining 20 to 25 percent loan growth would be pretty satisfactory.
Factoring in all the issues you mentioned: RERA, internal merger and others, what are the targets you are setting for FY18?
Vaijinath: RERA is almost there and the festival season has just arrived. Growth will pick up. It is an internal target. Last year, we had reached a high growth level, around 15 percent. In coming years, we expect home loan market will grow 16 to 18 percent.
Do you think SBI will grow at that rate too or higher?
Vaijinath: First five months of the current financial year have witnessed subdued growth. It will pick up from September. In SBI, we will grow at 14-15 percent, but by next fiscal, we will get back to our normal growth of 17-18 percent.
(Corrects an earlier version in which the 20-25 percent growth in the home loan growth target was attributed to SBI instead of Gruh Finance. SBI has clarified in an emailed statement to BloombergQuint that its home loan growth target is 18-20 percent for FY17-18.)