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Industry
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• Underlying Asset Dynamics
• Analysis of Past Growth : 2001 to 2008
• Market Trends
• Future Growth Analysis
• Analysis of Out-standings and Prepayments
• Portfolio Risk Analysis
• Asset Quality Risks
• Player Profiles
HDFC
LIC Housing Finance
Dewan Housing Finance Corporation Limited
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Underlying Asset Dynamics
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Several factors drive the growth of the housing industry.
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Population growth is a key determinant of housing demand.
Increasing working population will translate into greater demand
for housing
POPULATION GROWTH
•Currently, India is home to more than 1 billion people.
•This represented around 191 million households in 2001.
•The population growth is expected to slow down further to 1.5 per cent in
the current decade.
•Population growth has a direct bearing on the requirement for housing
units and, through this, on Financial Services Authority (FSA) requirements.
•Moreover, in the current scenario, population growth is actually occurring
•in younger age brackets.
•This translate into a tremendous increase in working population, thereby
translating into greater demand for housing.
5
Growing urbanization increases the demand in terms of number
of units.
URBANISATION
•The share of urban population has increased steadily in the past to around
27.0 per cent of total.
•It grew at 2.7 per cent, a little higher than the overall population growth of
2.3 per cent.
•Going forward, urbanisation is expected to accelerate.
•This is expected to translate into urban population growth of 2.2 per cent
until 2011 as compared to overall population growth of 1.5 per cent.
•Urbanisation has a twin impact on housing demand.
•On one hand, it reduces the area per household and on the other, there is
an increasing number of nuclear families, leading to the formation of more
number of households.
6
Nuclearisation though reduces the required area per household,
increases demand for overall household units.
NUCLEARISATION
•Nuclearisation refers to the formation of nuclear families from
joint families.
•Employment-related migration primarily drives nuclearisation.
•Nuclearisation like urbanisation has a twin impact.
•It reduces the area per household, but increases overall household
formation, thereby increasing demand for housing units.
•However, the fact that urban house prices are higher also leads to
buying of smaller areas in comparable income categories.
7
Income growth in the middle and higher income bracket increases
the per capita floor space area.
11
Tax benefits are also provided to the lenders of housing finance.
13
Housing finance grew at an impressive 43% between 2001 to 2005
but the growth dropped thereafter.
GROWTH RATE : 2001 TO 2008
•Disbursements in the housing finance sector, which grew at a robust
43 per cent CAGR from 2000-01 to 2004-05, dropped to around 16 per
cent from 2004-05 till 2007-08.
•This initial growth was driven by the combined effect of a booming
economy leading to higher income levels, low interest rates and
steady property prices.
•However, during 2004-05 and 2007-08, housing prices and interest
rates moved up and reduced affordability, which has been a key
factor affecting disbursements.
•Housing finance disbursements are expected to register a flat growth
2008-09.
14
Apart from the general factors affecting housing demand, finance
demand is decided by key factors like ATS and No. of housing
loans.
FACTORS AFFECTING DISBURSEMENTS
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ATV represent the value analysis and number of housing
represent the volume analysis.
17
Factors affecting demand are expected to show improvement
during 2012-13.
18
In September 2009, RBI took several measures which significantly
raised the interest rates.
21
Disbursements volumes also decreased in 2008-09 due to stringent
finance norms and postponement of purchase by the customers.
23
Rates declined from a high of 12% to around 10.5% to 11.5% in 2008-09.
25
Fixed rate loans are priced higher than the floating rate loans, since the
financier has to bear the interest rate risk.
27
Increase in floating loans is due to 2 factors – higher rates in fixed loans
and customer’s anticipation that interest rate may reduce.
29
Average contractual tenure has been increasing since 2004-05 and this is
expected to continue till 2012-13.
30
Tenures are influenced more by the property prices than the interest
rates.
32
Higher income growth among young people and the tax breaks on home
loans will continue to keep the average age of borrowers low.
34
•Following are covered in the analysis of future growth:
Expected Future Growth in CAGR
Disbursement Mix by
Product Type
Rural vs Urban
Location
Affordability
Average Ticket Size
Loan To Value
Volume Transactions
Finance Penetration
35
The growth of housing finance is expected to slowdown to 5%
between 2007-08 to 2012-13.
36
Cautious approach of the financiers will lead to lower LTV and
IIR.
FACTORS TO AFFECT DISBURSEMENTS : 2007-08 TO 2012-13
•Decline in the finance penetration in 2008-09 and 2009-10 because of an
increase in rejection rate.
•The rejection rate is expected to rise further in 2009-10 as financiers may
tighten eligibility norms with respect to housing loans.
•Declining GDP estimate growth for 2009-10 and expected job cuts and
curtailments in salary increments also may affect the eligibility of aspiring
home loan borrowers and thus lead to postponement of demand.
• A cautious lending approach by players through the adoption of stringent
credit norms in the form of lower LTV and IIR would affect the
disbursements in 2008-09 and 2009-10.
• Financiers may resort to this approach in order to safeguard their portfolio
from the declining property prices and reduced income level growth.
37
Resale proportion in the overall disbursement mix is expected to
increase from 14% in 2007 to 19% in 2012-13.
38
Increase in the proportion of resale properties is due to both
demand side and supply side factors.
40
Top 7 cites account for more than half of the disbursements.
41
Top 7 cites account for more than half of the disbursements.
42
Affordability levels are expected to improve due to the reduction
in property price to income ratio.
AFFORDABILITY : 2008-09 to 2012-13
•The property price to income ratio measures the affordability of the buyer
for purchase of a house at his current income level . the lower the ratio, the
higher the buyer’s affordability.
•The affordability levels are estimated to improve as property prices are
expected to decline by around 24-26 per cent in 2008-09 and by around 5-10
per cent in 2009-10.
•Income levels are estimated to grow by around 3-5 per cent in 2008-09 and
2009-10 as against the CAGR of 7-10 per cent during between 2002-03 and
2007-08.
•Affordability levels deteriorated during 2005-06 to 2007-08 as the growth in
property prices superseded the growth in income levels by larger difference.
43
Average Ticket size is set to improve from 2008-09 to 2012-13.
44
LTV is set to increase between 2009-10 to 2012-13 both in urban and
rural disbursements.
45
Incremental volume transactions in the urban areas to grow at a CAGR of
1.6 per cent and that in the rural areas to grow at a CAGR of 2.1 per cent.
46
Housing finance penetration to improve slightly and reach 38 per cent in
the urban areas and 6.5 per cent in the rural areas by 2012-13
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Several factors contribute to the low finance penetration levels in
rural areas.
51
•Analysis of out-standings and pre-payments cover the
following:
Age mix of disbursements
Factors affecting out-standings
Types of prepayments
Structural vs Cyclical pre-payments
Pre-payments Trends till 2012-13
Out-standings Trends till 2012-13.
52
Last 3 years. disbursements comprise about 64 per cent of outstanding in
2008-09.
53
Out-standings are influenced by repayment, prepayment and
disbursements.
54
Prepayments can be classified as Structural or Cyclical.
TYPES OF PREPAYMENTS
55
Structural pre-payments increase if there is overall increase in income
while cyclical pre-payments increases during increase in interest rates.
STRUCTURAL VS CYCLICAL
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Outstanding estimated to grow at a CAGR of 12 per cent between 2007-
08 to 2012-13 to reach about Rs. 7300bn.
OUTSTANDINGS
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Portfolio Risk Analysis
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•Portfolio risk analysis covers:
60
Risk profile has increased due to increased competition which made
financiers to be liberal with the disbursements..
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Risk profile to further increase as the proportion of portfolio with higher
IIR is expected to increase.
65
Asset Quality Risks
66
Till now NPAs for the industry to be about 0.3 per cent till 2007-08.
67
Three types of risks could affect the NPAs in the medium term.
68
Origination risks relates to the underwriting standards while
concentration risks relates to the portfolio age.
ORIGINATION RISK
•It pertains to the underwriting standards of financers.
•Over the past few years, the credit risk metrics have been made lenient,
Thereby pushing the LTV, IIR and tenure to higher levels.
•This increasing risk appetite in the housing finance sector raises
delinquency-related concerns.
CONCENTRATION RISK
•The analysis of the outstanding portfolio at the end of 2008-09 reveals that
the portfolio is highly skewed towards last 3 years’ disbursements.
•The last 2 years. disbursements form more than 50 per cent of the
portfolio.
•Therefore, as this portfolio ages, NPAs could increase.
69
Asset price risk relates to the movement in property prices and income
levels.
72
HDFC
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HDFC is the largest provider of housing finance and has very extensive
distribution network.
COMPANY BACKGROUND
•HDFC is India’s largest provider of housing finance, primarily
focusing on retail housing.
• The company has widened its distribution network to 254 offices in
India.
•It also covers over 90 locations through its outreach programme,
which has helped the corporation disburse housing loans in more
than 2,400 towns and cities in India.
•It has also supplemented the distribution channel through the
appointment of direct selling agents (DSA).
•More than 70% of the shares are held by foreign institutional
investors/foreign
74 direct investments and 11% by individuals.
The company has close to about 300 outlets in India and also has
branches outside India.
DISTRIBUTION NETWORK
outlets.
•HDFC has branches across all major Indian cities and abroad,
75
The company’s disbursements and outstandings had grown 7 times
between 1999-00 and 2007-08.
DISBURSEMENTS GROWTH
76
The company’s interest income is expected to reach about Rs. 14000
crores in 2011.
FINANCIALS
77
NPM has been steady and growing due to improvement in the spread
and reduction in operational expenses.
PROFITABILITY ANALYSIS
78
NPM has been steady and growing due to improvement in the spread
and reduction in operational expenses.
PROFITABILITY ANALYSIS
•Spread for HDFC has been fluctuating within a narrow band for
majority of the past years.
•NPM showed a growth of around 50 basis points as it increased
from 2.2 per cent in 2006-07 to 2.7 per cent in 2007-08.
•Operating expenses, as a percentage of the average outstanding
loans, have also declined during this period, especially due to a
decline in employee expenses.
79
Both the top-line and the bottom-line are expected to grow at CAGR of
17% to 20% between FY-09 to FY11.
GROWTH METRICS
80
LIC Housing Finance
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LIC Housing Finance began operations in 1989 and has a market share of
about 5%.
COMPANY BACKGROUND
•Belonging to the LIC group, LIC Housing Finance Limited (LICHFL) was
incorporated in 1989.
•The company mainly provides housing loans, where it provides long-term
finance to individuals for purchase/construction/repair and renovation of
new/existing flats/houses.
•The company also provides finance on existing property for
business/personal needs and gives loans to professionals for
purchase/construction of clinics/nursing homes, diagnostic centres and
office space.
•In 2007-08, it disbursed loans to the tune of 70.71 billion and held a market
share of about 5 per cent.
• It is listed on the BSE, NSE and theLuxembourg Stock Exchange.
82
LIC Housing Finance has a strong distribution network within India and
also in Gulf countries.
DISTRIBUTION NETWORK
•The company has close to 800 branches.
•As of March 2008, the company had total staff strength of 1,445.
•The company has 16 back offices in the country that conduct the
credit appraisal and administrative functions.
•The company has also set up a representative office in Dubai for
catering to the non-resident Indians (NRIs) in gulf countries covering
Bahrain, Dubai, Kuwait, Qatar and Saudi Arabia.
83
The company’s outstandings has more than trebled between 2001-02 and
2007-08.
DISBURSEMENTS GROWTH
84
The company’s interest income is expected to be about Rs. 3708 crores in
FY-11.
FINANCIALS
85
The company’s interest income is expected to grow at an average CAGR
of 25% between FY09 to FY11.
86
NPM has been improving since 2005-06 due to reduction in operational
expenses and marginal improvements in spread.
PROFITABILITY ANALYSIS
87
NPM has been improving since 2005-06 due to reduction in operational
expenses and marginal improvements in spread.
PROFITABILITY ANALYSIS
•LIC’s spreads have been on a decline since 2002-03.
•In 2007-08, however, spreads revived as they increased from 2.18 per
cent in 2006-07 to 2.54 per cent in 2007-08.
•The increase in spreads also led to a slight improvement of 36 basis
points.
•The company has been able to control operating expenses, which had
been rising until 2004-05.
88
Dewan Housing Finance
Corporation Limited
89
COMPANY BACKGROUND
90
The company has branches both in India and the Gulf region.
DISTRIBUTION NETWORK
•DHFL has a network of 59 business operates in 175 locations;
comprising 59 main branches, 83 service centres, 31 camp
locations across India and two overseas representative offices.
•DHFL also caters to a large section of Indians working in the
Middle East through its overseas branch in Dubai.
•The company’s subsidiary, DHFL Vysya Housing Finance
Limited (DVHFL), is a housing finance firm registered with NHB
and has operations primarily in Karnataka, Andhra Pradesh,
Tamil Nadu and Maharashtra.
91
It is one of the fastest growing housing finance companies and has
grown 9 times between 2001-02 and 2007-08.
DISBURSEMENT GROWTH
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