Realty Sector on Revival Path
A post graduate in Statistics from Lucknow University joined LIC in 1983, only because it was the first job offer that came by his way. After more than 33 years with the company Vinay Sah, CEO and Managing Director – LIC Housing Finance Limited (HFL)is steering the organization to newer heights. In conversation with Sapna Srivastava, he recounts his journey and briefs on the current realty scenario.
A veteran of the industry Vinay Sah has experienced life in an upscale metro to the most rural regions of India. No wonder, meetings with him have always been aninformative affair. For instance, he mentions a heart-warming incident that became the reason of his long association with LIC. “It was around 1984 that I was on tour to Jagdalpur and was asked to present the insurance cheque to a widow during a death claim presentation in the remote village. While handing over the cheque of little more than Rupees Ten Thousand, in the few seconds of eye contact the gratitude that I saw made me realize that this job was more than just work, it offered me an opportunity to make a difference in the lives of many,” he told.
Vinay Sah when initially joined LIC he worked at divisional office and was in charge of new businesses and the planning department which existed only for five years in the organization from year 1982. “In 1980, LIC undertook massive decentralization initiative. Till then, all processes were done at divisional office manually. For example loan papers from branch office would travel physically to the divisional office and then back, would take a long time. In 1985, I worked as a programmer and then in HR department for a while. From about year 1988-89 to 2008, I was in marketing and one of the few to be in charge in all marketing positions, becoming executive director marketing in 2015 with product development as part of my portfolio,” he reminisced.
Talking about the real-estate scenario today he felt that the infrastructure status to affordable housing which was long on the wish list of the industry will give a major boost to the residential real-estate. Vinay said, “Developers would be encouraged as it will ensure easier access to institutional credit and help in reducing borrowing cost for affordable housing projects. With infrastructure status accorded, approval process for affordable housing projects would improve through the envisaged single window clearance. This would further simplify process, lay clear guidelines and increase transparency.Also, with RERA, accountability on the part of developers will increase, thereby attracting debt and pension funds to invest in affordable housing segment.For LIC HFL too, affordable housing is the focus area for the current year. Our project finance teams situated at various locations have started identifying affordable housing projects for funding. We price the loans at a lesser rate as compared to the other project funding schemes. There will be a perfect synergy between bulk lending to developers and through their projects expand the retail customer base.”
According to Vinay other positives for the realty sector have been the measures like tweaking of the definition of affordable housing projects from the earlier built up area to carpet area that will increase the size of affordable homes, allowing 100% deduction of profits from tax and extension of time frame for project completion from 3 to 5 years. “As we all know, affordable housing is fairly under penetrated market in our country despite pent up demand. The inclusion of Middle Income Group (MIG I and MIG II) along with the LIG/EWS category under the PMAY CLSS will further provide the impetus needed for developing affordable housing projects in the country. More organized developers will be attracted towards this segment catalysing development and increasing the supply of affordable housing stock in the country.”
LIC HFL has been done well in project financing across Southern, Western and Eastern markets during the last year. We have been able to grow the project loan portfolio by 49% as of June’ 17 quarter.
Improvement in Lenders& Buyers Confidence
The sector was long plagued by the grievance of being unorganized and unregulated. On account of this, trust deficit always prevailed in this sector. Vinay is of the opinion that RERA is a customer centric regulation that will evolve over time and bring in a paradigm change. “The comfort for lenders will go up as with the passage of RERA, all permissions, status and the required clearances would be available online for scrutiny. Escrow mechanism will ring fence any likely fund diversion by promoters. Projects registered under RERA would help lenders in taking more informed decisions about the project, promoter’s background, pricing rationale and the viability of the project within the timeframe committed by promoters. Projects registered under RERA only would be considered for financing by lenders. Also, due to RERA with investor confidence returning, we can see a revival mode in this sector. This will channelize more capital inflows in the sector, resulting in the overall development of the sector.”
For developers, LIC HFL offers construction finance both in sale model for residential projects and lease cum sale model in case of commercial projects. The company has been active in funding developers but selectively depending upon the project viability. Vinay explained, “Our due diligence process includes checks and balances in respect of developer’s profile, past experience, credit history, strength of balance sheet, project cash flows and the marketability of the project. With RERA kicking in, the credit appraisal has included whether the projects to be funded are RERA registered. In case of completed projects given on lease, we have LRD scheme where loans are given based on future rent receivables. Loan against property (LAP) is also available for corporates for their business expansion needs.”
Mortgage penetration (housing credit as a percentage of GDP) in India has remained close to 9%. The factors that have supported growth over the years are favourable demographics with a large proportion of population below 30 years of age, increasing urbanization leading to proliferation of nuclear family structures and development of satellite towns in the peripheral areas of large cities. “In India, investment in residential properties is still considered as best in asset class. Fiscal incentives in the form of personal income tax saving on borrowed money for acquisition of property have fuelled the growth in the housing finance sector. Lending rates are at a low after several years. RBI in its August monetary policy has reduced the repo rate by 25 bps signalling a benign interest rate regime. Home loan EMI has become very affordable in relation to the income levels,” said Vinay.
The government’s subsidy benefits through PMAYwill force developers to tweak their business model and go big on affordable projects. With estimates put at around Rs.6 trillion for the industry, a good opportunity waits for banks and HFCs to provide project finance to developers.
LICHFL Housing Finance Initiatives
LIC HFL has been in the forefront in introducing loan products that are contemporary with times. The Company has been responsive to the changing industry dynamics. Updating on the latest offering by LIC HFL, Vinay said, “Recently introduced Griha Siddhi is a pure home loan product matching the needs of the prevailing sectoral demographics. The scheme has embedded special concessions on interest rates for women borrowers.Presently, the interest rates start from 8.35% onwards for loans up to Rs.25 lacs. For salaried employees, loans are given for a maximum period of 30 years. For other borrowers, the loans are for a period of 25 years or 70 years of age, whichever is earlier. To complement PMAY CLSS, we have ApnaGhar catering to EWS/LIG and MIG. During the current year, we see a good traction in ApnaGhar numbers and we expect to do exceedingly well during this current fiscal. On the non-housing loan category, we have been innovating our product suite, in particular, Lease Rental Discounting, loans to professionals for their office use and loan against property (LAP) for self-employed. The interest rates are competitive and repayment made flexible to meet the borrowers’ need. Over the last few quarters, we have been able to grow this portfolio at a healthy clip.”
Today, the cutting edge is the response time in loan sanctions and disbursals. Our seamless integration of people and processes has helped us minimize turn-around time by eliminating duplication and enhance efficiencies at every level.
The future growth plans for the company.
A long-term player in this business,LICH HFL has competed 27 years of operations and has been prudent in offering differentiated services through its operating offices, marketing intermediaries and robust technology support.Vinay added, “We are cognizant of customer priorities and needs owing to our long standing experience and niche knowledge in the field of housing finance. “We are establishing ourselves as a preferred housing finance institution with pan India presence. During the current year we have opened two Regional Offices at Patna and Bhopal apart from five marketing offices. We are augmenting our distribution channels for wider reach. The thrust will be to increase the share of business through our own distribution company viz. LICHFL Financial Services Ltd through their established network of territory offices across India. In a couple of years’ time, we want to go beyond Rs.2 lakh crore in housing loan portfolio.”
Ending the conversation with another interesting anecdote, Vinay shared the story of his earlier days when he and his friends after training used to get posted in the unheard of places and they would mark them on the Map of India. “Frequent transfers, almost 14 to 15 postings at first were arduous for me and family, but later became the way of living that we enjoyed as another journey. Experiencing the wide gamut of people, culture and professional practices has been the high point of my journey with LIC.”