Shares of housing finance companies may offer a good hedge against volatility, say experts.
Analysts are upbeat on India's housing finance industry that disbursed loans worth R2,10,000 crore last fiscal (2012-13) and is likely to grow 20% per annum for the next five years.
The optimism has shown its effect on the bourses as well, with stocks of housing finance firms including HDFC, LIC Housing Finance and Dewan Housing Finance generating 19-20% returns in last couple of month.
“The prospects of this industry are very bright,” said Anil Kothuri, head, Edelweiss Housing Finance. “Demand is projected to grow 20% per annum at least for the next five years.”
“The Indian housing finance sector has a long track record of shareholder value creation based on excellent borrower behaviour and largely secular growth in assets,” say ICICI Securities analysts Santanu Chakrabarti, Ujjwal Somani and Shashin Upadhay in a report on housing finance companies.
Going forward, the sector offers tremendous opportunities, feel experts. While the market size of urban affordable housing is around R7 trillion, that of rural housing is R5 trillion. And the shortage of 2 crore houses in India is only likely to fuel growth.
“The increasing nuclearisation of the family will contribute to the demand for more houses in the country, which means that the demand for housing finance will grow,” said Kothuri.
But will sluggish demand for real estate in the country hit the housing finance industry?
Yes, feel experts, since property prices remain the key driver for the sector's performance.
“Any major correction in property prices could possibly result in asset quality challenges for players, while any significant increase in prices could reduce affordability, thereby impacting the sector’s loan growth potential,” said Vaibhav Agrawal, vice-president, research and banking, Angel Broking.
Similarly, government policies, especially those related to tax deductions for home loan borrowers and the interest rate scenario are also going have an impact. The average rate of interest currently stands at 10.5%.
“However, recent regulatory changes such as abolition of pre-payment penalty and expectations of a fall in borrowing costs are likely to provide some near-term benefits,” I-Sec analysts said.
They recommend a buy on HDFC (target price of R900), LIC Housing Finance (target price of R360) and Dewan Housing Finance (target price of R350).