Housing loan in Mini Metros: Ticket Sizes, Repayment Periods - Rs. 10 lakh to Rs 15 lakh, 15 year

India's largest mortgage lender, HDFC is looking at Tier II & Tier III cities for growing its housing loan book. The top management (Mr.Deepak Parekh, Mr. Keki Mistry and Mrs.Renu Karnad) of the company expect an 18 to 20% growth in home loans during 2012-13 led by growth in smaller towns.

Growth from smaller towns..!

"The management highlighted that house ownership in India is under penetrated. Over the past year, while metros have seen some moderation in demand due to higher interest rates and property prices, growth from smaller towns is holding up well and will be a key growth driver," a recent report by CLSA stated.

While profitability for housing loans would continue to be driven by metro locations on account of higher ticket sizes and repayment periods (Rs. 19 lakh and 20 years) compared to smaller ticket sizes and repayment periods (Rs. 10 to Rs 15 lakh, 15 year) in mini metros, housing loan companies are looking to garner larger customers from such locations. 

Also, with the landscape in such locations going in for a makeover --flats, apartments and other high rises - housing loan companies see good off take for loans in such locations.

Mr. Sujan Sinha , MD & CEO, Shriram Housing Finance said, "Big builders / promoters in every region are now shifting focus to smaller cities. Also, in terms of course corrections & spikes, smaller towns are less prone to vagaries of the economy than bigger metros"

The Shriram Housing Finance company which commenced operations last year (2012) has a home loan book of Rs. 38 crore with 80% of if coming in from tier II & III towns.

Shriram Housing Finance has set a target of Rs 1,000 crore in the next 3 years, with the smaller geographies accounting for most of the pie.

Mr. Srinivas Acharya, MD, Sundaram BNP Paribas said, "Seasonality of income is a thing of the past in semi urban & rural areas. Several corporates are setting up campuses close to employees and in rich agricultural belts, people are well off. Stability of income is a key factor in such regions.While bulk of the business for the company still comes from Chennai, Coimbatore, Trichy and Madurai, the company is witnessing greater traction in areas like Vellore, Tuticorin and Tirunelvelli."

 Mr. Sumit Bali, Executive VP, Kotak Mahindra Bank said, "We are expanding and adding cities because a lot of growth will certainly come from tier II & III cities. So yes the focus, certainly for auto loans, will be those markets. And that holds true also for housing loans as well. As the industry expands that will be the trend"

But the drive into tier II & III world also has its own problems. In cities like Puducherry, a preferred choice for high-end heritage property sales, the lack of building plans or clearances in buildings constructed anywhere between 30 & 60 years ago is a major hassle for those looking to take a housing loan to buy a property.

Also, typically these smaller city branches of the bigger banks are not used to handling big ticket property transactions unlike NCR - National Capital Region or Mumbai or Chennai so working with the local branch can be quite harrowing experience for the customer. Often clearances for bigger ticket loans come from the closest metro, which delays the entire process. 

Photo: Hindu

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