If you look at the housing sector in India today, you will find a large number of housing finance companies fighting for a share of the market, but catering to a mere 3-4% of the population. There’s an interesting statistic which shows that only 3% of Indians pay income tax, and 85% of all home loans go to this segment. The vast majority of Indians, particularly in the informal/unorganized sector, have virtually no access to home loans. So they depend on accumulating capital over a long period of time to build their homes.
Having a home has a very significant impact on the quality of your life, and on your social, economic and mental stability. But building a home is a long-haul game for somebody who, for example, runs a small shop or business. Usually, they build incrementally, so first comes a foundation, which probably exhausts all their capital. Then they build up some more capital and perhaps put up the walls and the ground floor.
Of course, there are some borrowings from friends, relatives, or even raw material suppliers, which are short-term loans and may come at a high price. As a result, the aspiration for a home is either significantly postponed, or does not materialize at all.
Obviously, a finance company that services these kind of customers is the need of the hour. Happily, over the last five-seven years, there has been some development on this front. Housing finance companies have come up in the affordable housing segment, catering to lower income groups and the informal sector, but there is still a huge gap between demand and supply.
India today has one of the lowest incidences of mortgage penetration as a percentage of the GDP, as the chart below shows . Plenty of other developing economies, such as Thailand, have far better numbers than us. If you look at East and Central India, there is even less activity in this space, with much of the development having come about in the South and the West, and to a certain extent in North India. To me, that creates a very strong argument for a home grown housing finance company to cater to this geography. At Aashiyaan, we want to be the first to do that.
As a professional, I have chosen to associate with enterprises and entities which work for the uplift of the poor. I have done so for two decades in microfinance, and I am very happy to see the manner in which the microfinance industry has evolved. When I got into the industry, the larger questions were: can microfinance industries be profitable? Can they really grow beyond a size? Can they become more mainstream? Today, all those questions have been addressed. There are microfinance institutions which are issuing IPOs, converting into banks, and so on.
Affordable housing has similarities with microfinance in the sense that I see it at a relatively nascent stage where microfinance probably was 10-12 years ago, so the journey is immensely exciting. And the thought that we at Aashiyaan will positively impact the lives of poor persons is deeply fulfilling.
Even at a practical level, as a commercial proposition, the prospects of the affordable housing finance sector are unarguable – the demand is huge, the supply minuscule. As India’s stated priority of providing ‘roti, kapda, makaan’ for everyone, the sector tackles an important national priority – housing for all.
With the Central government coming up with housing schemes for the poor and subsidies, and the regulator, National Housing Bank, coming up with more favorable rules and regulations, which is easing a lot of funding to such companies, there is plenty of investor interest in affordable housing finance.
So I think we are entering a boom phase for this industry, and looking at the demand-supply gap, I see this going on a sharp upward trend for many, many years to come.