One of the most promising themes for investing in the financial sector is affordable housing. The strong thrust given by the Government towards this theme is encouraging buyers, lenders and developers to focus on mass scale affordable housing projects. Taking attractive tax breaks and interest rate subventions into account, buying homes that qualify under this definition is much cheaper than renting. The three financial sector regulators i.e. RBI, SEBI and IRDA have relaxed prudential norms for banks, mutual funds and insurance companies respectively for financing the lenders.
Indian mortgage industry is still quite small and the combination of factors such as rapid urbanisation, more nuclear families, better affordability, modest interest rates backed by the Government’s mission of providing “housing to all by 2022” will lead this sector to grow to 40% mortgage penetration by 2030 (source: ICRA).
Well run housing finance businesses that focus on affordable housing and having AAA/AA+ ratings, negligible NPAs and high capital adequacy levels are likely to deliver growth in earnings at over 25% CAGR over the next three years. Our financial equity portfolios have benefited with an overweight position on this theme.