Tuesday, July 21, 2009

update on low cost housing

it has been some time since we have updated the status of MHFC...

the happy stuff first..we are now fully operational and have disbursed our first few loans..many more are in various stages of processing....MHFC's tie up with Tata Housing for the Shubhgriha project is also generating customers from all walks of life who could not have accessed mortgage finance from formal sources..

every loan tells its own story, and we are now trying (unsuccessfully so far) to document the impact of the mortgages on our customers lives..

we are refining our processes and improving response times to customers, and trying to do all the right things..but there are some things beyond our control...like taxes, like interest rates...

a significant part of the cost of a home is taxes..collected at every point...excise duties, sales tax, octroi, service tax, stamp duty etc etc..this is estimated at over 40% of the cost of the house. If the government is serious about addressing the problems of housing the poor, one easy way would be to waive these taxes for home values below Rs 500 thousand. This would be easier and more transparent than the current methods of hidden subsidies and high costs of collection of multiple taxes..

coming to interest rates...we have to find a way to reduce the cost of capital to this segment..MHFC interest rates are a function of its cost of borrowing and cost of operations. HDFC SBI etc obviously have a lower cost of capital and better access to capital markets than a start up like MHFC. we intend to work hard at this because we know that our target segment is highly sensitive to interest rates..

more next time...

Tuesday, July 7, 2009


thoughts / quick summary on the budget impact on MHFC / affordable housing:

1. nothing in it for the private developers / financiers - no specific schemes / amendments to previous schemes

2. however, significant impact on govt schemes which directly and indirectly impact LIG / EWS housing:
(a) rural housing fund (run by the NHB) allocation to go up by Rs 2,000 cr - this is the refinance scheme which provides funds to HFCs at 8% - while all our loans would eventually qualify (since our suburban focus falls under rural), not sure how we will benefit as not sure what the availability of this resource will be after our qualification period (generally 2 years)
(b) JNNURM allocation to almost double to about Rs 12,800 cr - assuming this is 25% used for urban housing, this is about Rs 3200 cr - given that grant / subsidy for housing is normally capped at Rs 1.5 lakhs, I guess this can support about 200,000 homes - which is significant.
(c) Indira Aawas Yojana - this is aimed at rural housing - and allocation also increased (38%) to Rs 8800 cr - which is significant but not sure whether MHFC can access since mostly rural and very small ticket (Rs 25,000 loan size normally and house budget less than Rs 50,000 normally)

but the main announcement is the new scheme
(d) Rajiv Awas Yojana - for which details still awaited (and expected to come out on Aug 20) - which has recd funding of approx Rs 4000 cr and is aimed at urban low income housing - its expected to be on the lines of the JNNURM program - so a mix of grant (from Central Govt), land (from state govt) and loan (envisaged from the HFCs / banks which is where MHFC can play a role).

all in all, private developers might be disappointed by the budget, but for HFCs willing to partner with the states, there are possibiities