Amidst struggling realty market investment in housing finance companies is expected to fetch decent returns in a volatile market. Huge untapped, under-penetrated housing market caters to significant growth opportunities to providers of housing finance companies.
Default rates of Indian mortgages have been at very low levels. This is due to the fact that most mortgage loan borrowers are ‘first time’ borrowers who borrow money for their basic dwelling units. Low default rates attracted competition from banks. Banks also have the advantage of low-cost deposits, according to the brokerage - Antique Financial.
The long-term positive outlook on India's mortgage market evolves from the basic economic concept of demand and supply. Supply in the context of housing is far lower than demand, and this gap provides a huge opportunity of growth for providers of housing finance, mentions the study report.
The brokerage bets for Housing Development Finance Corporation (HDFC) and LIC Housing Finance (LIC HF) setting target prices of Rs.1,950 and Rs.450 respectively from their current market prices. Interestingly, together these two companies have a market share close to 40%.
Said Ravi Sankar, research analyst, Antique, “We are positive on the housing finance sector, as it carries a high growth potential due to the huge demand-supply gap. We recommend a strong BUY on LIC Housing Finance, as the improved fundamentals of the company do not get reflected in the valuation of the share price.”
Both the companies are growing at CAGR of 23% and 38% in the last 3 years. India's housing requirements, as indicated by statistics provided by National Building Organisation (NBO), Ministry of Housing & Urban Poverty Alleviation, Government of India, showed a shortage of around 25m houses by end-2007 for Urban India.
Source:The Economic Times