Udaipur : Next uptick in Indian economy is all set to come from rural geographies as these locations have seen increase in activities across sectors as villages / small towns in India have remained insulated from the headwinds caused by disruption due to happenings across the globe and due to Covid-19 pandemic. These geographies have seen further activity caused by reverse migrated population from metros to hinterlands. This resurgence has resulted in an increased activity in housing sector. Further, given the direct / indirect linkage of more than 250 businesses that gets associated with housing the rural economy is set to lead the next phase of GDP growth in India.
The incremental demand for housing is expected to be end-use driven predominantly from Economically Weaker Sections &Low-Income Group segment which make for more than 95% of the total shortage. Rajasthan state too has been experiencing uptick in housing demand in rural areas and small towns resulting from reverse migration and nuclearization of families. There are several niche financiers who are now gearing up to cater to the requirement of formal credit emanating for home purchase from first time home buyers.
We spoke with Mr. Ashish Jain, MD of Star Housing Finance Limited and sought his views on rural housing uptick in Rajasthan and the company’s plan on the occasion of inauguration of new premises at Udaipur which shall also function as regional office for Star HFL in Rajasthan.
- What according to you are the factors that are contributing to increase in housing demand in rural areas?
Rural Housing shall ride the next level of growth in Indian Mortgage Market Space. Reverse migration during the pandemic has added 10 mn units to the existing demand for housing stock in rural India and nuclearization of households, a characteristic of Urban geos is now seen in rural locations as family size reduces from an average of more than 6 to less than 4 which has further fuelled the housing demand.
Consequently, the credit uptake to finance purchase/construction for low-cost homes in rural areas should be witnessing super normal growth over next decade. One expects small/mid-sized rural focused HFCs to benefit from these tailwinds and register 30-35%+ CAGR on sustainable basis.Niche players like Star HFL tend to gain from this demand and have potential to scale up in rural geographies.
- How is Star HFL gearing up for the housing demand in its operational geographies?
Star HFL operates with a philosophy of enabling credit to first-time home buyers in rural and semi-urban geographies. The space that we operate in is also known as affordable housing space which has maximum demand. Star HFL intends to play a meaningful role in its operational markets through focusing on providing right home loan product for the target segment on fair terms. Star HFL has established a network of more than 30 location both physical and digital. These locations are manned by HFC professionals. They are supported by strong digital lending platform which enables scale without compromising on quality.
We have launched 4 business verticals to cater to the housing demand in our operational markets. These are (a) home loan vertical (b) co-lending vertical (c) digital lending vertical (d) rural home loan vertical. These divisions are being run by defined set of policies and guidelines developed specifically for EWS/LIG segment who wish to purchase / construct own homes for the first time in their lifecycle management. We do not focus on gaining market share rather our approach is to build scale backed by solid processes and providing superior customer experience through the loan lifecycle. This includes inculcating of banking habits to these new to credit borrowers. We continue to invest in building our brand in our markets through this approach and thereby build AUM through the journey.
- Given the higher interest rate cycle, what do you think will be the impact on the business growth?
A lot has been and continues to be written about rate hike whenever the economy goes into the higher interest rate cycle and its possible impact on the growth of residential mortgages. Given the inherent demand for housing credit in the country, the overall growth has more or less remained stable when one sees from a 7–10year perspective. Mortgages have exhibited 15-17% CAGR during the period. More importantly, the growth of low-ticket mortgages (Sub 10 lakh category retail home loans in rural/semi urban geographies) have been over and above this average primarily driven by the shortfall in housing units and the same being further increased mainly due to nuclearization of families which we are now seeing in rural/semi urban geos.
One may see competition in home loan borrowers in MIG/HIG group looking for arbitrage amongst lenders offering comparatively 25-50 bps lower rates but AUM of niche players in affordable housing finance space should remain stable given the first-time borrower dynamics of choosing stability and developing credit score on bureaus over rate arbitrage. In fact, lenders in low ticket home loan space offering home loan products at fixed rates would be able to handle this increasing rate cycle better than others.
- What was the reason for shifting to a newer and bigger premises?
Star HFL is now set to grow and looks forward to build scale in operational geographies. The shifting of Udaipur office to a newer and bigger premises is inline with our strategy to expand the business. The new office is being developed keeping in mind the growth plans, manpower and the digital infrastructure that is required in business operations. This premises is situated in the main city centre (1179, 2nd Floor, Sector 11, Opp. Agarwal Dharamshala, Udaipur 313001)and shall be easily accessible to all our stakeholders. This office shall also be operating as the regional office of Star HFL in Rajasthan.
We intend to expand similarly in our existing geographies with focus on penetrating deeper and converting our digital POPs into small physical centres manned by HFC professionals. This approach envisages Star HFL be present in the major districts of its operational states. Star HFL also intends to expand in newer geographies establishing offices in major locations and in the next phase penetrating deeper into rural and semi-urban geographies.
- What are Star HFL’s plans for Rajasthan and its approach to scale-up?
Star HFL has been present in southern Rajasthan operating from Udaipur since more than a decade. This gives us a head start to penetrate deeper in this current growth phase. The new premises to which we are shifting shall operate as the hub connected to major locations in the state. We have also opened our office in the state capital at Jaipur (503, 5th Floor, City Corporate Mall, Malviya Marg, C Scheme, Jaipur 302001). These two locations shall be main hubs for the state and other locations shall be connected to these main centres. In an around Jaipur, we intend to penetrate deeper in the rural and semi-urban areas namely (Sanganer, Chaksu, Chomu, Jobner and Renwal). In and around Udaipur, we intend to have our presence in (Nathdwara, Rajsamand, Sangwada, Salumbar, Gogunda, Badesar and Khamnore). Incrementally from hereon we intend to cater to the home owning aspirations of more than 5000 first-time home buyers in the state over the next 36 months of business operations and wish to contribute meaningfully towards the housing credit growth in rural Rajasthan.
