 "Budget brings cheer to housing finance companies")
When demand for real estate is stagnant or moderating across many cities, the finance minister raising the tax benefit for new home buyers with a budget of Rs 50 lakhs augurs well for not only the developers but also for housing finance companies (HFCs).
Stocks of LIC Housing, Dewan Housing, CanFin Homes, Repco Home Finance and Indiabulls Housing rose by four to eight per cent on Tuesday. First-time home buyers will get an additional interest deduction of Rs 50,000 in FY17 (the current deduction is Rs 150,000), if the loan availed does not exceed Rs 35 lakh and the cost of the house is restricted to Rs 50 lakh (usually categorised as affordable houses).
With relief being extended to realtors of affordable houses as well, the sector believes the income tax (I-T) sop will be a sentiment booster. Siddharth Purohit of Angel Broking feels the incremental interest deduction will benefit people in the 20 per cent I-T bracket. He adds the incremental demand from the affordable housing space could also offset the concerns on moderating of loan book growth for most HFCs. Rating agency CRISIL sees the move as a boost to affordable housing especially in Tier-II and Tier-III cities. According to its report, Currently, nearly 40 per cent of upcoming supply in the 10 major cities tracked by CRISIL Research is priced under Rs 50 lakh. Upcoming supply in this price bracket in Tier-II and Tier-III cities is expected to be even higher.
Dewan Housing, Repco, CanFin Homes and LIC Housing have an average loan size of Rs 12 to 19 lakh. These and Gruh Finance with an average loan size of less than Rs 10 lakh stand to benefit the most from this Budget amendment. Exposure of these companies to Tier-II and Tier-III cities is also significant and between 50 per cent and 70 per cent of their total loan book.
However, according to Nitin Kumar of Prabhudas Lilladher, the tax exemption is only one part of the positive for HFCs from this Budget. Fall in bond yield rates and non-banking finance companies (NBFC) being able to make use of the Sarfaesi Act (to get after a lenders assets if a loan is under stress) are also reasons why the stock prices of these companies spiked in Tuesdays trade, he adds.
Bond yields moderating by 18 basis points since Monday (now at 7.61 per cent) will result in lower cost of funds for non-bank financing companies (NBFCs), including HFCs. Likewise, the old demand of NBFCs to be able to utilise the Sarfaesi law to monetise their troubled assets in an effective manner has also been met. Hooda adds that as Indiabulls Housing is among the largest standalone securitisation players, the company will be the biggest beneficiary from this proposal.
Stocks of LIC Housing, Dewan Housing, CanFin Homes, Repco Home Finance and Indiabulls Housing rose by four to eight per cent on Tuesday. First-time home buyers will get an additional interest deduction of Rs 50,000 in FY17 (the current deduction is Rs 150,000), if the loan availed does not exceed Rs 35 lakh and the cost of the house is restricted to Rs 50 lakh (usually categorised as affordable houses).
With relief being extended to realtors of affordable houses as well, the sector believes the income tax (I-T) sop will be a sentiment booster. Siddharth Purohit of Angel Broking feels the incremental interest deduction will benefit people in the 20 per cent I-T bracket. He adds the incremental demand from the affordable housing space could also offset the concerns on moderating of loan book growth for most HFCs. Rating agency CRISIL sees the move as a boost to affordable housing especially in Tier-II and Tier-III cities. According to its report, Currently, nearly 40 per cent of upcoming supply in the 10 major cities tracked by CRISIL Research is priced under Rs 50 lakh. Upcoming supply in this price bracket in Tier-II and Tier-III cities is expected to be even higher.
Dewan Housing, Repco, CanFin Homes and LIC Housing have an average loan size of Rs 12 to 19 lakh. These and Gruh Finance with an average loan size of less than Rs 10 lakh stand to benefit the most from this Budget amendment. Exposure of these companies to Tier-II and Tier-III cities is also significant and between 50 per cent and 70 per cent of their total loan book.
However, according to Nitin Kumar of Prabhudas Lilladher, the tax exemption is only one part of the positive for HFCs from this Budget. Fall in bond yield rates and non-banking finance companies (NBFC) being able to make use of the Sarfaesi Act (to get after a lenders assets if a loan is under stress) are also reasons why the stock prices of these companies spiked in Tuesdays trade, he adds.
Bond yields moderating by 18 basis points since Monday (now at 7.61 per cent) will result in lower cost of funds for non-bank financing companies (NBFCs), including HFCs. Likewise, the old demand of NBFCs to be able to utilise the Sarfaesi law to monetise their troubled assets in an effective manner has also been met. Hooda adds that as Indiabulls Housing is among the largest standalone securitisation players, the company will be the biggest beneficiary from this proposal.