Low delinquencies have been the key attraction of home loan business in India. But stagnant real estate market (with southward moving prices in some regions), has put a question mark at this basic proposition. Recent mild tremors in the debt market has put a Cntrl B qualifier as well - the question mark is now much bolder.
If delinquencies (i.e. ‘
) in home loans are indeed expected to increase then the immediate question would be “which class of housing loans will show higher level of delinquencies ?” defaults in loan repayment’
The class of home loans is generally defined either in terms of the size of a loan (less than 25 lakh, 25-50 lakh, above 50 lakh etc...) or is done region-wise (metros, tier-II cities, rural etc...) or is based on the ratio of loan to market value etc.
While I have never worked in the housing finance sector but during my over twenty years in real estate, I have observed that there are three classes of home loan seekers. And I feel, this classification could throw more light on possible delinquencies.
The first kind of home loan seekers is of Amitabh Bachchan genre. I give them this name because things like
M and aryada, G arima A (personal limits, discipline, dignity) are the key part of his attributes. He is very well aware of their spending limits. nushaasan
So when buying a home, he will first exhaust his savings and then will think of borrowing. His
A will ensure that the moment he gets extra money, he will use it to repay the loan. His nushaasan G will always come in his way of defaulting on loan repayment. He can easily lecture on the advantages of savings over consumption. arima
Loan for home is acceptable to him and in special cases, even possibly for a car. But loan for white good is a definite ‘NO’. Credit card is either for emergencies or for convenience but never can be a means of financing.
A large base of HDFC customers of 80s, 90s and early part of this millennium represent the AB genre.
The second type of home loan buyer is the Shahrukh Khan genre. Life for him is less serious than for AB genre loan seeker. For him, consumption is not a bad thing. Powered by the liberalisaiton and globalisation policies of 90s, this customer sees Rahul ( SRK’s character) as a reflection of his aspirations. While availing a home loan, he is will possibly stretch his limit to buy a larger/better home. Loan for a car and white goods are also acceptable.
, Marayda and Garima A do exist for him but are adjustable. nushasan
This poster boy of urban aspirational consumer took birth in the late 90s and has dominated the home loan market post Y2K. In my opinion, a large portion of ICICI home loans would fall in this genre.
The third kind of the home loan seeker, and you guessed it correctly, is the Salman Khan genre. Once he commits to consumption, even he himself cannot stop himself. He hates any kinds of brakes… especially when it comes to consumption. The size and budget of his home is decided by his loan entitlement than by his actual need.
He is probably buying home not because he definitely needs it but because many others have bought it so he too should have it. The volume of home loan business in this genre is far more than that in AB and SRK genres. Hence, housing finance companies (HFC) keep chasing this customer on a daily basis.
But there is one problem with this customer. When it comes to defaulting, he can be a
Ddefaulter. abang and Garima hardly exist for him. Recovery costs from such a defaulting customer will be very high since loan sizes in this genre are typically small. Maryada
Also in this genre, since the loan to market value ratio is typically very high, a southward movement in home prices would almost wipe off borrower’s contribution, resulting in minimal incentive for the borrower to repay. So if the economy slows down or money market further tightens, expect SK genre customers to provide the highest level of delinquencies. SRK genre will have lower delinquencies and AB genre, the least.
Fortunately, there is probably no HFC that only has SK genre customers. All housing loans portfolios have AB, SRK and SK genre customers, it's their relative share that will determine the true value of a home loan portfolio.
But with imminent signs of higher levels of delinquencies, it is high time analysts start taking stock of such classification. And hopefully, they do it is before HFCs start feeling the pinch of SK genre with that painful sigh...
. Hum loan de chuke sanam Deepesh Salgia is director - Shapoorji Pallonji Real Estate. Disclaimer: This article in no way depicts the real life characterisation of the artists. Also there is no intention to hurt the sentiments of any artists or his fanbase. The purpose of using the names of the artists is only to make it easy for masses to understand the complexities of the subject.