Relaxed rules opening up demand in the housing sector for startups

NEW DELHI: The regulatory relaxations announced by the Central government have given a leg up to startups in the affordable housing finance segment, opening up both supply and demand as well as making it attractive for investors. 

While in the last year’s Budget, the government accorded infrastructure status to affordable housing, in this year’s Budget announcement, finance minister Arun Jaitley announced the setting up of an Affordable Housing Fund in the National Housing Bank to boost the fund flow. The government had also extended the benefits of the interest subsidy up to Rs 2.6 lakh on home loans under the Pradhan Mantri Awas Yojana last year to boost affordability and reach a wider consumer base. 

“Easier refinancing by NHB (National Housing Bank) and the relaxed criteria have been the biggest factors supporting our growth since it allows companies like us to go back for refinancing based on the company’s current loan book and internal credit rating. That has made raising additional capital easier and helps us build our books faster,” said Kajal Ilmi, founder, Aviom Capital. 

Founded in 2016, Aviom has a total loan disbursement of Rs 33 crore and operates out of 14 branches in Madhya Pradesh and Rajasthan. Aviom has a debt line of Rs 17.5 crore from banks and NBFCs and the startup intends to raise a further Rs 100 crore in the next six months. 

The younger crop of companies in this space are also identifying their customer segments very carefully. “There is a lot of customer segmentation, so you have to choose your area of specialisation and ticket sizes to understand customer profiles deeply,” said Ilmi at Aviom. “The market is not impressed by book sizes anymore. Smaller book sizes but better NPAs get you better valuation during fund raising.” 

These include those like Vastu Housing Finance, backed by private equity firm Multiples Alternate Asset Management, Aviom India Housing Finance and Ummeed Housing Finance, which among others is backed by impact investor Lok Capital and Nivara Housing Finance. Delhi-based Ummeed finances housing loans with an average ticket size of Rs 9 lakh. Having started operations about 18 months ago, the company already has Rs 100-crore worth of assets under management (AUM) and is targeting an AUM of Rs 400 crore by March 2019.

Regulatory easing is also drawing investors to early-stage startups. “There is increasing investor interest in this segment largely led by the huge demand and supply mismatch in the industry,” said Richa Natarajan, vice-president at Unitus Capital. 

“However, since there is very little technology adoption and most operations are largely branch-led, investors are looking for unique business models, innovative sourcing and robust credit underwriting mechanisms in companies. While older companies adopted technology very late, younger startups are storing data on the cloud and have adopted technology-led loan origination and management system besides cashless disbursements and collections, Natarajan said. 

Investors, however say that the role of NHB, especially in areas like refinancing schemes, needs to grow much bigger for the industry to grow further. “NHB can do what the Small Industries Development Bank of India did for the growth of the microfinance industry years back,” said Vishal Mehta, managing director at impact investment firm Lok Capital. 




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