Sundaram Home Finance managing director Lakshminarayanan Duraiswamy.
Sundaram Home Finance, a subsidiary of Sundaram Finance Ltd, registered net profit of Rs 191 crore in the year ended March 2021 on disbursements of Rs 1,254 crore. Lakshminarayanan Duraiswamy took over as MD of Chennai-based Sundaram Home in April 2020, just as the national lockdown came into force following the coronavirus outbreak.
In this interview to Moneycontrol, Duraiswamy talks about the real estate and home finance scenario, impact of the second wave and outlook for the sector and the company. Edited excerpts:
How do you see the residential real estate scene at the moment?
The recovery from the second wave has been swift so far. While the extent of the second wave took everyone by surprise, the un-lockdown in phases helped the recovery.
There was an impact on disbursements in April and May. Things have since picked up, partially in June and quite strongly in July and August.
The tapering of the second wave and an aggressive vaccination strategy have brought some stability to the market outlook. The builders are back in full swing. The number of enquiries for home loans has gone up significantly in the last two months compared to even 2019. End-user customers are coming back. Retail demand is quite robust.
Interestingly, the demand across the board is quite strong – tier 1/2/3 and first-time home-buyers and repeat buyers. Construction activity is another important parameter and we are seeing progress there. The high demand for cement and steel is an indicator that things are looking up again.
The general trend is one of growth. I think by and large the fears of the second wave are behind us. Overall, there is a positive sentiment in the market across all constituents – developers and end-home buyers.
How is the residential real estate sector business model being recalibrated?
The pandemic has forced us to relook at technology adoption. This is not just true of our business alone. What we would otherwise take 3-5 years to embrace has now happened in the last 12 months. Earlier this year, we had launched an online application process for salaried customers. This has been a huge success. We are working on other products as well.
Specifically for housing finance firms, what is the implication of all these?
We have seen that the tier-2 and tier-3 towns are back in the mix and are doing well. The satellite areas of big cities have also caught up as the city limits constantly keep expanding. There is also a rise in the self-construction space as well as buying of plots. My view is that the tier 2/3 segment will grow faster in the long term and that holds a lot of potential. We have begun to hire frontline staff in these markets.
How is the level of non-performing assets?
Unsurprisingly, NPA levels increased during the first quarter of this year on account of two reasons – our ability to reach out to customers was impacted due to the second wave and we wanted to ensure that we don’t put our employees at risk by going out on collection calls. In addition, it might not have been appropriate to make a collection call when the customer and/or his family was reeling under the impact of Covid.
Collection efficiency has been improving month on month, and we are confident of getting back to pre-Covid levels during the next six months. How the asset quality behaves from here on will be a function of how the pandemic situation plays out in terms of wave three, vaccination impact and the impact of variants of the virus.
How do you see demand evolving?
In Q3 and Q4 of last year, pent-up demand had absorbed a lot of the unsold inventory. And there has been a flurry of new launches since the end of wave two. This is an organic demand and the pandemic situation has only accentuated the need to own a home from a safety perspective.
As a segment, the smaller units (affordable housing) continue to do well. Post the pandemic, this was the first segment to get off the block and will most likely lead the growth in the coming years. Price points are relatively stable in most of the southern regions. Right now, things look optimistic from a growth perspective.
We are looking to build a sustainable franchise of retail customers. We will continue to focus on tier 2/3 locations and retail business.
Work from home—how is it impacting home buying?
Post the pandemic, there seems to be the message that there is safety in owning a house. A drive towards WFH too could be leading to this sentiment. There is a perceptible change in the contribution from tier-2 cities. Self-construction houses and smaller-sized apartments are on the rise in these locations. Ticket sizes have typically been around Rs 20-30 lakh, which is in line with our philosophy of going retail and spreading our risks.
What are the challenges for housing finance firms?
Keeping employees motivated during the Covid period was a big challenge. There were lots of disruptions and fear of the pandemic created quite a stir amongst employees. Throughout this period, we have put our employees ahead of everything else.
On the business front, the impact of the first wave was partly offset by successive moratoriums announced by the RBI. However, post the second wave, there have been requests for restructuring that are currently ongoing.
Managing asset quality continues to be our priority.
What is your near-term view of the business?
We continue to be bullish on the home finance space, and it is here to grow. There is a government mandate as well with ‘Housing for All.’ It is likely that this will become even more inclusive as we go forward and cover more villages and towns.
While the longer-term outlook remains strong with the demand for housing expected to grow in the coming years, we continue to be prudent and cautiously optimistic on the growth prospects for the rest of the year.