Real Estate Investing and Financing

A small part of the real estate purchase price comes from the savings of the person who is buying the property. However, there are other sources too that can be availed while purchasing real estate.

The sources can be broadly classified under four categories:

1. Primary Sources
• Mutual Savings Banks
• Commercial Banks
• Savings and Loan Associations
• Life Insurance Banks
2. Financial Middlemen
• Mortgage Bankers
• Mortgage Brokers
3. Other Sources
• Finance Companies
• Pension Funds
• Credit Unions
• Real Estate Investment Trusts
• Foreign Funds
• Individual Investors
• Farmers Home Administration
4. Secondary Mortgage Market

Reasons Why Real Estate Investors Invest on Projects of Housing Finance Companies:

1. It has been growing at a minimum of 30% CAGR which effectively means doubling the business and profit each 2.5 years which is quite good.
2. Home loans are the cheapest, safest and best form of loans because of the heavy mortgage of homes as security attached.
3. Home loans being an emotional attachment to home owners, normally has much lesser defaults.
4. With the huge need and push for affordable housing, mainly to primary segment, the housing finance domain is poised to exponential growth.
5. As a thumb rule, scale, business maturity, profitability and growth moves in the following direction:
6. Labour, Manufacturing, Trading, Technology, Services, Financial Services.
7. Home finance belongs to the top level of the growth pyramid and it is followed by services, technology and trading.
8. Home finance people get almost 3 times the money invested for a 20-yrs loan. Hence, you just need to get a customer once and your income for next 20 years is almost guaranteed.
9. ARPU (Average Revenue per User) in case of home loans is one of the highest across industries due to high Ticket Size of homes, which comes in Lakhs and now in Crores.
10. Home finance in India is still in a very embryonic stage with a very small percentage of people taking or getting home loans.
11. RERA, Aadhaar, Main streaming of real estate will lead to more and more organised real estate players in the market which will automatically lead to much higher and safer business for home finance companies.
12. Due to the strict loan conditions set by the Reserve Bank of India, we are still not at all a highly leveraged society, unlike the USA and other developed countries.
13. As a thumb rule, the more a country grows, over a period of time, the more interest rate gets reduced (like most developed economies have sub 1% or even negative interest rates). Hence, for a period of 20 years or more, this may be the best time to offer loans at one of the highest rates and hence great profitability as interest rates are going for a downtrend since past sometime.
14. Unlike banking, the net NPA levels are much lesser in home finance companies as compared to the banking sector.

Hence, home finance companies may be one of the top three sectors for next few years or even for decades as far as stock investments are concerned.

Best Housing Finance Companies

As per our analysis, Order (best to worst) of housing finance companies based on their fundamental strength on the basis of their quality, valuations and financial trend:

1. CAN FIN Homes
2. DHFL
3. Indiabulls
4. HDFC
5. PNB Housing Finance
6. LIC Housing Finance
7. HUDCO
8. Gruh finance.
9. GIC Housing Finance
10. Indbank Housing Finance