Govt’s housing policy encourages RMBS but challenges remain: Moody

By Accommodation Times News Services

housing for all by 2022As per a report by Moody’s Investors Service it claims that the housing policies initiated by the new Indian government will encourage growth in India’s mortgage finance sector and provide a catalyst for the development of the country’s emerging residential mortgage backed securities (RMBS) market , but the tax environment may hamper some investor participation.

During the year 2014, India’s RMBS issuance increased by 75% to Rs 53 billion, but the report observed that this growth was from a low base and the sector remains relatively small. It is estimated that India’s housing shortage is about 18.78 million dwelling units in urban areas alone, without taking into account rural housing requirements.

As the funding needs of India’s mortgage lenders grow in step with the government’s vision to provide ‘housing for all’, the RMBS market has scope to develop into a larger funding source, particularly for niche lenders focused on affordable housing. Moody’s expects securitization will play a bigger role in funding these mortgages, particularly as specialist housing finance companies-which account for 37% of India’s mortgage lending-have limited access to cheap deposits.

It is expected that the Housing finance companies will grow their loan books by 20%-22% in 2015 and will need as much as Rs 2 trillion (USD 31.4 billion) in incremental funding.

Still some key obstacles remain for the sector’s development, says Moody’s. New tax rules have led to lower post-tax returns for bank investors in RMBS, while tax-related legal uncertainty has prevented mutual fund investors from participating in India’s market.

In addition, the long tenor of RMBS combined with India’s lack of a liquid secondary market for the securities dampens investor appetite, notes Moody’s.

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