Indian online real estate companies are sitting on a pile of potential cash
Satyarth Priyedarshi
Chief eCommerce Officer, Redington Limited || ex- Google, Flipkart, Jio, Tata || 5 TEDx Talks || LinkedIn Top Voice ‘19 || LinkedIn Power Profile ‘18 || Study Board Member at Universities || Views Personal
I have never understood the Housing finance companies of the likes of PNB Housing. In the age of internet, how is it that they are still managing to grow.
Why are Housing finance companies still around?
Their Loans are secured with insurance which is paid for by the house buyer. Their interest rates are way above the MCLR. The marginal cost of funds based lending rate (MCLR) refers to the minimum interest rate of a bank below which it cannot lend, except in some cases allowed by the RBI.
All they have to do is find people and sell to them, and yeah, an NBFC licence.
NBFC licence is something that an IIT grad with a startup has.
NBFCs are known for their poor customer service. So no major costs there.
So the only function these companies is to sell loans.
So its easy to see the sudden growth in Fintech companies armed with an NBFC licence and setting up everything from personal to payday loan. But still nothing beats the ticket size of a housing loan, which most people are able to take once a lifetime.
Why haven't real estate companies taken NBFC licence?
Any real estate company worth their salt has traffic ranging from 10 million a month to 40 million a month. 20-30% of this traffic is from home buyers. Business models like Proptiger have shown that there is huge money to be made in transactions, that is selling a house and taking a cut from the developer which hangs around 2%.
What i don't understand is why haven't the online real estate companies just taken an NBFC loan and simply gone ahead and lent out the money as home loan at borrowing rate+1%?
Even i can see that the loan is secured by property/insurance. The customer will get the best possible home loan, because home loan interest income can be let go by the companies for the upfront 2% cut from the developer.
Above all they create an online platform where the transaction is happening on their website. The loan sales can happen online for which you just need a guy to do documentation. Enough companies exist out there.
My back of the envelope calculation shows me that even the smallest of online real estate companies should be able to add 100-200 cr of profit just by using an NBFC route. Am i missing something?
Then there are other ways of making money
Once you have the capability to loan, you have the customer with you for 20 years. You can loan for everything and make profits on those loans. You can loan them money for interiors by tieing up with livespace.com kind of websites, the transaction still happens on your website.
You can get into rentals by again loaning the entire lump sum of deposit and converting it into EMI.
Again, am i missing something?
Why are all these companies stuck in the classifieds mode? How hard is it to forward integrate the loan system and become the one stop shop as well as control all the inventory on the website.
I am sure i must be missing something.
Do let me know if i am in the comments section below.
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Views expressed here are my own and don't reflect the views of any of my employers present or past.
Satyarth
Director at Vyuhaa Med Data
5 年Real estate used to be a murky family run business. Some of them are probably just getting their acts together. I was surprised to note that well managed and professionally run companies such as Cognizant and L &T were fined for doing dodgy deals. Even more surprising was the "blase" attitude towards this.?
Policy Advocacy Specialist for Global Environment Policy| Climate Change | Circular Economy | Sustainability | EPR | Recycling | Biodegradable and Compostable Materials| Speaker| Panelist| Moderator
5 年The wait for all is the opening of the markets again.. The loan are taken by genuine buyers / salaried class and such buyers are right now is delima wether to invest right now or wait...Due to several issues like gst, infra policies , the rates , credibility of builders and many more.. For them it's better to be safe then start their emi.. considering the new generation and Dynamics of geography where they are location hopers they are not ready to take huge risk which would also impact their lavish life style A builder / real estate developers will not get in this business unless he sees his money throwing returns parallel to his core biz. They themselves are being funded as on date in this market scenario.. also there are chances that his core biz would have an impact if the service arm (financial) doesn't deliver on service. Which would risk his client retention ratio and investor retention ratio which is the cream as post investors buying and funding the projects margins are earned from this category of people.. So all in all the online co.s like prop tiger and other nbfc would be a choice of either start ups where they have great expertise in derivatives/futures / hedge / arbitrage or for insurance firms
{views expressed are personal}
5 年I know a few that are thinking along the same lines.