In our interview with Shalini Mimani, Chief Risk Officer (CRO) at Godrej Capital, we explore how larger economic factors like inflation and employment rates affect people looking to buy a home. Shalini shares how the situation changed last year with more people interested in buying homes despite the price hike. He also talks about how new technologies like artificial intelligence (AI) and blockchain have made it easier to get a home loan. CRO also explains how lenders are being cautious with risk and managing uncertainty in a changing economy. Excerpt:
How have macroeconomic factors such as inflation, interest rates or employment rates affected borrowing patterns and decision-making among potential homebuyers this year?
The housing loan market witnessed subdued growth during the pandemic years. However, in 2023, we see a spike in home ownership and the resulting demand for home loans. Despite facing rising inflation, rising interest rates and high real estate prices, the housing sector has demonstrated its resilience and appeal with rising home ownership demand. We expect demand momentum to continue with stable interest rates, sustained demand in the mid-to-luxury segment and growing desire for homeownership among the younger generation. The reduced unemployment rate is also expected to reflect well on potential homebuyers’ quick decision-making, affordability and willingness to take out loans for home ownership.
We are sure Godrej Capital’s flexible repayment model with home loans, including your equal monthly installments (EMI), collateral financing and full moratorium of up to 12 months will prove beneficial to home buyers and keep their dream of home ownership alive.
Was there any observable relationship between economic indicators and home loan demand or housing market activity?
Market dynamics have been different since the pandemic hit India in 2020. This past year we have seen a shift in attitudes towards home ownership despite rising property prices and interest rates, perhaps only in response to pandemic-induced uncertainty but certainly due to improvements in economic indicators.
The demand for housing is increasing and so is the demand for home loans. We believe this is the result of a clear shift in investment preferences of young buyers, rising income levels and elevated but stable interest rates. Government initiatives targeting the low and middle income groups and entry of new players in both housing development and housing finance further supported market activity this past year.
India’s real estate sector is expected to reach USD 1 trillion by 2030, contributing about 18-20 percent to the country’s Gross Domestic Product (GDP). With this outlook, we remain optimistic that housing loan demand will continue to show strength in the years ahead, provided the economy remains strong.
How will the integration of technology, such as AI-powered appraisals or blockchain for documentation, affect the efficiency or accessibility of home loans in 2023?
A decade ago, the lending industry could not have anticipated the transformative impact of AI-driven valuations and blockchain. While the traditional loan process involves pre-qualification, application, underwriting, approval approval and disbursement, manual credit risk assessment takes weeks or months. With AI, algorithms rapidly analyze a borrower’s financial history, credit score and relevant data, enabling precise, data-backed underwriting decisions. Blockchain increases security and transparency, reduces transaction risk, and facilitates transfer of ownership and division of assets through asset tokenization.
Godrej Capital’s robust technology and analytics infrastructure, built with renowned partners, offers an analytics database, experience management, customer relationship management (CRM), cloud-based origination system, rules engine and more. Integration with external systems such as credit bureaus and government databases, as well as partnerships with leading technology companies for underwriting and data analytics, real-time verification, credit checks and document validation, increase efficiency and accessibility of loan evaluations.
How are lenders adapting to manage risks associated with loan defaults or market uncertainty in 2024, especially given the evolving economic landscape?
Even as India continues to demonstrate resilience against global uncertainty, factors such as inflation, interest rates and employment rates will affect consumer borrowing and repayment patterns. To that effect, credit risk becomes an important factor in lending discretion to borrowers.
Effective credit risk management is essential to preserve capital, reducing the likelihood of loan defaults. Lenders typically employ a robust credit risk management approach, including establishing clear credit policies and procedures, comprehensive credit assessments, monitoring customer payment behavior, and implementing early warning and risk mitigation measures based on changing circumstances.
At Godrej Capital, we use advanced data analytics for effective risk management and take both proactive and reactive measures to avoid a default scenario. We use automation to regularly communicate with borrowers and keep them informed about their upcoming EMIs and the need to keep their credit bureau scores healthy.