Long-term private equity (PE) investors are willing to invest in housing finance companies, RV Verma, Chairman, National Housing Bank was quoted as saying in a leading media.

Key factors that attract PE investors in the sector are strong growth outlook, better quality assets (low defaults), profitability and stable regulatory and supervisory environment.

Large players such as Housing Development Finance Corp (HDFC) had lent credibility to the sector by building a viable business brick-by-brick. CMP Asia, a Carlyle group arm, had invested $650 million in HDFC in May 2007.

Assured income and very low delinquency reduced the risk in funding the salaried class to buy houses. While there is competition from banks for hawking loans, the gap between demand and supply (of housing units) is yawning.

Nascent housing companies may find it challenging to get access to funds, especially from banks, Vibha Batra, senior vice-president and co-head financial sector rating at Icra, is quoted as saying.

Typically, housing finance companies (HFCs) require a three-year record before lending institutions could consider extending the facility.

PEs can fill the void by providing financial support to HFCs, albeit high cost equity capital, during the formative stage, she said.