HPM Unit V.ematerials

Dr. R. Saravanan & R.
Dinesh Kumar / E - MATERIAL
UNIT V
HOUSING FINANCE AND PROJECT APPRAISAL
Topic Appraisal of Housing Projects, Housing Finance, Cost Recovery

Project Appraisal , Pricing Of Loan, Financing Corporates And Builders,
SubTopics Trends In Self-Construction Finance, Fund Sources And Collateral, Future Of
Housing Finance Systems In India, Real Estate Project Costs And Recovery
Analysis
Appraisal of Housing Projects – Housing Finance, Cost Recovery – Cash Flow Analysis,
Subsidy and Cross Subsidy, Pricing of Housing Units, Rents, Recovery Pattern (Problems).
5.1. Appraisal of Housing Projects, Housing Finance, Cost Recovery
5.1.1. Appraisal of Housing Projects:
Appraisal is to verify the following:
1. Social acceptability/desirability
2. Environmental friendliness,
3. Technical feasibility
4. Appropriateness, gender sensitiveness, economic soundness and ability to be
sustainable and
5. Financial viability.
• Project appraisal is the process of assessing and questioning proposals before

resources are committed.
• It is an essential tool for effective action in community renewal. It’s a means by

which partnerships can choose the best projects to help them achieve what they
want for their community.
• But appraisal has been a source of confusion and difficulty for projects in the
past. Audits of the operation of Single Project Budget schemes have highlighted
concerns about the design and operation of project appraisal systems, including:
1. Mechanistic, inflexible systems
5.1 CE6007/HPM
Dr. R. Saravanan & R. Dinesh Kumar / E - MATERIAL
2. A lack of independence and objectivity

3. A lack of clear definition of the stages of appraisal and of responsibility for
these stages
4. A lack of documentary evidence after carrying out the appraisal
• It’s no surprise that audits or inspections aren’t impressed with the quality of
appraisals, and are specifically found with problems like;
1. Individual appraisals which do not cover the necessary information or

provide only a superficial analysis of the project
2. Particular problems in dealing with risks, options and value for money
3. Appraisals which are considered too onerous/burdensome for smaller
projects
4. Rushed appraisals
• Project appraisal is a requirement before funding of programs is done. But

tackling problems like those outlined above is about more than getting the
systems right on paper.
• Experience in projects emphasizes the importance of developing an ‘appraisal

culture’ which involves developing the right system for local circumstances and
ensuring that everyone involved recognizes the value of project appraisal and
has the knowledge and skills necessary to play their part in it.
5.1.2. Project Appraisal Deliver
Project appraisal helps project initiators and designers to;
• Be consistent and objective in choosing projects
• Make sure their program benefits all sections of the community, including those
from ethnic groups who have been left out in the past
• Provide documentation to meet financial and audit requirements and to explain

decisions to local people.
• Appraisal justifies spending money on a project.
5.2 CE6007/HPM
• Appraisal asks fundamental questions about whether funding is required and

whether a project offers good value for money. It can give confidence that public
money is being put to good use, and help identify other funding to support a project.
Getting it right may help a community make its resources go further in meeting local
need
• Appraisal is an important decision making tool.
• Appraisal involves the comprehensive analysis of a wide range of data, judgments

and assumptions, all of which need adequate evidence. This helps ensure that
projects selected for funding:
1. Will help a partnership achieve its objectives for its area

2. Are deliverable
3. Involve local people and take proper account of the needs of people from
ethnic minorities and other minority groups
4. Are sustainable
5. Have sensible ways of managing risk.
• Appraisal lays the foundations for delivery.
 Appraisal helps ensure that projects will be properly managed, by ensuring

appropriate financial and monitoring systems are in place, that there are
contingency plans to deal with risks and setting milestones against which progress
can be judged.
Getting the system right
The process of project development, appraisal and delivery is complex and partnerships
need systems, which suit local circumstances and organization. Good appraisal systems
should ensure that:
• Project application, appraisal and approval functions are separate. All the
necessary information is gathered for appraisal, often as part of project
development in which projects will need support
• Race/tribal equality and other equality issues are given proper consideration
5.3 CE6007/HPM
• Those involved in appraisal have appropriate information and training and make
appropriate use of technical and other expertise
• There are realistic allowances for time involved in project development and
appraisal
• Decisions are within a implementers’ powers
• There are appropriate arrangements for very small projects
• There are appropriate arrangements for dealing with novel, contentious or

particularly risky projects.
5.1.3. Key issues in appraising projects
1. Need, targeting and objectives
• The starting point for appraisal:
 applicants should provide a detailed description of the project

 Identifying the local need it aims to meet.
 Data analysis to show that the project is the right response, and
 Highlight what the project is supposed to do and for whom.
2. Context and connections
• Consistency with the objectives of the relevant funding program and with the
aims of the local partnership.
• Are there links between the project and other local programs and projects –
does it add something, or compete?
3. Consultation
• Local consultation may help determine priorities and secure community

consent and ownership.
5.4 CE6007/HPM
• More targeted consultation, with potential project users, may help ensure
that project plans are viable. A key question in appraisal will be whether
there has been appropriate consultation and how it has shaped the project
4. Options
• Options analysis is concerned with establishing whether there are different

ways of achieving objectives.
• This is a particularly complex part of project appraisal, and one where

guidance varies. It is vital though to review different ways of meeting local
need and key objectives.
5. Inputs
• It’s important to ensure that all the necessary people and resources are in
place to deliver the project.
• This may mean thinking about funding from various sources and other
inputs, such as volunteer help or premises.
• Appraisal should include the examination of appropriately detailed budgets.
5. Outputs and outcomes
• Detailed consideration must be given in appraisal to what a project does and

achieves: its outputs and more importantly its longer-term outcomes.
• Benefits to neighborhoods and their residents are reflected in the improved

quality of life outcomes (jobs, better housing, safety, health and so on), and
appraisals consider if these are realistic.
• But projects also produce outputs, and we need a more realistic view of output
forecasts than in the past.
5.5 CE6007/HPM
6. Value for money
• This is one of the key criteria against which projects are appraised. A major
concern for government, it is also important for local partnerships and it may be
necessary to take local factors, which may affect costs, into account.
7. Implementation
• Appraisal will need to scrutinize the practical plans for delivering the project,
asking whether staffing will be adequate, the timetable for the work is a realistic
one and if the organization delivering the project seems capable of doing so.
8. Risk and uncertainty
• You can’t avoid risk – but you need to make sure you identify risk (is there a risk
and if so what is it?), estimate the scale of risk
(if there is a risk, is it a big one?) and evaluate the risk (how much does the risk
matter to the project.)
• There should also be contingency plans in place to minimize the risk of project
failure or of a major gap between what’s promised and what’s delivered.
9. Forward strategies
• The appraisal of forward strategies can be particularly difficult, given inevitable

uncertainties about how projects will develop. But is never too soon to start
thinking about whether a project should have a fixed life span or, if it is to
continue beyond a period of regeneration funding, what support it will need to
do so.
• This is often thought about in terms of other funding but, with an increasing
emphasis on mainstream services in neighborhood renewal, appraisal should
also consider mainstream links and implications from the first.
5.6 CE6007/HPM
10. Sustainability
• In regeneration, sustainability has often been talked about simply in terms of

whether a project can be sustained once regeneration funding stops but
sustainability has a wider meaning and, under this heading, appraisal should
include an assessment of a project’s environmental, social and economic impact,
its positive and negative effects.
• While appraisal will focus detailed attention on each of these areas, none of them
can be considered in isolation. Some of them must be clearly linked – for
example, a realistic assessment of outputs may be essential to a calculation of
value for money. No project will score highly against all these tests and
considerations. The final judgment must depend on a balanced consideration of
all these important factors.
11. Checklist for project appraisal
• Whether you are involved in a partnership with an appraisal system in place,

or starting to design one from scratch, these questions are worth asking.
• Are appraisals systematic and disciplined with a clear sequence of activities

and operating rules?
• Is there an independent assessment of the project by someone who has not

been involved with the development of the project?
• Does the appraisal process culminate in clear recommendations that inform

approval (or rejection) of the project?
• Is the approval stage clearly separate?
• Is the appraisal process well documented, with key documents signed, showing
ownership and agreement, and allowing the appraisal documentation to act as
a basis for future management, monitoring and evaluation?
• Does the appraisal system comply with any relevant government guidance
5.7 CE6007/HPM
• Are the right people involved at various stages of the process and, if necessary,
how can you widen involvement?
5.1.4. Housing Finance in India
• Housing finance through the process of Government and its policies is a must as
individuals or individual organizations cannot finance housing
General Scenario
• Housing finance receives low priority in policy formulation
• This constitutes only small portion of GDP
• Share of mortgage finance in total housing investment is 10% which is generally

high up to 80% in other developed countries
• Because of shallowness of financing, role of formal sector has been minimized and
contributed to high housing prices
• The average ratio of housing value to annual housing income is 8-10 compared to 3
in high income countries
• Creation of HDFC (Housing Development Finance Corporation) , created two

decades ago) has not impacted significantly and housing financing is marred with
may supply side and demand side problems.
Flow of Resources
1. Formal Credit
• Resources available at the apex level largely through directed credit from
various institutions operating in the formal sector and also includes
budgetary support from central and state governments
2. Retail Market
• Housing Finance Institutions (HFI) through capital market, deposits from
household sector and new instruments such as securitization
5.8 CE6007/HPM
5.9 CE6007/HPM
• Before 1970, government was only supporting the building activity through various
social schemes through state housing boards.
• In 1970s,
1. HUDCO(1970) – a public sector housing company to promote housing with

government agencies
2. HDFC (1977) – a private company to lend on market principles to individuals. The

success of HDFC has lead the development of new housing finance companies.
• In 1980s
1. National Housing Bank (NHB) has been formulated in 1987 with an objective to channel
formal sector resources to housing finace (urban & rural) through the promotion of a
sound , health and cost effective housing finance system.
2. Late 1980s, also saw enhanced government involvement in directing various agencies
like insurance companies, commercial banks, provident funds and mutual funds (UTI)
5.10
CE6007/HPM
to invest part of their annual incremental resources in housing. Commercial banks

fulfilled this requirement through their lending under priority sector.
3. After 1989, the scheduled commercial banks have been allowed to allocate 1.5% of
their incremental deposits to housing under the guidelines from Reserve Bnak of India
(RBI). RBI further instructed them to lend only 30% of this fund directly to individuals
and 70% indirectly to agencies for augmenting the supply of serviced land and
constructed units and subscription to guaranteed bonds and debentures of NHB and
HUDCO. This resulted the active role of scheduled commercial banks with their housing
finance substitutions as detailed in the table given below:
4. Insurance Companies
• LIC & GIC support housing both directly and indirectly. LIC is statutorily
required to invest 25% of its net accretions to its investible funds in socially
oriented schemes like housing, electrification, water supply, sewage and
construction of roads.
• Besides subscribing to bonds of HUDCO and state housing boards/ Development

authorities, LIC grants loans to state governments for their rural housing
programs and state cooperative housing finance societies and to public sector
companies for their staff housing.
• GIC and its subsidiaries are required to invest 35% of their annual accretions in
5.11
CE6007/HPM
loans to socially oriented sectors including housing for economically weaker

sections.
• GIC Supports housing directly by subscribing to bonds/ debentures floated by
HUDCO and state housing boards/ development authorities
• LIC created its own housing finance companies in 1989 and GIC 1990
5. Provident and Pension Funds
• Play very small and supplemental role for members but important role in
housing finance.
• 85% of the money be invested in the special deposit scheme of the central
government and remaining 15% in various state government schemes and other
negotiable instruments
• Small portion is utilized for giving housing to members
6. Cooperative Housing Financing
• A 3 tier structure of state, district and cooperative banks (including urban

cooperative banks) and the primary affiliated credit societies at the village level
• State Land development (mortgage) banks having affiliated structure of primary

land development (mortgage) banks at the taluk level
• Apex and state level housing finance cooperative with affiliated cooperative
housing societies
• Source finance for cooperative housing sector is loans from insurance companies
, HUDCO, NHB, and Commercial Banks, and contribution through its own
membership
7. Post 1990sliberalisation era
• Specialized housing finance companies

• Raises resources from market mainly through public deposits
5.12
CE6007/HPM
• Housing finance companies created as subsidiaries of some commercial banks

• Resources from parent banks
• Housing finance companies setup by insurance companies
• Line of credit from insurance companies
5.1.5. Pricing of Loan

• Before 1994, it is by NHB
• After 1994, housing finance companies are free to charge market interest rates on all
loans above Rs. 25,000/-
• Variable rate of interest is yet to pickup to find their equilibrium based on market
conditions. So, fixed rate basis is being applied. The maximum loan tenure is upto 15
years. A few like (GICHFC) offer more than 15 year at additional charge of 0.5% per
annum.
5.13
CE6007/HPM
• When liquidity of money is less, interest goes up.

5.1.6. Refinancing of Housing Loans
• NHB refinances direct loans granted to individuals by scheduled commercial banks,

housing finance institutes and cooperative housing finance societies for less than 50
m2 size houses whose cost is less than Rs. 2,00,000/-.
• NHB also provides refinance for upgrading and repairs
• The spread between housing finance and refinance is restricted to 2% for loans upto
Rs. 25,00 and 1.25% for loans above Rs. 25,000
• NHB also refinances rental housing and developers. The extent of refinance is
marginal. (1991-92 Rs. 6754 millons & 1992-93 Rs. 4885 millions). The reason for
the very low level of refinancing is lack of resources
• Securitisation is the most talked-about alternative for refinancing housing loans.

However, in India many legal and tax impediments restrict the securitisation of
housing loans. The sale of any asset attracts stamp duty, which varies from 3-10%
depending on the state. Recently, the stamp duty in one state has been reduced to
0.1 %, and this could have a ripple effect in other states.
5.1.7. FINANCING CORPORATES AND BUILDERS
• Real estate developers and builders need finance for their building activity.
5.14
CE6007/HPM
However, in India the real estate developers and builders are viewed more as
speculators than professionals. Lack of credibility has affected their access to
finance from formal institutions. Housing finance companies lend to developers as
part of the adjustment of their asset-liability mismatch. Usually the maximum
tenure of loans to builders is three years.
5.1.8. TRENDS IN SELF-CONSTRUCTION FINANCE
• Financing for self construction is limited in India. As shown in Table, most of the finance
for self construction has been either through own savings, friends and relatives or
borrowings from the informal market.
• It is an irony that over the years the share of formal institutions in total borrowed
5.15
CE6007/HPM
finance has actually declined, as shown in Table
5.16
CE6007/HPM
5.1.9. HOUSING FINANCE FOR THE URBAN POOR
• Only around 50% of households are served by formal sector financial institutions. The
excluded are dependent upon their own incomes, savings, family assets and informal
sector money lenders.
• Savings constituted around 55% of the means by which the excluded financed their
housing, revealing a widespread though variable capacity to save.
• The poorer households are more constrained in access to the finance with fewer than
24% achieving provisions in the formal financial sector. The data indicates the
restricted access among the EWS and LIG Groups.
5.17
CE6007/HPM
5.18
CE6007/HPM
• The lack of access to credit for the poor is attributable to practical difficulties
arising from the discrepancy between the mode of operation followed by
financial institutions and the economic characteristics and financing needs of
low income households. However, the income of many self-employed
households is not stable, regardless of its size.
• A large number of small loans are needed to serve the poor, but lenders prefer
dealing with large loans in small numbers to minimize administration costs.
They also look for collateral with a clear title, which many low-income
households do not have.
• In addition, bankers tend to consider low-income households a bad risk,

imposing exceedingly high information monitoring costs on operations. Among
the private sector companies, HDFC has been making continuous and sustained
efforts to reach the lower income groups of society, especially the economically
weaker sections, and has developed a unique system for housing finance to low-
income households.
• HDFC's response to the need for better housing and living environment for the
poor, both in the urban and rural sectors, arose from its collaboration with
Kreditanstalt fur Wiederaufbau (KfW), a German Development bank. KfW
sanctioned DM 55 million to HDFC for low-cost housing projects in India.
• HDFC's approach to low-income lending has been extremely professional and

developmental in nature. Avoiding the concept of dependence, HDFC's low-cost
housing schemes are marked by an emphasis on people's participation and
usage of self-help approaches, wherein the beneficiaries contribute both in
terms of cash and labor for construction of their houses.
HDFC also ensures that the newly constructed houses are affordable to the
beneficiaries and thus promotes the usage of innovative low-cost technologies and
locally available materials for construction of the houses.
5.1.10. Fund Sources and Collateral
• Apart from the mortgage of the houses being financed, HDFC also accepts
5.19
CE6007/HPM
collateral such as a lien on deposits from beneficiaries.
• In most of the existing housing programs, the beneficiaries have, from their
savings, deposited 15-20% of the loan amount being advanced to them with
HDFC.
• In a few cases, small donations received by nongovernmental organizations

for housing the weaker section families have been used as revolving funds
to leverage higher loans for the beneficiaries in order to complete their
houses.
• HDFC has a lien on such deposits and services the same with interest of 14-
15% per annum. As the loans are advanced at 7.25% or 9% per annum, the
interest earned on the deposit to a certain extent takes care of the monthly
installments to be paid by the beneficiaries for the loans advanced to them.
• In cases where there is no need to adjust the interest on deposit against

monthly installments of the loan, after a period of 10-15 years the deposit
along with accrued interest is adequate to take care of the principal
outstanding on the loan.
• However, in the case of revolving funds, the loans are recovered from
beneficiaries so that the revolving fund is used for leveraging loans for
another set of beneficiaries. This kind of deposit- linked arrangement for
providing housing finance works because of the low interest charged on
loans as compared to the interest given on deposits.
5.1.11. FUTURE OF HOUSING FINANCE SYSTEMS IN INDIA
• Tapping of the capital market, securitization of mortgages, down marketing

of housing finance, strengthening and promotion of the contractual saving
scheme, expansion of the fiscal incentive base, and bringing about a level
playing field between the HFls and other financing institutions.
• It is argued that since housing is a special and not a generic product and has
vastly different characteristics, requiring a long term financial relationship
between a borrower and a lender, it may need different kinds of financial
5.20
CE6007/HPM
instruments. Again, due to the special nature of the product, a case is made
out for fiscal incentives. Progress in respect of the above suggestions has,
however, been slow.
Summary
• Housing finance has come of age in India. Today, over 20 major housing
finance companies have a mortgage loan portfolio of over Rs 100 billion.
• The total flow of funds for housing from all major institutions, including the
insurance companies and provident funds is estimated to be about Rs 194
billion over the period 1992-97.
• In all likelihood, housing finance in India will undergo a second revolution

where specialized lenders will continue to play an important role for a
number of years, though commercial banks will gradually emerge as
mortgage lenders. Indeed, this seems to be the only real path in the long run
to ensuring that the housing industry across the country can tap into a
resource base through an institutional structure that is widely distributed.
• As financial systems develop, commercial banks typically have emerged as

term lenders to housing in many developing economies of East Asia (notably
Malaysia, Thailand and Indonesia). Even in developing economies, the post
World War II period saw the rapid development of the housing industry as
countries rebuilt their damaged or destroyed infrastructure. It continued
into the 1960s and 1970s when the number of householders increased
greatly as a result of the postwar baby boom.
• In a larger part of the developing world, revitalization of the housing sector

is emerging as a major component of the process of economic renewal. The
housing industry is being viewed as an engine of economic growth with a
major role to play in the distribution of economic resources.
• With recent developments in the financial sector, there is need in the

country to think carefully on the overall direction of reform in the housing
finance sector, focusing on expansion of financial intermediation,
development of secondary mortgage markets, down marketing of housing
5.21
CE6007/HPM
finance on market-based terms, and overhaul of the legal and regulatory

system.
5.1.12. Real Estate Project Costs and Recovery Analysis
• The general principle in the guidance for real estate project costs is that if
costs are directly associated with a real estate project (i.e., development,
construction, selling, and initial rental), they are capitalized and all other
costs are charged to expense as incurred.
1. Real Estate acquisitions, development and construction costs
a. Pre acquisition costs
• Internal costs relating to acquisitions - Costs related to a property

that are incurred for the purpose of, but prior to, obtaining that
property. Examples of zoning costs, environmental or feasibility
studies, legal fees, finders’ fees, appraisals, and project planning
costs.
• The specific property identified should be available for sale and

the prospective purchaser must be actively seeking to acquire the
property and have the ability to finance or obtain financing for
the acquisition. All other costs, including general and
administrative costs incurred during the pre-acquisition phase,
should be charged to expense as incurred
b. Taxes and Insurance
• Special assessments & tax increment financing entities
Costs incurred for property taxes and insurance on

real estate should be accounted for in a manner
that is similar to interest costs
Investments (e.g., equity, loans, and advances) accounted for by

the equity method if the investee has activities in progress
necessary to commence its planned principal operations
5.22
CE6007/HPM
provided that the investee’s activities include the use of funds

to acquire qualifying assets.
b. Project Costs
• Costs that are clearly associated with the acquisition, development, and
construction of a real estate project should be capitalized as project
costs.
• Direct project costs include costs such as the cost of land acquisition,
building materials, or project plans.
• Indirect project costs that are clearly related to the real estate project or
projects may include construction administration costs (e.g., costs
associated with a field office at a project site), legal fees, and various
other costs (e.g., cost accounting and design).
• Indirect costs that do not clearly relate to the acquisition, development,

or construction of a real estate project, including most general and
administrative costs, should be charged to expense as incurred.
• Asset retirement obligations, Cost of removal, Costs to treat

environmental contamination
 An entity may incur costs to remove, contain, neutralize, or prevent

existing or future environmental contamination of a property. These
costs may be incurred voluntarily or may be required by law.
Additionally, various federal, state, and local laws require the removal or
containment of “dangerous asbestos” in buildings and regulate the
manner in which the asbestos should be removed or contained.
• Demolition costs
 An entity may purchase property with the intention of

demolishing the existing structure and replacing it with a new
structure or with the intention of reconstructing the interior
of the building (e.g., gutting the interior of a warehouse in
5.23
CE6007/HPM
preparation for reconstructing the interior as office space).
5.24
CE6007/HPM
 Alternatively, an entity may purchase property with the

intention of operating the property, but later decide to
demolish and replace the property with a new structure. When
there is a change in the use of real estate (e.g., when a golf
course is converted to an office building complex).
 The previously capitalized development and construction costs

need not be written off if certain conditions are met. However,
the guidance for real estate project costs does not address
demolition costs or the accounting for previously capitalized
development and construction costs when there is no change
in use (i.e., a 20-year old hotel is demolished and replaced with
a new hotel).
c. Amenities
• Real estate projects commonly include amenities, such as golf courses, utility
plants, clubhouses, swimming pools, tennis courts, indoor recreational
facilities, and parking facilities. Companies should account for the costs of
amenities based on management’s plans for the amenities
d. Incidental Operation
• Incidental operations are defined as revenue-producing activities engaged in

during the holding or development period to reduce the cost of developing the
property for its intended use, as distinguished from activities designed to
generate a profit or a return from the use of the property.
• Incidental operations do not include revenue generated from amenities

because amenities are improvements that are developed to increase the value
of the project and not reduce the cost of developing the project.
• Incremental revenue from incidental operations in excess of incremental costs

should be accounted for as a reduction of capitalized project costs. If
incremental costs exceed incremental revenue, the difference should be
charged to expense, and not treated as an increase in capitalized project costs,
because the incidental operations did not achieve the objective of reducing the
5.25
CE6007/HPM
costs of developing the property.
• Incremental costs of incidental operations are costs that would not be

incurred except in relation to the conduct of incidental operations.
Therefore, incremental costs do not include interest, taxes, insurance,
security, and other costs that would be incurred during development
regardless of whether incidental operations are conducted.
f. Capitalized costs to the components of a real estate project
• Because components of a real estate project are often sold separately

(e.g., the sale of individual homes in a housing development), costs
capitalized for preacquisition costs, property taxes, insurance and
amenities must be allocated to the individual components of a real estate
project. If capitalized costs of a project are specifically related to an
individual component of the project (e.g., the cost of constructing an
individual home), the costs should be assigned to that component.
• Land cost and all other common costs incurred prior to construction
should be allocated to each land parcel benefited based on the relative
fair value of the parcel before construction. Common costs may include
the cost of amenities and infrastructure, such as sewer and water lines,
drainage systems, roads, and sidewalks.
• If it is possible to specifically identify these costs with a smaller

component of the project rather than the entire project (e.g., one street
within a housing development versus the main entry to a master planned
community), costs should first be allocated to the smaller component,
and then allocated to individual units based on the relative fair value
before construction
• Construction costs should be allocated to individual units in a phase

based on the relative sales value of each unit. Because all units may not
be ready for sale at the same time, it may be necessary to estimate the
sales value of the unfinished units to properly allocate capitalized costs to
all units.
5.26
CE6007/HPM
g. Revision of estimates
• Changes in estimates are a common occurrence in real estate projects. As

work progresses and experience is gained, original estimates often change
even though the scope of the work required may not change.
h. Abandonments
• If a real estate project is abandoned during the preacquisition phase, (i.e., all
costs not recoverable through the sale of options, plans, etc., should be
charged to expense when it is probable the property will not be acquired). If
a project is expected to be abandoned after the property has been acquired,
prior to abandonment, companies should evaluate any asset recorded for
impairment.
i. Donations to Municipalities
• Real estate donated to governmental agencies for uses that will benefit the
project (e.g., land donated to be used as a city park in a housing
development) should not be accounted for as abandoned real estate. Instead,
the cost of the real estate donated should be allocated to the individual units
of the project as a common cost of the project. It can be accepted that for real
estate projects costs applies to real estate donated to governmental agencies.
• Alternatively, a developer may give land to a commercial enterprise on the

condition that the enterprise builds and operates a facility on the land
because the enterprise is well-established and will attract other
buyers/tenants to the project. We believe this transaction is most
appropriately accounted for as a nonmonetary exchange of land for an
intangible asset.
j. Changes in Use
• From time-to-time, an entity may decide to change its use of real estate
after significant development and construction costs have been incurred
(e.g., an entity decides to construct an office building instead of an
apartment complex after incurring some of costs to construct the
5.27
CE6007/HPM
buildings and amenities). If the change in use of real estate during

development is made pursuant to a formal plan for a project that is
expected to produce a higher economic yield (as compared to its yield
based on use before change), the development and construction costs
that must be charged to expense are limited to the amount by which the
capitalized costs incurred and to be incurred exceed the estimated value
of the revised project when it is substantially complete and ready for its
intended use.
2. Costs incurred to sell and rent real estate

a. Costs incurred to sell real estate projects
• Costs incurred to sell real estate may include costs such as model units
and their furnishings, sales facilities, sales brochures, legal fees, semi-
permanent signs, advertising, and sales overhead, including sales
salaries. Costs incurred to sell real estate should be capitalized if the
costs are recoverable and incurred for
(1) Tangible assets that are used directly throughout the selling period to
aid in the sale of the project or
(2) services that have been performed to obtain regulatory approval of
sales. Costs that do not meet these criteria, such as advertising, and sales
overhead costs, should be charged to expense as incurred.
b. Cost incurred to rent real estate projects
• Costs incurred to rent real estate may include costs such as model units
and their furnishings, rental facilities, rental brochures, semipermanent
signs, advertising, “grand openings” to attract tenants, initial direct costs
of lease origination, and rental overhead, including rental salaries. The
guidance for real estate project costs does not address the accounting for
initial direct costs to rent real estate projects. Initial direct costs include
(a) Incremental direct costs of lease origination incurred in transactions
with independent third parties for that lease and
(b) Certain costs directly related to specified activities performed by the
lessor for that lease. Initial direct costs, such as costs of preparing and
processing lease documents
5.28
CE6007/HPM
Rental costs that are not initial direct costs should be charged to expense as
incurred, unless the costs are related to and their recovery is reasonably
expected from future rental operations of operating leases. Rental costs that
would generally qualify for capitalization include costs of model units and
their furnishings, rental facilities, semi permanent signs, “grand openings” to
attract tenants, and unused rental brochures. Rental overhead costs do not
qualify to be capitalized as rental costs and should be charged to expense as
incurred.
c. Initial Rental Operation
• When a rental property is substantially completed and held available for

occupancy, no new carrying costs should be capitalized (e.g., taxes and
insurance costs should be charged to expense as incurred), and the
developer should begin depreciating costs previously capitalized.
• A property may be substantially completed and held available for occupancy

in phases (e.g., by floor in an office building or by wing in a shopping center).
When a property is completed in phases, each phase should be accounted for
as a separate project.
• Costs should be allocated between the portions under construction and the
portions substantially completed and held available for occupancy, and the
developer should begin recording depreciation on each portion as it is
substantially completed and held available for occupancy.
• The majority of the costs that must be allocated in a rental project are
acquisition and construction costs (e.g., cost of constructing an office
building if each floor is considered a separate phase).
• These costs should generally be allocated on an area method, such as square

footage. If an entity does allocate such costs, it is important that the
allocation of depreciable assets be factored into the determination of
estimated useful lives and salvage values and that non-depreciable asset
(e.g., land) be accounted for separately.
5.29
CE6007/HPM
EXAM GUIDELINES
Part A
1. What is project appraisal in housing?
2. What is House Rent?
3. What is Loan Recovery?
4. What are the documents needed for housing loan?
Part B
1. Define housing finance. Discuss the appraisal of housing project
and cost recovery.
2. Explain the agencies for housing?
3. Evolve a conceptual methodology for recovery pattern of a
housing project.
Topic Cash Flow Analysis, Subsidy and Cross Subsidy

SubTopics Cash Flow Analysis during the construction, factors affecting cash flow,
Subsidy for Housing, Post Subsidy Scenario, Types of Subsidies,
5.2. Cash Flow Analysis, Subsidy and Cross Subsidy
5.2.1. Cash Flow Analysis during the construction of a House (Example)
(Construction Project Management)

The analysis of flow of money or requirement of money to be well in construction at
various stages of the work is called cash flow analysis.
5.30
CE6007/HPM
5.31
CE6007/HPM
5.32
CE6007/HPM
5.33
CE6007/HPM
5.2.2. Subsidy for Housing
One of the most eye catching problems with Indian land and housing strategies is the
obvious disparity between aims and strategies on the one hand and the available financial
resources and managerial capacity on the other. So, subsidy and possible recovery of
subsidy is the process of housing in India,
5.34
CE6007/HPM
• There is a need for subsidy in housing loans for poor. Housing for the poor needs
some kind of subsidy in order to make it affordable to the poor.
• Incase of housing loans, the general practice is to subsidize the interest rates (part of
interest is supported by other agencies like Government or outside agencies or
donors)
• Subsidy in the form of providing land or infrastructure, or by cross subsidy

investment or administrative costs
• In some cases, different price zones or different plot sizes are introduced within the
project or programme for internal cross subsidy, so that it is affordable by all
different income groups.
5.2.3. Post Subsidy Scenario (after 1970)
• Partly in the attempt to deal with full subsidy in 1970s, the government shifted its
low income housing policy from assisting the poor to obtain ‘decent’ standard
housing towards decreasing the subsidy element and aims for a high level cost
recovery.
• This took the form of lowering standards of existing conventional housing schemes
and introducing new, “minimal strategies: sites & services and Slum improvement.
This shift was intensified with the emergence of balance sheet oriented institutions
such as the state housing boards and hudco and the involvement of the world bank
in the large scale housing schems.
Types of Subsidies
5.2.4. Grants and other direct payments
• The most basic form of a subsidy, and the one that still defines a subsidy in
some dictionaries, is a cash payment or grant. Although few grants are paid
out in currency any more (most are paid via cheque or bank transfer), it is
still common to refer to them as "cash" grants, payments or subsidies.
5.35
CE6007/HPM
• Normally, a grant refers to a time-limited payment, either in connection with

a specific investment, or to enable an individual, company or organization to
cover some or all of its general costs, or costs of undertaking a specific
activity, such as research.
• Other direct payments may be linked to the volume of production or sales.
Cash payments to producers are also sometimes linked to prices. The main
form is a deficiency payment, which makes up the difference between a target
price for a good (typically an agricultural commodity) and the actual price
received in the market.
• Various cash subsidies are paid to workers. Many countries provide grants in
order to encourage people who are out of work to undergo training in new
skills, or to relocate.
• Consumers also benefit from direct payments or vouchers, particularly for

the purchase of necessities, like food, medicine or heating fuels. Alternatively,
a government may regulate the consumer price for a good or service, and
instead pay a subsidy to the supplier of that good or service, to cover its
losses.
5.2.5. Tax concessions
 In countries with well-developed tax systems, subsidies provided by reducing

companies' tax burdens are commonplace. Examples include tax exemptions (when
a tax is not paid), tax credits (which reduce a tax otherwise due), tax deferrals
(which delay the payment of a tax) and a host of other instruments. In common
language these preferential tax treatments are called tax breaks or tax concessions;
public-finance economists refer to them as tax expenditures. They should not,
however, be confused with general tax reductions.
 Generally, when a government provides a tax break its budget is affected in much
the same way as if it had spent some of its own money. The exception is a tax credit,
which is worth more to a corporate recipient (and costs a government more) than a
direct payment of an equivalent nominal value, as a direct payment raises a
company's taxable income and therefore is itself taxable.
5.36
CE6007/HPM
5.2.6. In-kind subsidies
 The phrase "in-kind" means provided in a form other than money. Typical in-kind
benefits provided by governments are subsidized housing, specific infrastructure
(like a road servicing a single mine or factory), the services required to maintain that
infrastructure, and various services to help exporters. They may be considered
subsidies if they involve expenditure (or foregone revenue) by a government and
they confer a specific benefit on the recipient. However, government provision of
general infrastructure - e.g., highways and ports - is often excluded from the
definition of an in-kind subsidy.
 The value of an in-kind benefit depends on the price charged for the resource, good
or service. When a government undercharges for something, the unit subsidy is
usually considered equal to the difference between the price paid and the market
price. When it charges a market price, the transaction is considered commercial, and
not a subsidy. Often, however, the government is a monopoly supplier of a good or
service - i.e., there is no private market against which the government's prices can be
compared - which increases significantly the difficulty of determining whether a
subsidy is involved.
 One important variant of an in-kind subsidy is privileged access to a government-

owned or controlled natural resource. Primary industries benefit greatly from such
access - e.g., to public lands for mining or grazing livestock, to state forests for
logging, to rivers for irrigation, and to foreign seas (through so-called "access
agreements") for fishing - for free or at a below-market price.
5.2.7. Cross subsidies
 A cross subsidy is a market transfer induced by discriminatory pricing practices

within the scope of the same enterprise or agency. Typically it exists when a
government-owned enterprise, such as a public utility, uses revenues collected in
one market segment to reduce prices charged for goods in another. Some definitions
also include similar practices carried out by private firms, as when an integrated
airline allocates part of the costs of its activities in a highly contested geographical or
product market (e.g., the transport of freight) to another market (e.g., passenger
transport) that is better able to bear those costs. For example, some airports cross-
5.37
CE6007/HPM
subsidize costs associated with serving airline passengers through sales on duty-free
goods.
 One of the most common forms of cross subsidy is that between

consumers of electricity and consumers of irrigation water. Managers of
large hydro-electric works that store and channel water for irrigation as
well as generate electricity have to decide how to allocate the costs that
are common to both activities (notably, the construction and maintenance
of the dam and reservoir) between farmers and buyers of electricity.
Government regulations will often dictate that an even smaller portion of
the costs be allocated to irrigation than would be efficient according to
established pricing principles.
 Example :
 In 1995, the then Shiv Sena–Bharatiya Janata Party government

launched a unique cross-subsidy route to rid Mumbai of shanties. Put
simply, private developers get an incentive FSI to build apartments for
sale in Mumbai’s highly speculative realty market in return for
rehousing slum dwellers in situ, at no cost to them and in fact setting
aside a certain sum per family to help pay recurring expenses on
maintenance. The new property rights permitted a higher density and
intensity (FAR) of development. This allowed for extra units to be
constructed and sold, at the market-price to outsiders, generating a
cross-subsidy for the slum dwellers and profits for the project
promoters
5.2.8. Credit subsidies and government guarantees
 Many subsidies that have budgetary implications - that is, can create financial
obligations for governments in the long run - never actually appear in budgetary
statements. These "hidden" subsidies are common whenever a government takes on
the role of a banker or insurer to a company or industry.
 When government loans money to a company at a lower rate of interest than a

commercial bank would offer, or requires less collateral to back up its loan, defers
5.38
CE6007/HPM
repayment or allows for a longer period to pay off the loan, the company saves
money.
 Governments also sometimes guarantee loans taken out by companies or individuals

through commercial banks. That means that the government assumes the risk of
default on the loan, rather than the bank, which in turn means that the bank can
offer the borrower more favourable lending terms, such as a lower rate of interest.
 Governments also serve as an insurer of last resort for private investments. All
governments with nuclear power plants, for example, are signatories to an
agreement that limits the financial liability of power-plant owners in the event of a
catastrophic accident. Similarly, many governments would be stuck with part of the
bill following the failure of a large hydro-electric dam. For this type of support, years
may pass before a government incurs any actual costs. But when an accident does
occur, the financial burden (not to mention human cost) can be huge.
5.2.9. Hybrid subsidies
• Economic systems can be likened to ecological systems. In the steaming jungle that
defines the borderland between private industry and government, camouflage and
parasitism are common adaptive responses to competition. Subsidy hybrids,
particularly instruments that exploit the tax system to lower the costs of private
investment, are an inevitable result of those evolutionary forces.
• At the base of the evolutionary ladder are tax-free government bonds. A bond is a
financial instrument that promises its holder a fixed annual dividend over a
specified period of time, typically 10 to 20 years. National governments issue bonds
to help finance their general activities. Municipalities, sub-national governments and
their agencies (e.g., air-pollution control districts) also issue bonds, more commonly
tied to specific projects, like water-treatment plants.
• The dividends paid to holders of such bonds are not taxed. Since tax-free status
raises the net return on investment, particularly for bond holders in high marginal
income-tax brackets, the bonds can offer a lower rate of interest than would have to
be offered to buyers of private, commercial bonds in the same risk category.
5.39
CE6007/HPM
• Tax-free bonds are used also in some places to finance private investment: a
corporation borrows money from a private lender, the bond buyer, which is issued
by a public authority to become tax free.
• Higher up the evolutionary ladder are instruments like tax increment financing
(TIF), a peculiar form of subsidy found in the United States. Tax-increment financing
enables a city to split off future additional property tax revenues associated with a
designated development and to provide a loan to the company undertaking that
development, using the future incremental tax revenues as collateral. In effect, this
revenue stream is diverted away from normal property tax uses, such as the funding
of schools.
5.2.10. Derivative subsidies

Subsidies have a tendency to beget other subsidies. Some of these are described below:
• Sympathetic support: When support is used to influence the direction of

technological developments, it often does so in a manner designed to benefit
domestic producers. Many examples of this can be found in the energy sector, such
as when governments support the construction of coal-fired "demonstration" power
plants that are dependent on coal from high-cost domestic mines rather than on
imported coal, or for biofuel refineries that use domestic feed stocks.
• Compensatory or countervailing support: When support leads to higher input prices

for downstream consumers, especially those that derive a significant proportion of
their sales from exports, compensation is often provided in order to keep them
buying domestically produced raw materials. Subsidies to food processing industries
and to biofuel producers are common examples.
• Subsidy clusters: As the subsidy expert Doug Ko plow has observed, when support -
or failure to consider opportunity costs - leads to lower prices for natural resources,
a chain reaction can take place, whereby new investment occurs to take advantage of
the cheap input. Often downstream consumers receive additional incentives from
governments to do so. Hence aluminum plants are attracted to major hydroelectric
projects, which are then followed by airframe manufacturers, and so forth.
• Taken together, these derivative subsidy forms lend support to the notion that bad
subsidies tend to chase out good ones - what the agricultural economist C. Ford
5.40
CE6007/HPM
Runge has called "Gresham's law of subsidies". Political economy also suggests that
the "good" subsidies will over time be politically out maneuvered by the established
groups to redirect public spending to them.
5.2.11. Subsidies through government procurement

• A subsidy can exist when a government purchases goods "and a benefit is thereby
conferred." The benefits were those resulting from purchases that take place under
circumstances that do not accurately reflect normal market conditions.
• Governments practice preferential purchasing routinely, expressly favouring

domestic over foreign suppliers of similar-quality goods - e.g., by paying domestic
suppliers higher prices or offering special financing arrangements. The conflict of
interest faced by governments is under? standable. They are expected by taxpayers
to be savvy buyers, but are also under constant pressure to support domestic
producers.
5.2.12. Market price support
 Transfers of money to producers are typically divided into two broad categories:
those provided at a cost to government, such as grants and tax concessions, and
those provided through the market as a result of policies that raise prices artificially.
The latter, called market price support (MPS), may derive from a domestic price
interventions (for example, a minimum-price policy), and is usually supported by
foreign trade barriers such as a tariff or quantitative restriction on import.
 MPS is an element that is included in many studies of support to particular goods or

sectors, and is added together with other subsidies to yield an estimate of total
support.
 The concept of market price support is simple enough. By maintaining an

import tariff on a good, for example, a government raises the price of that
good above what it could sell at in the absence of the tariff. From the
producers' standpoint, the revenues they will receive would be similar to
those they would receive were the government instead to pay them an
equivalent premium per unit produced.
5.41
CE6007/HPM
 The main difference is that MPS raises domestic prices, and may therefore
dampen demand compared with a budget-financed price premium, especially
if there are close substitutes that, as a result of raising the price of the
targeted good, become relatively cheaper.
 In such situations, such as for coal for power generation, governments have
sometimes solved the problem of changed relative prices by constraining the
ability of consumers to shift to the competing product.
• From the government's perspective, the advantage of providing support

indirectly, through a market intervention, is that it is less transparent, and
the transfers do not appear in its budget. Rather than taxpayers, consumers
bear the burden. For this reason, MPS is considered by economists to be one
of the most market-distorting forms of support provided through
government policies. Unfortunately, it is also still one of the largest elements
of total support, especially in agriculture.
Exam Guidelines
Part A
1. What do you mean by cross subsidy for housing?
2. Define subsidy and cross subsidy
3. What is Cash flow analysis?
Part B
1. Write a note on the followings:
I. Cash flow analysis
II. Pricing of housing units
III. Cost recovery
2. The cash flow statement of a housing project is given below.
Outflow (figures in
Year Inflow
crores of rupees)
0 - 200
1 90 20
2 95 25
3 100 30
5.42
CE6007/HPM
4 120 30
Find out whether the project is worth investing.
3. Explain in detail about the cash flow analysis
Topic Pricing of Housing Units, Rents, Recovery Pattern

Pricing of Housing Units, Rents, Escalation of Rents in 2010, Initiative in
SubTopics Rental Housing in India, Recovery Pattern (Problems)
Repayment
5.3. Pricing of Housing Units, Rents, Recovery Pattern
5.3.1. Pricing of Housing Units,
• All the cost inputs to a particular housing project have to be summed up to find the
total cost of project including profit margins. With this, the price of single unit can
be decided. Depending on this price, it may be decided about the subsidy depending
on the type of beneficiaries of housing project and its source.
5.3.2. Rents
• The money paid by the tenant to the owner of house is known as rent. Tentant is in
the process of owning a housing or he/she might be a migrant resident of local area
1. A large proportion of residents in cities and towns of developed as well as

developing countries are tenants
2. Moving in and out of an urban environment has become an inherent part of life for
most of the Indians.
According to a paper published by UN-Habitat and UNESCAP, 'Housing the Poor in Asian
5.43
CE6007/HPM
Cities', 87 per cent people in India own their own houses, 11percent are living on rent,
while 3 per cent belong to the 'others' category. In case of Bangalore, these figures are 43%,
55% and 2% respectively. The change is attributable to migratory workforce.
4. Every city has 30 - 40% floating population which does not necessarily want to buy
a flat
Escalation of Rents in 2010
Delhi 12%, Mumbai 12%, Pune 22%, Bangalore 15%

Rents are very high
5.3.3. Initiative in Rental Housing in India

MMRDA Model
• Mumbai based real estate developer HDIL and Mumbai Metropolitan Region
Development Authority joined hands to provide rental housing to about 43,000 low-
income families
• They will develop 525 acres of land in Virar, the northern suburb of Mumbai. HDIL
will construct these houses and hand it free of cost to MMRDA, which in turn will
rent them out at its terms and conditions
• These properties are built specifically for the purpose of renting and will be owned
by real estate investment trusts (REITs) or corporate, and not by individuals. For
India, this is the first initiative of its kind.
5.3.4. Recovery Pattern (Problems)

A typical concept of recovery of housing loan
Repayment:
• Max. Period of 25 years and tenure is fixed on the basis of age of 1st applicant
(whose income contributes major part in recovery) and remaining age of old
property.
• For salaried person, the loan shall be repaid within superannuation However, if the
salaried person satisfies the Bank that he/ she will have sufficient income after
5.44
CE6007/HPM
superannuation from sources like pension or interest on investment & bank

deposits and/or other sources, in which case repayment period shall be extended
upto 70 years of age.
• Spouse should be made co-borrower/ guarantor.
• Where spouse would not be available, working son, daughter, nearest relative shall
be made co-borrower/ guarantor
• For professional &self employed person the loan shall be repaid, within the age of
65 years.
• For both salaried class & P&SE, EMI should be realized from SB/CD/USP a/c of
borrower, every month, by the mandate of standing instruction. In addition to
existing norms, 3 undated cheques for 3 EMIs shall be obtained.
Flexible Repayment Option: Step-up EMI, Step-down EMI & Lower EMI with lump sum
payment at a certain point of time. For considering big ticket size loan of Rs 50 Lacs &
above, following guidelines shall be followed:
Established & experienced professional &self employed persons

should be at least 3 years in trade or profession & an average for
the last 3 years
Income will be reckoned for computation of loan eligibility.

The stability in cash flow of their business unit for last three years
must be verified by bank`s panel Chartered firm.
Salaried persons should be at least 3 years in permanent in

Irregularity the organization where he/ she work.
Income of borrower.
o New flats developed by National / State level/ reputed builders or
Reputation fbuilders/ Govt. authorities to be given preference
Developers (CREDAI
Approved)
Diversion of funds
5.45
CE6007/HPM
funds at every stage shall be strictly verified by financing branch

End-use of
• The construction work is regularly monitored by the coordinating agencies and

funding agency. The loans from bank are disbursed depending upon the stages of
construction. A proper recovery method of loan are adopted
• The rise of a number of small developers offering cheap houses, and the easy
availability of bank funding for both builders and buyers has also aided the
recovery, real estate analysts say.
The Sites and Services Program in Mogappair
The three objectives that underlie the sites and services program in Mogappair
include:
1) provision of affordable housing for the economically weaker

sections,
2) achievement of full cost recovery, and
3) replicability through the creation of a revolving fund.
Mogappair East, the focus of this study, was started in 1981 at an approximate cost of Rs.
82,141,000. The project has ten major blocks with a total of 5062 plots (parcels of land).
The first plots were allocated in 1983 and each plot has individual water, sewer, and
electrical connections. In addition, public utilities such as roads, street lighting, and storm
water drains, are provided.
The project plan includes the provision of a community hall, high schools, primary
schools, pre-schools, a cinema theater, facilities for farmers' markets, a bus shelter, a
police station, a post office, places of worship and a fire station.
The allottee is bound by a lease-cum-sale agreement requiring monthly payments to the

government. These monthly payments support fiscal viability through cross subsidy.
The cross-subsidy approach advocates housing development targeting different levels of
5.46
CE6007/HPM
low-income groups ("higher" low income, "lower" low income, and economically weaker
sections). The rationale is that fiscal balance can be achieved by the higher income
groups paying slightly more than their fair share (factored on annual household income)
and therefore partly subsidizing the lower income groups who pay less than their share.
As per the operational guidelines, a plot of land, once assigned/allotted and accepted by
the allottee, is non-transferable and cannot be sub-divided or sublet. However, this "rule"
is often violated since most residents are able to make the monthly payments only by
renting or subletting a portion of their land.
In part, the plot owners are driven to such measures because failure to make monthly
payments for two consecutive months results in immediate eviction. The government
devised such a seemingly severe strategy in order to achieve a reasonable degree of cost
recovery.
The allottee is required to begin house construction within six months from the date of
allotment. Temporary building materials are not allowed, partly because the World Bank
wants to avoid criticism that it is fostering the creation of slums. A self-help approach is
advocated so that the residents can build according to their own pace and financial
means.
EXAM GUIDELINES
Part A
1. What is meant by internal source and External source?
2. Express the term EMI and LIC
3. List out the various elements to determine cost of the house.
Part B
1. Explain the agencies for housing?
2. Evolve a conceptual methodology for recovery pattern of a housing
project.
3. Explain Pricing of Housing unit and Micro finance.
5.47
CE6007/HPM
OBJECTIVE QUESTIONS
1. The documents needed for housing loan

a) Cost estimate of the project
b) Parent or mother documents
c) Income certificate
d) All the above
2. The loan amount is made to be paid by the house owner by selling the house to others to
get back the loan amount
a) Cost recovery
b) Cash flow
c) Loan recovery
d) None
3. After the release of the repayment starts the repayment in the form of EMI (equated
monthly installment ) for the duration of 10 to 15 years based on the income level of the
client
a) Cost recovery
b) Loan recovery
c) House finance
d) Cash flow
4. The various elements to determine cost of the house

a) Readymade properties
b) Self constructed properties
c) Both
d) None of the above
5. Housing finance will be

a) Issue of house loans
b) Rent Supplements
c) Tax relief
d) All the above
6. Concession given to the public at any intermediate stage of construction or at the final
stage of the construction is
a) Cross subsidy
b) Project appraisal
c) House Rent
5.48 CE6007/HPM
d) All
7. Appraisal is to verify
a) Technical feasibility
b) Financial viability
c) Both (a) and (b)
d) None of the above
8. A public sector housing company to promote housing with government agencies

a) HDFC
b) HUDCO
c) NHB
d) UTI
9. After 1989, the scheduled commercial banks have been allowed to allocate 1.5% of their
incremental deposits to housing under the guidelines from
a) UTI
b) HDFC
c) RBI
d) HUDCO
10. After 1994, housing finance companies are free to charge market interest rates on all
loans above
a) Rs. 25,000
b) Rs. 30,000
c) Rs. 35,000
d) Rs. 20,000
11. When liquidity of money is less, interest will be

a) increasing
b) decreasing
c) same
d) none
12. Costs relating to acquisitions - Costs related to a property that are incurred for the
purpose of, but prior to, obtaining that property
a) External cost
b) Internal cost
c) Building cost
d) All the above
5.49 CE6007/HPM
13. Which costs should be allocated to individual units in a phase based on the relative sales
value of each unit?
a) Land cost
b) Estimate cost
c) Construction cost
d) Building cost
14. Costs that are clearly associated with the acquisition, development, and construction of a
real estate project should be capitalized as
a) Project cost
b) Land cost
c) Building cost
d) Estimate cost
15. Which approach advocates housing development targeting different levels of low-
income groups
a) Cross subsidy
b) Project appraisal
c) House Rent
d) None
16. Objectives that underlie the sites and services program

a) provision of affordable housing for the economically weaker sections,
b) achievement of full cost recovery, and
c) replicability through the creation of a revolving fund.
d) All the above
17. Element that is included in many studies of support to particular goods or sectors, and is
added together with other subsidies to yield an estimate of total support
a) Original price support
b) Market price support
c) Gross price support
d) Net price support
18. Subsidies have a tendency to beget other subsidies

a) Derivative subsidies
b) Hybrid subsidies
5.50 CE6007/HPM
c) Cross subsidies
d) Credit subsidies
19. Which is a market transfer induced by discriminatory pricing practices within the scope
of the same enterprise or agency
a) Derivative subsidies
b) Hybrid subsidies
c) Cross subsidies
d) Credit subsidies
20. Factors affecting project cash- flow

a) The margin in a project
b) Retention
c) Extra claims
d) All the above
21. Which costs do not include interest, taxes, insurance, security, and other costs that
would be incurred during development regardless of whether incidental operations are
conducted?
a) Project cost
b) Incremental cost
c) Land cost
d) Building cost
22. LIC created its own housing finance companies in

a) 1987
b) 1988
c) 1989
d) 1990
23. National Housing Bank (NHB) has been formulated in

a) 1987
b) 1988
c) 1989
d) 1990
24. The process of assessing and questioning proposals before resources are committed is
a) Project appraisal
b) Housing finance
5.51 CE6007/HPM
c) Cost recovery
d) Cross subsidy
25. How many Loan schemes in Housing Cooperative Societies

a) 2
b) 3
c) 4
d) 5
ANSWERS
1-d 6-a 11-a 16-d 21-b

2-a 7-c 12-b 17-b 22-c
3-b 8-b 13-c 18-a 23-a
4-c 9-c 14-a 19-c 24-a
5-d 10-a 15-a 20-d 25-b
5.52 CE6007/HPM
POWER POINT PRESENTATION HANDOUTS
5.53 CE6007/HPM
5.54 CE6007/HPM
5.55 CE6007/HPM
5.56 CE6007/HPM
5.57 CE6007/HPM
5.58 CE6007/HPM

HPM Unit V.ematerials

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

HPM Unit V.ematerials

Uploaded by

Copyright:

Available Formats

Dr. R. Saravanan & R.

Dinesh Kumar / E - MATERIAL

Topic Appraisal of Housing Projects, Housing Finance, Cost Recovery

5.1. Appraisal of Housing Projects, Housing Finance, Cost Recovery

5.1.1. Appraisal of Housing Projects:

Appraisal is to verify the following:

• Project appraisal is the process of assessing and questioning proposals before

• It is an essential tool for effective action in community renewal. It’s a means by

1. Mechanistic, inflexible systems

2. A lack of independence and objectivity

1. Individual appraisals which do not cover the necessary information or

• Project appraisal is a requirement before funding of programs is done. But

• Experience in projects emphasizes the importance of developing an ‘appraisal

5.1.2. Project Appraisal Deliver

Project appraisal helps project initiators and designers to;

• Be consistent and objective in choosing projects

• Provide documentation to meet financial and audit requirements and to explain

• Appraisal justifies spending money on a project.

• Appraisal asks fundamental questions about whether funding is required and

• Appraisal is an important decision making tool.

• Appraisal involves the comprehensive analysis of a wide range of data, judgments

1. Will help a partnership achieve its objectives for its area

• Appraisal lays the foundations for delivery.

 Appraisal helps ensure that projects will be properly managed, by ensuring

Getting the system right

• Decisions are within a implementers’ powers

• There are appropriate arrangements for very small projects

• There are appropriate arrangements for dealing with novel, contentious or

5.1.3. Key issues in appraising projects

1. Need, targeting and objectives

• The starting point for appraisal:

 applicants should provide a detailed description of the project

2. Context and connections

• Local consultation may help determine priorities and secure community

• Options analysis is concerned with establishing whether there are different

• This is a particularly complex part of project appraisal, and one where

• Appraisal should include the examination of appropriately detailed budgets.

5. Outputs and outcomes

• Detailed consideration must be given in appraisal to what a project does and

• Benefits to neighborhoods and their residents are reflected in the improved

6. Value for money

8. Risk and uncertainty

• The appraisal of forward strategies can be particularly difficult, given inevitable

• In regeneration, sustainability has often been talked about simply in terms of

11. Checklist for project appraisal

• Whether you are involved in a partnership with an appraisal system in place,

• Are appraisals systematic and disciplined with a clear sequence of activities

• Is there an independent assessment of the project by someone who has not

• Does the appraisal process culminate in clear recommendations that inform

• Is the approval stage clearly separate?

5.1.4. Housing Finance in India

• Housing finance receives low priority in policy formulation

• This constitutes only small portion of GDP

• Share of mortgage finance in total housing investment is 10% which is generally

• Creation of HDFC (Housing Development Finance Corporation) , created two

1. HUDCO(1970) – a public sector housing company to promote housing with

2. HDFC (1977) – a private company to lend on market principles to individuals. The

to invest part of their annual incremental resources in housing. Commercial banks

• Besides subscribing to bonds of HUDCO and state housing boards/ Development

loans to socially oriented sectors including housing for economically weaker

5. Provident and Pension Funds

• Small portion is utilized for giving housing to members

6. Cooperative Housing Financing