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UNIT 5 – HOUSING FINANCE

27th HOUR

Housing finance:
Housing finance is a broad topic, the concept of which can
vary across continents, regions and countries,
particularly in terms of the areas it covers.
For example, what is understood by the term “housing finance”
in a developed country may be very different to what is
understood by the term in a developing country.
“Housing finance brings together complex and multisector issues that are driven by constantly changing local
features, such as a country’s legal environment or
culture, economic makeup, regulatory environment,
or political system”
(2009) Loïc Chiquier and Michael Lea, Housing Finance
Policy in Emerging Markets, p. xxx.

URBAN AND RURAL HOUSING

UNIT 5 – HOUSING FINANCE

27th HOUR

Housing finance:
In addition, the concept of housing finance and housing finance
systems has been evolving over time.
Looking at definitions from the mid-1980s, we see that housing
finance was defined primarily in terms of residential
mortgage finance:
“The purpose of a housing finance system is to provide the
funds which home-buyers need to purchase their
homes. This is a simple objective, and the number of ways
in which it can be achieved is limited. Notwithstanding this
basic simplicity, in a number of countries, largely as a
result of government action, very complicated housing
finance systems have been developed. However, the
essential feature of any system, that is, the ability to
channel the funds of investors to those purchasing their
homes, must remain.”
(1985) Mark Boleat, National Housing Finance Systems – A
URBAN AND RURAL HOUSING

UNIT 5 – HOUSING FINANCE

27th HOUR

Housing finance:
However, in more recent years, a number of other much
wider definitions have appeared:
“Put simply, housing finance is what allows for the
production and consumption of housing. It refers to the
money we use to build and maintain the nation’s
housing stock. But it also refers to the money we need to
pay for it, in the form of rents, mortgage loans and
repayments.”
(2009) Peter King, Understanding Housing Finance – Meeting
Needs and Making Choices, p.3.

URBAN AND RURAL HOUSING

Although the overall impact of microfinance in housing remains limited. URBAN AND RURAL HOUSING . Loans are typically granted without pledging properties.UNIT 5 – HOUSING FINANCE 27th HOUR Housing finance: Or simply “There is recognition of other relevant forms of housing finance [apart from residential mortgage finance] such as developer finance. and developers sometimes provide long-term finance to buyers through instalments sales when mortgages markets are not accessible. Microfinance for housing is typically used for home improvement or progressive housing purposes. xxxii. Housing Finance Policy in Emerging Markets. or microfinance applied to housing. this activity can represent an important source of funding for those in the informal sector. p.” (2009) Loïc Chiquier and Michael Lea. rental finance. Developer finance is often in the form of unregulated advance payments by buyers.

From the viewpoint of ministries of finance and central banks the problem is to prevent financial instability and to maintain confidence in the financial system. What is the Housing Finance Problem?  There is more than one way to look at housing finance and according to the viewpoint chosen significantly different answers are given to the question of what constitutes "the" housing finance problem. For ministry of housing officials the problem is the lack of resources to carry out public housing programs. URBAN AND RURAL HOUSING . From the viewpoint of a household the problem is the possibility of obtaining a loan at affordable terms.UNIT 5 – HOUSING FINANCE 27th HOUR A.

reach the lowest 50 percent of the household income distribution. how to generate long-term loans. the problem is to develop sustainable financial programs for low income housing. URBAN AND RURAL HOUSING . What is the Housing Finance Problem? National planning agencies are interested in the contribution that housing finance can make to the mobilization of resources and their effective use. in other words. In the case of a capital market analyst the housing finance problem is that of mobilizing short term resources while providing long term financing (term transformation) in an inflationary environment.UNIT 5 – HOUSING FINANCE 27th HOUR A. For international agencies with a mandate to make loans which will. For the manager of a housing bank the problem is how to expand the scope of financial services while maintaining a viable institution.

The Housing finance is growing at a rapid speed. The emergence of housing finance is a major business in the country. In India most of the people depend on their provident fund and gratuity amounts received after retirement for buying a house. The housing finance institutions fulfill the shortage of housing in India. URBAN AND RURAL HOUSING .UNIT 5 – HOUSING FINANCE 27th HOUR The Indian Housing Finance Industry The housing is the single largest investment of an individual. but today banks are making their efforts to bring in formal system. The major sources of finance for housing for both buyer as well as builders have been largely from the unorganized sector (Dangwal R C 1998). The people started relying upon the housing finance Institutions (both banks and housing finance companies). The demand for housing loans is rapidly increasing In recent years. India has changed socially and there is no stigma attached today to going in for borrowed funds.

UNIT 5 – HOUSING FINANCE The Indian Housing Finance Industry URBAN AND RURAL HOUSING 27th HOUR .

The informal sector consists of the households themselves. Rangarajan Committee Report in the year 1987. According to Dr. and its subsidiaries. the formal sector comprises of : Central and State Governments' budgetary allocation General financial institution. GIC. Apex and Cooperative finance institutions are in the public sector while HDFC and other housing finance companies are in the private sector.UNIT 5 – HOUSING FINANCE 27th HOUR Formal and Informal Systems of Finance: Housing Finance is an important element of housing policies persuaded by the Governments of developed and developing countries of the world. In India the flow of credit into the housing sector comes from two sources that is formal and informal sectors. namely LIC. public and private URBAN AND RURAL HOUSING . scheduled commercial banks and Provident Funds.  Specialized housing finance institutions like National Housing Bank (NHB) & the HUDCO.

To some extent. most of these people belong to what is commonly known as the unorganized or informal sector. the efforts of all HFIs and banks.UNIT 5 – HOUSING FINANCE 27th HOUR Formal and Informal Systems of Finance: The formal financing channels like banks loans relay on documents. trust and reciprocity with little legal supervision. but by and large. The main problem of the poorer people in any country is that they do not have access to institutional finance. tend to be focused around the formal sector i. on the employee class. necessary to find out ways in which these people can be brought to the fold of the institutional finance. the informal sector comprising smaller businessmen. housing loans are also being accessed by professionals such as lawyers and doctors. It is. and informal financing channels that largely rely on reputation. including the foreign banks. Secondly. Although India can be proud of a mature primary market. therefore.. traders and others has not even been URBAN AND RURAL HOUSING .e.

While initially. capacity building of NGOs. this segment of the population look for non-institutional credit. etc. linking of SHGs with banks. Recently.UNIT 5 – HOUSING FINANCE 27th HOUR Formal and Informal Systems of Finance: There are a course factors that preclude the provision of financial information by borrowers in this sector in a form and manner required by the financial institutions and therefore. The reserve bank of India had set up an working group to study the functioning of the self help groups (SHG) and Non-Governmental Organization (NGOs) for expanding their activities and deepening their role. all these institutions provided RURAL HOUSING funds to the peopleURBAN to setAND up income generation activities. the emergence of microfinance sector is also of recent origin in India. over . Similarly. A few community based financial institutions (CFIs) also emerged. a number of initiatives have been taken in India to bring in a majority of such population to the formal sector financial institution fold.

Of the six projects. it has been estimated that there could be 250-300 voluntary agencies in micro-finance each with 50-100 SHGs.6 million disbursed to about 200 beneficiaries. Sanction letters have been issued in respect of another two projects. 6. Six projects involving a linkage between CFIs and housing finance companies were identified under the technical assistance programme from Asian Development Bank to improve the understanding of the informal sector lending for housing as well as the willingness on the part of the formal and informal institutions to provide affordable credit to urban and rural poor. URBAN AND RURAL HOUSING . two are well underway with the disbursal of the first tranche of the loan amounting to Rs. NHB has formulated a refinance scheme for the loans advanced by the housing finance companies to the community based finance institutions.UNIT 5 – HOUSING FINANCE 27th HOUR Formal and Informal Systems of Finance: While the exact number of micro financing institutions in the country has not been ascertained.

selection of borrowers and credit appraisal. URBAN AND RURAL HOUSING . loan processing fee. security for the loan. these are being analyzed to find out a solution before the same could be replicated elsewhere in the country. etc. Some of these relate to the rate of interest.UNIT 5 – HOUSING FINANCE 27th HOUR Formal and Informal Systems of Finance: Some major institutional concerns and operational problems have emerged from this experience. organizational problems at the SHG level like the capacity to manage long term loans. end use of funds.

URBAN AND RURAL HOUSING . 2.000 million to home buyers across India. Commercial banks. . The Housing finance sector in India has no doubt. 3. 5. Agriculture and rural development banks. experienced unprecedented change in its structure from its formulation stage. Cooperative banks. Regional rural banks.UNIT 5 – HOUSING FINANCE 27th HOUR Institutions providing Housing Finance: In India. 4. Indian Housing finance has far moved from the stages of being a solely government provided service during the 1970’s to a very competitive sector with more than 45 housing finance entities providing housing loans worth Rs 781. . Housing finance companies and 6. Cooperative housing finance societies. the following types of institutions provide long term finance for housing: 1.

 However. the savings mobilized were not being ploughed back to the households for shelter purposes. industry and trade. in the past.  Yet another factor was that the banks did not want to tie up their short-term resources in extending longterm housing loans.  However.UNIT 5 – HOUSING FINANCE 27th HOUR Institutions providing Housing Finance: Commercial banks:  The largest mobiliser of savings in the country. after the nationalization of some of the banks in 1969. the banks became more responsive to the social needs of the community.  The reluctance on the part of the banks to extend credit for housing as a regular part of their business was basically due to their perceived role as being limited to financing of working capital needs of commerce. Co-operative banks:  The state co-operative banks are the apex level institutions URBAN AND RURAL HOUSING .

several states have amended their respective acts to enable these institutions to lend for housing in the rural areas. Housing Finance Companies: the housing finance companies are basically non-banking financial companies.UNIT 5 – HOUSING FINANCE 27th HOUR Institutions providing Housing Finance: Agricultural and Rural Development Banks: They are term lending institutions operating exclusively in the rural sector. housing finance should form a major share URBAN AND RURAL HOUSING . Following the thrust given to the housing sector in the late eighties and more particularly after the establishment of NHB. Housing finance was not originally within the ambit of their functions. A non-banking financial company is classified as an housing finance company if providing housing finance is the principal object of the company or where there are more than one principal object as per the Memorandum and Articles of Association.

a minimum of 75% of the capital employed should have been by way of long-term finance for housing.UNIT 5 – HOUSING FINANCE 27th HOUR Institutions providing Housing Finance: Housing Finance Companies: To be eligible for approval for availing refinance facility from NHB. Co-operative Housing: The other set of specialized housing finance institutions are the co-operative housing finance societies. URBAN AND RURAL HOUSING .

UNIT 5 – HOUSING FINANCE URBAN AND RURAL HOUSING 27th HOUR .

URBAN AND RURAL HOUSING . The government implemented these schemes through state housing boards which were responsible for allocating serviced land and houses to individuals based on social equity principles.UNIT 5 – HOUSING FINANCE 27th HOUR The housing finance revolution in India can be divided into five distinct phases: First Phase: The first phase began before 1970 when the sole provider of any house building support was the government of India through its various social schemes for public housing.

HDFC pioneered in individual lending based on market principles. was created in 1977. HUDCO still plays an important role in implementing government initiatives such as the Valmiki Ambedkar Awas Yojna. Housing development finance Company HDFC. HDFC today. Another important private player. HUDCO was created to assist and promote housing and urban development programs with government agency. Housing and Urban Development Corporation (HUDCO). Of India in 2001-02 to provide shelter or upgrade the existing shelter for people living below poverty line in urban slums.UNIT 5 – HOUSING FINANCE 27th HOUR The housing finance revolution in India can be divided into five distinct phases: Second Phase: The second phase starts with the establishment of the public housing company. is one of the largest home loan providers of the country andURBAN its success displayed that financing homes AND RURAL HOUSING . was launched by Govt.

provident funds and mutual funds to invest part of their increment sources on housing. commercial banks( Under priority lending requirements which allowed banks to allocate 1. both directly through their housing subsidiaries (both established in 1989) and URBAN AND RURAL HOUSINGto invest a certain indirectly through a mandated requirement .). which is marked by the establishment of the country’s housing finance regulator.UNIT 5 – HOUSING FINANCE 27th HOUR The housing finance revolution in India can be divided into five distinct phases: Third Phase: The third phase covers the decade of 1980.5% of their incremental deposits to housing under RBI guidelines. The era also saw government involvement in directing various agencies like insurance companies. The public sector insurance companies – Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC) were also mandated to support housing finance activities.National Housing Bank in 1987.

36. URBAN AND RURAL HOUSING .UNIT 5 – HOUSING FINANCE 27th HOUR The housing finance revolution in India can be divided into five distinct phases: Commercial banks: Later. the commercial banks are asked to earmark a minimum of 3% of their incremental deposits for extending to the housing sector during the late 90’s.000 million. this works out to Rs. During the year 1999-2000.

Before 1994. The fourth phase saw a dominance of fixed interest rates.UNIT 5 – HOUSING FINANCE 27th HOUR The housing finance revolution in India can be divided into five distinct phases: Fourth Phase: The fourth phase is the era after liberalization and is characterized by dramatic changes in pricing of loans. the pricing of home loans were regulated by the NHB based on a differential rates charged according to the size of the loan. URBAN AND RURAL HOUSING . This policy was amended in 1994 and providers were free to charge market rates for loans above Rs 25000. but variable rate offers started emerging at the end of the decade.

sluggish credit off-take and ample liquidity. URBAN AND RURAL HOUSING . The lower interest rate regime. Further. industrial slowdown. almost all the major commercial banks plunged into the business of housing finance. rising disposable incomes. stable property prices and fiscal incentives made housing finance attractive business. and financial deregulation commercial banks shifted their focus from the wholesale segment to retail portfolios. housing finance traditionally has been characterized by low nonperforming assets (NPAs) and given the vast demand for housing loans. against the backdrop of lower interest rates.UNIT 5 – HOUSING FINANCE 27th HOUR The housing finance revolution in India can be divided into five distinct phases: Fourth Phase: Towards the end of the 1990s.

The lower interest rate regime. Home loan disbursements rapidly grew during the first few years of this phase. URBAN AND RURAL HOUSING . rising disposable incomes.UNIT 5 – HOUSING FINANCE 27th HOUR The housing finance revolution in India can be divided into five distinct phases: Fifth Phase: The fifth Phase of rapid growth in the sector started after the millennium. stable property prices and fiscal incentives made housing finance attractive business.00 million in 2001. The year 2003 witnessed an annual growth rate of 76% in loan disbursements. Home loan disbursements grew to Rs 768191.90 million in 2005 from Rs 147012.

UNIT 5 – HOUSING FINANCE 27th HOUR The housing finance revolution in India can be divided into five distinct phases: URBAN AND RURAL HOUSING .

46% in 2006 slowing drastically from the rates of 41. The recession in 2008 and the consequent correction in house prices are expected to reduce the size of disbursements in 2009 by 1%. The growth rate reduced to 5.5% in the previous year. commercial banks gave more impetus to this sector. URBAN AND RURAL HOUSING . High lending rates coupled with high property prices led to a slowdown in housing loan demand. The latter part of this phase witnessed a slowdown in the rate of growth in home loan disbursements.UNIT 5 – HOUSING FINANCE 27th HOUR The housing finance revolution in India can be divided into five distinct phases: Fifth Phase With the growth and profitability in housing finance evident. Banks overtook housing finance companies in the market capturing 72% of the market in 2006 from a previous share of 27% at the beginning of this phase in 2001. aggressively increasing their market share.

experienced unprecedented change in its structure from its formulation stage. With the liberalisation of the housing finance sector and developments like the introduction of mortgage backed securities in the markets. (including foreign banks) These banks with their aggressive marketing and pricing strategies have now overtaken the housing finance companies. The structure of the Indian housing finance market rapidly changed with the arrival of commercial banks in the late nineties. we are increasingly moving towards the market structures which exist in the more mature markets.UNIT 5 – HOUSING FINANCE 27th HOUR The housing finance revolution in India can be divided into five distinct phases: (concluding remarks) The Housing finance sector in India has no doubt. URBAN AND RURAL HOUSING .

Asia Pacific economies have made significant progress in developing private housing market and market based systems for financing home purchases. Asian financial crisis.UNIT 5 – HOUSING FINANCE 28th HOUR The housing finance revolution – Asia Specific Economies: During the last one decade. .  Government sponsored housing finance strategies have become more and more non-viable due to budget constraints. Many countries even in other parts of the globe have experienced the waves of financial liberalization and deregulation. the respective Governments in Asia stepped up their effort to improve the structure of the housing finance system. House prices have increased in most industrialized and emerging economics and in many countries housing debt per URBANhave AND RURAL HOUSING capita and house prices reached new all-time highs (BIS. Post 1997.

2006). Introduction of home loans at floating rates become popular among borrowers in Asian countries especially in India. an increasing number of new entrants to the housing finance market. URBAN AND RURAL HOUSING . China and Sri Lanka as the perception among the borrowers is that they could enjoy lower short-term rate which is comparatively less than long-term fixed rate (Piayasiri. the introduction of several new products by lending institutions to meet the needs of a wide variety of customers and increasing collaboration between lending institutions and housing developers.UNIT 5 – HOUSING FINANCE 28th HOUR The housing finance revolution – Asia Specific Economies: The key factors triggering the progressive growth on the demand side are declining interest rates over a period of years. tax benefits extended to borrowers whereas from the supply side the emerging competition in the housing finance sector between lenders. rapid increasing in income levels.

UNIT 5 – HOUSING FINANCE Housing Affordability in relation with demographic. social and economic status: URBAN AND RURAL HOUSING 28th HOUR .

India have the unique advantage of the higher level of middle aged and lower level of aged people. URBAN AND RURAL HOUSING .UNIT 5 – HOUSING FINANCE 28th HOUR Housing Affordability in relation with demographic. When comparing with other countries such as China. social and economic status: It is evident from the above table that one in every three Indians is under the age of 15. USA and Japan. and only one in three is older than 35.

social and economic status: URBAN AND RURAL HOUSING 28th HOUR .UNIT 5 – HOUSING FINANCE Housing Affordability in relation with demographic.

followed by Taiwan. Thailand and Korea. 2006). D. Hong Kong is the topper. Amongst the Asian countries. India stands the lowest.UNIT 5 – HOUSING FINANCE 28th HOUR Housing Affordability in relation with demographic. URBAN AND RURAL HOUSING . It could be seen from the above table that in spite of the merits highlighted in the preceding paragraphs. house mortgage as a percentage of GDP. Malaysia. social and economic status: Indian GDP has grown at 6% for the past 10 years and 8% for the last 3 years and interestingly service sector accounts for 60% of GDP (Parekh.

The housing finance sector in India has undergone URBAN AND RURAL HOUSING 28th HOUR . The strivers are less but aspirers and rich are significant higher comparing to the 2003 status. social and economic status: It could be inferred from the above exhibit that the consumption pattern in amongst Indian population is expected to change as indicated above by 2013.UNIT 5 – HOUSING FINANCE Housing Affordability in relation with demographic.

social and economic status: The existing housing finance system URBAN AND RURAL HOUSING 28th HOUR .UNIT 5 – HOUSING FINANCE Housing Affordability in relation with demographic.

UNIT 5 – HOUSING FINANCE Housing Affordability in relation with demographic. social and economic status: The transition of existing housing finance system URBAN AND RURAL HOUSING 28th HOUR .

social and economic status: Survey Findings: For the purpose of knowing more about the housing finance market in India. the centre (Indu Center for Real Estate and Infrastructure) conducted a survey across 17 major housing finance Institutions in India. hence we believe that the results obtained are very insightful. target customer base. and sentiments on the current market conditions and future prospects. the products and incentives offered to customers. URBAN AND RURAL HOUSING . These institutions represent more than 90% of the market share. The survey intended to capture the scale of demand for home loan products. government policies and support in place.UNIT 5 – HOUSING FINANCE 28th HOUR Housing Affordability in relation with demographic.

All institutions surveyed said that Variable interest rates are more popular in their banks.UNIT 5 – HOUSING FINANCE Housing Affordability in relation with demographic. floating rate mortgages constitute 80% of the market share in India. This is mainly because finance providers in India incentivize floating rate loans by keeping a huge spread (sometimes 275 bps) between fixed rate and floating rate loans. social and economic status: Survey Findings: Interest Rates: Unlike other countries. URBAN AND RURAL HOUSING 28th HOUR . The average interest rates varied from 8.15%.

UNIT 5 – HOUSING FINANCE Housing Affordability in relation with demographic. The costumers chose to take a shorter tenure. social and economic status: Loan tenure: The survey showed that most banks offered loan tenure of 20 years. URBAN AND RURAL HOUSING 28th HOUR .

80% of the value. URBAN AND RURAL HOUSING . most consumers prefer taking a loan for half the value of the house.UNIT 5 – HOUSING FINANCE 28th HOUR Housing Affordability in relation with demographic. social and economic status: Loan to value ratio: Even though banks offer a loan which is 75.

2 lakhs per annum.UNIT 5 – HOUSING FINANCE 28th HOUR Housing Affordability in relation with demographic. URBAN AND RURAL HOUSING .  The average income group of the borrower is seen to be around 4. social and economic status: Borrower profile: The survey showed that most consumers belong to the age group of 35-40 years.

The real estate sector is also the employment generator in the country. URBAN AND RURAL HOUSING second largest .UNIT 5 – HOUSING FINANCE 28th HOUR Housing Affordability in relation with demographic.78 is added to the gross domestic product of the country and the real estate sector is subservient to the development of 269 other industries. social and economic status: The importance of the housing sector in India can be judged by the estimate that for every Indian rupee (INR) invested in the construction of houses. INR 0.

disincentives are purposely designed to discourage particular behaviours and can include taxes. fines and various other penalties or moral suasion. McNeely (1988) also makes the useful distinction between incentives. URBAN AND RURAL HOUSING . disincentives and perverse incentives. which we have described above. as in “everything that motivates or stimulates people to act” (Giger 1996).UNIT 5 – HOUSING FINANCE 28th HOUR Direct and Indirect Incentives for Housing Development  Incentives may be broadly defined. In contrast to incentives.

000 on home loan is allowed as a deduction from gross total income.000 on housing loans can be claimed as a deduction from taxable income.UNIT 5 – HOUSING FINANCE 28th HOUR Direct and Indirect Incentives for Housing Development  Tax Incentives by the government: Tax sops given by the government for housing loans have been instrumental in driving growth in this sector. 1961. A home loan consumer is allowed tax deductions on the following:  Interest paid on home loan: As per Sec 24 (b) of the Income Tax Act. 1961 principal repayment up to Rs 1.  Principal repayment of home loan: As per Sections 80 C read with section 80 CCE of the Income Tax Act.00.50. The government allows tax benefits to both the home loan consumer and the lender. annual interest payments up to Rs 1. URBAN AND RURAL HOUSING .

This deduction is available only up to twice the total amount of the company’s paid-up share capital and its general reserves.UNIT 5 – HOUSING FINANCE 28th HOUR Direct and Indirect Incentives for Housing Development  Tax Incentives by the government: The lender is also allowed tax deduction: Under Section 36 (1) (viii) of the Indian Income Tax Act 1961. with respect to any special reserve created and maintained by a financial corporation engaged in providing long-term finance for construction or purchase of houses in India for residential purposes. URBAN AND RURAL HOUSING . a maximum amount of 20 per cent (earlier it was 40 per cent) of the profits derived from such business (computed under the head ‘profits and gains of business or profession’) and carried to such special reserve is tax deductible.

UNIT 5 – HOUSING FINANCE 29th HOUR Financing agencies and their Terms of Lending: NHB: NHB is of the opinion that intervention through institutional credit can be made more effective by adoption of different approaches to cater to the needs of different income groups. For the households below the poverty line. The households above the average income could well be served by institutions which raises resources through the open market and deliver credit with minimum necessary prudential regulations by the regulator. URBAN AND RURAL HOUSING . It is the middle group which constitutes nearly half the total number of households that needs to be taken care of. the institutional credit will have to take into account the employment and poverty alleviation programmes having an element of subsidy.

NHB is an apex financial institution for housing.UNIT 5 – HOUSING FINANCE 29th HOUR Financing agencies and their Terms of Lending: NHB: National Housing Bank (NHB). regulates and supervises Housing Finance Company (HFCs). NHB registers. a wholly owned subsidiary of Reserve Bank of India (RBI). NHB has been established with an objective to operate as a principal agency to promote housing finance institutions both at local and regional levels and to provide financial and other support incidental to such institutions and for matters connected therewith. keeps surveillance through On-site & Off-site Mechanisms and co-ordinates with other Regulators URBAN AND RURAL HOUSING . It commenced its operations in 9th July 1988. was set up by an Act of Parliament in 1987.

and are required to comply with Directions. the activities of the National Housing Bank can be divided into the following three major sub-heads: a. . Guidelines and other directives issued by NHB. URBAN AND RURAL HOUSING . These Companies are required to obtain Certificate of Registration (CoR) from NHB for commencing/carrying on the business of a housing finance institution under Section 29 A of the NHB Act. Regulation and Supervision: .UNIT 5 – HOUSING FINANCE 29th HOUR Financing agencies and their Terms of Lending: NHB: Activities of National Housing Bank:   Broadly. NHB exercises regulatory and supervisory authority over the Housing Finance Companies (HFCs).

UNIT 5 – HOUSING FINANCE

29th HOUR

Financing agencies and their Terms of Lending:
NHB:
Activities of National Housing Bank:  
Broadly, the activities of the National Housing Bank can be
divided into the following three major sub-heads:
b. Promotion and Development:
NHB operates as the apex Development Finance
Institution (DFI) for the housing sector.
The policies of NHB are directed towards promotion and
development of housing finance institutions and the sector in
general.
The development of human resources is sought through
training programmes, seminars and symposia on matters
related to housing for the officials of the Housing Finance
Companies (HFCs), Commercial Banks and Public Housing
Agencies.
Besides, NHB has taken up a number of Research Studies
to facilitate development of sector on sound and healthy
lines.
The Bank has also launched ‘NHB Residex’; a price index for
URBAN
AND
RURAL
HOUSING
residential properties
in six
cities
to begin
with; and the same is

UNIT 5 – HOUSING FINANCE

29th HOUR

Financing agencies and their Terms of Lending:
NHB:
Activities of National Housing Bank:  
Broadly, the activities of the National Housing Bank can be
divided into the following three major sub-heads:
c. Financing:
NHB raises resources for deployment towards increasing
new housing stock and provides housing refinance to a large
set of retail institutions.
These include eligible scheduled commercial banks,
scheduled state cooperative banks, scheduled urban
cooperative
banks,
specialized
housing
finance
institutions, apex cooperative housing finance societies and
agriculture and rural development banks.
In addition, the Bank has also extended financial support
to the housing schemes formulated by Public Housing
Agencies.
Non Government Organisations (NGOs) and Micro
URBAN (MFIs)
AND RURAL
HOUSING
Finance Institutions
are
also considered for

UNIT 5 – HOUSING FINANCE

29th HOUR

Financing agencies and their Terms of Lending:
NHB:
NHB has been established to achieve, inter alia, the
following objectives –
To promote a sound, healthy, viable and cost effective
housing finance system to cater to all segments of the
population and to integrate the housing finance system
with the overall financial system.
To promote a network of dedicated housing finance
institutions to adequately serve various regions and different
income groups.
To augment resources for the sector and channelize
them for housing.
To make housing credit more affordable.
To regulate the activities of housing finance companies
based on regulatory and supervisory authority derived under
the Act.
To encourage augmentation of supply of buildable land
AND RURAL
HOUSINGand to upgrade the
and also buildingURBAN
materials
for housing

the housing loan can be repaid over a maximum period of 10. 15 or 20 years. installments can be on graduated basis. Repayment does not extend beyond the retirement age of a person (60 years) if employed or 65 years of age if self employed. URBAN AND RURAL HOUSING . In case of borrowers expecting a reasonable growth in their future income. Repayment of the loan is done through the equated monthly installment method. Usually.UNIT 5 – HOUSING FINANCE 29th HOUR Financing agencies and their Terms of Lending: Types of Housing Loans (General): Most of the institutions offer a standard fixed or floating rate mortgage to the prospective borrowers.

The lender is required to pay a tax to the government on his interest income at the rate of 2% per annum. the borrower also has to meet certain other costs viz. The banks and the housing finance companies also levy a fee for processing the application and it varies between 0. processing fee and administration fee. interest rate.UNIT 5 – HOUSING FINANCE 29th HOUR Financing agencies and their Terms of Lending: Types of Housing Loans (General): Besides. Besides they also charge what is known administration fee of 1% of the loan amount. URBAN AND RURAL HOUSING as an . The lenders usually pass on this tax burden to the borrower.5% to 1% of the loan amount. interest tax.

5 to 13% per annum. their interest rates are comparatively lower than the rates charged by the specialized housing finance institutions. URBAN AND RURAL HOUSING .UNIT 5 – HOUSING FINANCE 29th HOUR Financing agencies and their Terms of Lending: Types of Housing Loans (General): The interest rate on housing loan offered by the housing finance companies has been falling in the recent years and it is now the lowest. Since the cost of funds to the banking system is lower than the cost of funds to the specialized institutions. the reserve bank of India has given the freedom to commercial bank’s prime lending rates which is in the range of 12. In respect of the banking system.

Over the last few years. commercial banks outsize the HFC’s in market share. in the current market structure. along with stable asset quality.UNIT 5 – HOUSING FINANCE 29th HOUR The major players in the Indian housing finance market are the following: As described earlier. Banks overtook housing finance companies in the market capturing 72% of the market in 2006 from a previous share of 27% at the beginning of this phase in 2001. URBAN AND RURAL HOUSING . supported by greater presence in urban centres and increasing loan size. the share of housing finance companies (HFCs) has increased in the industry on account of robust disbursements growth.

bonds. bank borrowings. HDFC has a diversified and stable resource base comprising fixed deposits.UNIT 5 – HOUSING FINANCE 29th HOUR Financing agencies and their Terms of Lending: The major players in the Indian housing finance market are the following: HDFC: Housing Development Finance Corporation Limited (HDFC) was incorporated in 1977 as India’s first specialised housing finance institution. Deposits constituted around 23 per cent of its total borrowings as of March 2009. URBAN AND RURAL HOUSING . securitisation. and foreign currency borrowings. It also offers property-related services and deposit products. debentures.

URBAN AND RURAL HOUSING .UNIT 5 – HOUSING FINANCE 29th HOUR Financing agencies and their Terms of Lending: The major players in the Indian housing finance market are the following: HDFC: HDFC’s disbursements and outstanding loans posted a CAGR of 25.09 were Rs 396. between 2003-04 and 2008-09.6 per cent and 24.6 per cent. representing a growth of 20.6 billion from Rs 730 billion in the previous year. Total disbursements during 2008.5 billion against Rs 328.9 per cent. representing a growth of 14. respectively. HDFC’s outstanding loans rose to Rs 838.7 billion in the previous year.6 per cent.

UNIT 5 – HOUSING FINANCE URBAN AND RURAL HOUSING 29th HOUR .

UNIT 5 – HOUSING FINANCE URBAN AND RURAL HOUSING 29th HOUR .

UNIT 5 – HOUSING FINANCE URBAN AND RURAL HOUSING 29th HOUR .

URBAN AND RURAL HOUSING . NSE and the Luxembourg Stock Exchange. where it provides long-term finance to individuals for purchase / construction / repair and renovation of new / existing flats / houses. In 2008-09.UNIT 5 – HOUSING FINANCE 29th HOUR Financing agencies and their Terms of Lending: The major players in the Indian housing finance market are the following: LICHFL: LIC Housing Finance Limited (LICHFL) was incorporated in 1989. it disbursed loans to the tune of Rs 87. The company was listed in 1994.08. It is listed on the BSE. a growth of almost 24 per cent over 2007.6 billion. The company mainly provides housing loans.

9 per cent between 2003-04 and 2008-09. GICHFL’s disbursements recorded a CAGR of 6 per cent. The primary business of GICHFL is granting housing loans to individuals and to persons/entities engaged in construction of houses/flats for residential purposes. URBAN AND RURAL HOUSING .UNIT 5 – HOUSING FINANCE 29th HOUR Financing agencies and their Terms of Lending: The major players in the Indian housing finance market are the following: GIC Housing Finance Limited: GIC Housing Finance Limited (GICHFL) was incorporated in 1989 as 'GIC Grih Vitta Limited'. with the objective of providing shelter to all in view of the government’s national housing policy. while outstanding loans posted a CAGR of 18.

CFHL is the first bank-sponsored housing finance company in India. URBAN AND RURAL HOUSINGyear. as compared to the previous . mortgage loans (net worth) and loan against rent receivables. However. while outstanding loans recorded a CAGR of 9. including HDFC and UTI.1 per cent. CFHL’s disbursements registered a negative CAGR of 5.UNIT 5 – HOUSING FINANCE 29th HOUR Financing agencies and their Terms of Lending: The major players in the Indian housing finance market are the following: Can Fin Homes Limited: Can Fin Homes Limited (CFHL) was promoted in 1987 by Canara Bank in association with financial institutions.7 per cent between 2003-04 and 2008-09. The company also diversified by launching non-housing finance products like premises loan for practising professionals (venture).

banks accounted for 64 per cent of the disbursements. However. the market share also started growing up. As the commercial banks started expanding housing-related disbursements. while their collective share decreased to 36 per cent within 5 years.UNIT 5 – HOUSING FINANCE 27th HOUR It was in the year 1970 when Housing and Urban Development Corporation (HUDCO) was established to finance various housing and urban infrastructure activities. Since then. URBAN AND RURAL HOUSING . In 2000. the housing finance in India has been flying high. the Housing Development Finance Corporation (HDFC) was the India's first private sector housing finance company came into existence in 1977. the Indian housing finance companies accounted for 70 per cent of the disbursements. In 2005. It's expected to grow at a growth rate of 36% in the coming years.