HOUSING FINANCE

Session 1. --- what we cover ?

i. Evolution of Housing Finance in India and leading
financiers in the field.
ii. Regulatory Guidelines on Housing Finance
iii. PMAY
iv. Housing for all by 2022
v. Affordable Housing (Scope/ Issues)
vi. Real Estate Investment Trusts (REIT)
vii. Home loans --Lenders Appraisal - Pre-Sanction stage -
Sanction – Documentation – Title Verification -Defects
in Title/ Scrutiny of Title Verification Report
viii. Monitoring-Post Sanction Inspection - Credit
Rating/review.
 Evolution of Housing Finance
 Real estate – largest asset class & largest source of wealth
for people.
 Initially housing sector developed thru self construction
mode.
 Later on came group housing schemes --- thru housing
coop societies, builder’s societies etc.
 Currently PPP has gained tremendous popularity ---- look
at mini cities, malls, multiplexes, IT parks, SEZs etc.
 Plenty of options for financing ---- debt financing, IPO, FDI,
VC, Private equity etc.
 Big push by Govt to housing --- “Housing for All by 2022”
--- 2 crore new houses to be built by 2022.
 Main Players
1. SCBs
2. HFCs
3. RRBs
4. SFBs
5. UCBs
6. State Coop Banks
7. NBFCs

Central nodal agencies ----- HUDCO & NHB

Regulatory guidelines on housing finance -- RBI
 Banks are free to evolve their own guidelines for granting
housing finance but have to ensure that credit is used for
purchase of ready build houses/ constructions activities
and not for speculation in real estate.
 Type of financing --- banks may extend finance for
a. Acquisition of land ---- but with a declaration from the
borrower that he intends to construct a house on the
said plot, with the help of bank finance or otherwise.
b. Construction of building / ready-built house
c. Repairs to the damaged dwelling units
d. Supplementary finance for carrying out alterations/
additions/repairs to the house/flat already financed.
e. for second house to a person who already owns a house
for self occupation.
f. to a borrower who proposes to let it out on rental basis on
account of his posting outside the headquarters or
because he has been provided accommodation by his
employer.
g. to a person who proposes to buy an old house where he is
presently residing as a tenant.
h. for construction in slum area directly to the slum-dwellers
on the guarantee of the Govt or indirectly to them
through the State Govts.
i. for slum improvement schemes to be implemented by
Slum Clearance Boards and other public agencies.
j. to Public agencies and not private builders for acquisition
and development of land provided it is a part of the
complete project including development of infrastructure
such as
i. water systems
ii. drainage
iii. roads and
iv. provision of electricity, etc.
j. to HFCs taking into account their DE ratio, track record,
recovery performance etc.
k. to state level housing boards and other public agencies.
l. to private builders especially where land is acquired and
developed by State Housing Boards and other public
agencies.
 Type of financing not permitted ----
a. For construction of buildings meant purely for Govt/Semi-
Govt offices including Municipal and Panchayat offices.
b. Projects undertaken by Public Sector entities which are not
corporate bodies.
c. For properties meant for residential use but which the
applicant intends to use for commercial purposes.
d. For properties which fall in the category of unauthorized
colonies unless and until they have been regularized and
development and other charges paid.
e. For constructing a house on a plot/land where a copy of the
sanctioned plan by competent authority is not produced.
f. To private builders for acquisition of land even as part of a
housing project.
 Lending norms --- RBI
 while lending to ‘individual housing loans’ banks to
ensure following LTV ratio ( loan/current market value %)
Category of Loan LTV Ratio (%)
Upto 30 lakh 90
Above 30 lakh & upto 75 lakh 80
Above 75 lakh 75

 banks not to include stamp duty, registration and other

documentation charges in the cost.
 banks free to decide ROI on housing loan
 disbursements should be made only after the borrower
has obtained requisite clearances from the government
authorities where ever required.
 Housing For All 2022 --- PMAY
 An initiative of the GOI which aims to provide affordable
housing to the urban poor by the year 2022.
 People belonging to SC, ST, OBC & women belonging to
EWS and LIG also eligible.
 Housing requirement of urban poor including slum
dwellers shall be addressed through following
programme verticals.
i. In-Situ Slum Redevelopment (ISSR)
ii. Credit Linked Subsidy Scheme (CLSS)
iii. Affordable Housing in Partnership (AHP)
iv. Beneficiary Led Construction or Enhancement (BLC)
i. In-situ slum redevelopment (ISSR): using land as
resource, the scheme aims to provide houses to eligible
slum dwellers by redeveloping the existing slums on
public/ private land. Under this scheme, a grant of Rs. 1
lakh per house is provided by the central government
to the planning and implementing authorities of the
states/UTs.
ii. Credit-linked subsidy scheme (CLSS): under this
scheme, easy institutional credit is provided to EWS,
LIG and MIG households for purchase of homes with
interest subsidy credited upfront to the borrower’s
account through primary lending institutions (PLIs),
effectively reducing housing loan and equated monthly
instalment (EMI)
iii. Affordable housing in partnership (AHP): it aims to
provide financial assistance to private developers to
boost private participation in affordable housing
projects, central assistance is provided at the rate of
Rs.1.50 lakh per EWS house in private projects where at
least 35 % of the houses are constructed for the EWS
category.
iv. Beneficiary-led construction or enhancement (BLC):
this scheme involves central assistance of Rs.1.50 lakh
per family for new construction or extension of existing
houses for the EWS/ LIG.
 Affordable Housing (AH)

 With the increasing trend of urbanisation around 40% of the

country’s population is expected to live in urban areas by
2030.
 This population needs proper housing facilities -- both
in our urban as well as in rural areas.
 On the one hand high market prices deters majority of the
population from buying houses. While on the other there is
gap between the demand for houses and its availability a
widening
 In India, affordable housing is needed for LIG, MIG & EWS
who have considerably low levels of income (urban areas).
 Affordable housing thus refers to housing units that are
affordable for those with income below the average
household income.
• As per Planning Commission methodology for
estimation of affordable housing needs,
housing shortages are calculated by adding:
a. excess of households over housing stock.
b. number of households residing in
unacceptable dwelling units
c. those residing in unacceptable physical and
social conditions due to overcrowding and
congestion factor and
d. the houseless households.
 Govt Initiatives for affordable housing
1. PMAY – R & PMAY – U
2. Granting infrastructure status to AH (eligible for FPI/ECB)
3. Increasing time limit for project completion to the
promoters of AH from 3 to 5 years
4. Reducing the tenure for long-term capital gains for AH
from three to two years
5. Revised the qualifying criteria from saleable area to the
carpet area
6. Enhanced the refinancing facility by NHB for individual
loans.
7. GST for affordable housing reduced from 8% to just 1%.
8. Ceiling value of affordable housing increased to Rs 45 lakh.
 RBI initiatives
1. Loans up to Rs. 50 lakhs for houses valued up to Rs. 65
lakhs located in the six metros and Rs. 40 lakhs for
houses valued up to Rs. 50 lakhs at other centres made
eligible under PS lending
2. Allowed banks to issue long term bonds (min 7 years
maturity) to finance loans to affordable housing &
exempting such liabilities from reserve requirement
3. Allowed LTV of 90 % for properties costing up to 30 lakh
4. Cut provisioning requirement from 0.40 % to 0.25 % for
standard housing loan.
 Type of PMAY Scheme

• There are two types of the scheme which are divided on the
basis of the area on which they focus:
1. Pradhan Mantri Awas Yojana – Gramin (PMAY-G) previously
known as the Indira Awas Yojana, christened as PMAY-G in
2016. It aims at providing affordable & accessible housing
units to eligible beneficiaries in rural regions of India
(excluding Chd & Delhi). Under the scheme, the GOI & resp
state govts share the cost of development of housing units in
the ratio of 60:40 for plain & 90:10 for NE & hilly regions.
2. Pradhan Mantri Awas Yojana – Urban (PMAY - U) scheme is
focussed towards providing affordable and accessible
housing units the urban areas in India.
3. to increase credit flow , CLSS is being implemented thru PLIs
as identified by the Ministry
 PMAY Features -- CLSS
Benef Annual Max Loan Interest Carpet Max
Particulars Income eligible for Subsidy area tenure
(Rs lakh) Subsidy (%) (sq. m) (yrs)
(Rs lakh)

EWS 3 6 6.50 30 20

LIG 3 to 6 6 6.50 60 20

MIG 1 6 to 12 9 4.00 120 20

MIG 2 12 to 18 12 3.00 150 20

Eligibility based on census (SECC) 2011

More features:
a. Scheme extended up to 03.01.2022.
b. Eligibility -- Applicant’s belonging to EWS, LIG & MIG are
eligible. Family must not own a house in any part of the
country & must not have availed the benefit of any housing-
related schemes of Govt.
c. For applying under the scheme – online by using PMAY
portal (https://pmaymis.gov.in), use same portal for editing,
tracking status etc.
d. For loan --- apply to any lending institution (LI).
e. Subsidy will range from 3 to 6.5%, max loan of 6 to 12 lakh
& for a max period of 20 yrs or actual whichever is less.
f. LI to apply for subsidy to CNA (NHB) who after verification
shall remit the amt to be credited in borrower’s a/c upfront.
g. Borrower pays the EMI on the reminder amt.
 Affordable housing ---- Issues and Challenges
 Though joint efforts of the Govt & RBI have generated
positive outcome but there are factors which impede the
pace & restrict private sector participation such as
i. lack of suitable low cost land within the city limits.
ii. lengthy statutory clearance & approval process.
iii. shortcomings in development norms, planning & project
design.
iv. lack of participation of large organised real estate players
due to low profit margins.
v. lack of suitable mechanism for maintenance.
vi. challenges in beneficiary selection and
vii. capacity constraint or inadequate capacity of the
implementing agencies.
 Real Estate Investment Trusts (REIT)
 A REIT is a company that owns & operates real estate to
generate income i.e. it makes investments in income-
producing real estate. 
 It offer investors an opportunity to possess high-priced real
estate and enable them to earn dividend income to boost
their capital eventually. 
 These are not much different from mutual funds, except
that instead of investing in equity or debt, they invest in
real estate.
 They make money in two ways:
a. capital appreciation and
b. rental income which is then passed on to investors as
dividends.
 It is mandatory that out of NP at least  90% should be
paid out as dividends to its shareholders.
 In March, 2019, IPO of India’s first REIT was launched
after 2016’s budget having passed the real estate
regulators bill.
 a question may come to mind as to Why to buy REIT
shares and not directly buy commercial properties –
BENEFITS
a. less capital intensive
b. suitable for small investors 
c. transparency
d. assured dividends
e. fast capital appreciation
f. easy to buy
 Types of REITs

TYPE FEATURES

EQUITY Owns and operates income-

producing real estate & lease it
to companies or individuals to
make money.
MORTGAGE Lend money to real estate
owners and operators either
directly through mortgages and
loans & receive EMIs
HYBRID Owns properties and also holds
mortgages
 Limitations of REITs
• No tax-benefits: When it comes to tax-savings, REITs are
not of much help. For instance, the dividends earned
from REIT companies are subjected to taxation.
• Market-linked risks: One of the major risks associated
with REITs is that it is susceptible to market-linked
fluctuations. This is why investors with weak risk appetite
should weigh in the return generating capacity of this
investment beforehand.
• Low growth prospect: The prospect of capital
appreciation is quite low in the case of REITs. It is mainly
because they return as much as 90% of their earnings to
the investors and reinvest just the remainder 10% into
their venture.
 REITs vs Real Estate MFs

 REITs give opportunity to retail/ST investors to invest in

properties which otherwise may not be feasible for them.
 REMFs offer wider diversification than the REITs based on
the investment strategy and have the benefit of experts and
professionals managing their portfolio unlike the REITs.
 REITs distribute a higher amount of dividend each year to
its shareholders or investors than the real estate mutual
funds.
 The value of the real estate tends to increase during times
of inflation as property prices and rents go up, thus giving a
better return to the REIT investor.
 REIT or the real estate mutual fund investment should be
spread across several real estate categories or funds so as
to minimise the risk.
 Home loans --- origination
 it involves ----
i. Borrower’s appraisal ( credit worthiness & lending risks)
ii. Project appraisal & sanction ( credit score, purpose, loan
amount, margin, ROI, repayment etc)
 verify information provided by the borrower such as
i. KYC document
ii. Form 16, ITR/AO, for non salaried persons AO for past 3 yrs
iii. Property title --- clear, unencumbered, mrketable, properly
demarcated.
iv. Land conversion certificate (where needed)
v. Construction as per approved plan & in authorised area
vi. Builders need to be registered with RERA of the State
 Home loans --- Lenders Appraisal
Lenders general norms may be summarised under following heads:
A. Purpose:
a. Purchase of new Independent House/Ready Built /Skeleton /
Unfinished flat /flat in a registered Co-Op Society/from
builders /developers/Govt. Bodies for residential purpose..
b. Purchase of old house not more than 40 years old and flat not
more than 35 years old (life may vary with lenders)
c. Construction of independent house including financing for
purchase of Land (50 % of cost)
d. Purchase of land from Urban Development Authorities/ Govt.
Bodies/Builders/Developer/any other organization / Individual
where plot is having all basic amenities.
e. Extension/repair/renovation of existing house/flat not more
than 50 years old (age may very with lenders)
f. Furnishing -- up to 75% of cost of furnishing s. to a ceiling of
25% of the initial cost of acquisition
B. Eligibility ---
a. Salaried Class/Self-employed Professionals & Businessmen/
Agriculturists -- Singly or Jointly (co borrower/ guarantor)
b. NRIs/PIOs-- Singly or Jointly (co-borrower may be NRI/Resident)
c. Minimum & maximum age limit (21/65)
d. To corporate for purchase/construction of dwelling units/Guest
House, Transit Homes etc. for their employees.
C . Project cost:
e. Purchase price of House/ Flat or Cost of Construction
f. Cost of land ( generally up to 50% of project cost)
g. Cost of Extension/Repair/Renovation/ Furnishing
h. Cost of installing Rooftop Solar PV
i. Stamp Duty, Registration and other documentation charges
j. Cost of amenities (one time --- which are permanent in nature)
D. Income criteria:
a. Salaried persons -- Net THP not to be less than 40% of gross
salary after statutory deductions including proposed EMI for
applicants with GMI up to Rs.50 k & those with GMI > 50 K may
be less say 30 %
b. Non-Salaried Persons --- Professionals, Self-employed and
businessmen monthly income to be taken as 100% of the
assessed income as shown in the last ITR or AO
c. Farmers – x times (say 5/7 times) of the net annual income or
75% of value of land mortgaged as collateral security with a
max cap as fixed by an individual bank .
Second Loan & third Loan for acquiring new House / Flat/
construction /repair /renovation/extension can also be given
after 6 months & 36 months resp of regular repayment of
existing loans s. to complying with income criteria.
E. Loan Entitlement:
 On the basis of purpose/Cost of project & monthly income vis-à-vis
EMI -- which ever is least shall be the eligible amt.
 On cost basis --- 75% to 90% of the cost depending on loan amt e.g
up to 90 % for loans of 30 lakh .
 On income basis --- generally net income after statutory deductions &
EMI should be at least 40 % of the GMI – an amt considered just
sufficient for sustenance of a family of four.
 Different lenders may have diff norms which are usually based on the
income e. g. GMI up to Rs.50 K -- permissible deductions 60% of GMI,
above Rs.1,00,000/- even 75% may be permitted.
 Similarly for NRIs & PIOs -- permissible deductions may be 50/60%
depending GMI.
F. Processing fee and other charges ---- shall vary among lenders in
respect to processing fee, documentation charges, legal charges,
valuation charges, charges for CIBIL report, CERSAI & inspection
G. Margin: 10 to 25 % depending on amt of loan
H. Rate of Interest ---
floating or fixed --- varies with lenders.
I. Repayment/Moratorium Period ---
repayment period varies 20 to 40 years in the shape of EMI &
moratorium varies from 6 months (ready flats) to 24 months
(construction). EMI can be stepped up i.e low initially say for 5
yrs & them step up.
J. Security:
EMT of the property & Personal Guarantee of spouse. Ensure to
enter charge in CERSAI within 30 days from the date of
creation of Mortgage.
K. Disbursements:
for ready build flats/ flats at construction stage PO/DD should
be issued in the name of the banker to the builder/seller with
the bank account number on it, for construction release
money depending on progress of work in 3/4 stages
EMI:
 for arriving at EMI of the loan, EMI tables are
there from which we may arrive at the amt.
 Formula for calculating EMI is as under:

EMI = Pₓ r ₓ (1+r)ⁿ / [(1+r)ⁿ -1]

where P = principal (amt of loan)
r = ROI/ month ( 10% pa means 10/12* 100)
n = number of instalments
L. Other features:
i. Some lenders insist on life insurance of borrower
ii. Intt is applied on daily reducing basis
iii. Some lenders allow repayment up to 70 yrs of age
iv. Some lenders offer step up/step down EMIs
v. Govt has allowed tax benefits on interest & instalments
repaid
vi. Income of close relatives can be included for enhanced
loan.
vii. Some banks also CC facility to home loan borrowers based
on amount of loan repaid
viii. where cost of houses does not exceed Rs. 10 lakh banks
may add stamp duty, registration & other documentation
charges to the cost of house for calculating LTV ratio.
Pre sanction stage ---- Bank to obtain
1. Prescribed application form complete in all respects
2. Statement of means of applicant
3. Submission of Bank’s Pass Book / Statement of a/c for last six
months .
4. Proof of Identity/Age (ration card, voter’s ID Card, PAN Card,
Pass Port, driving licence) i.e KYC compliance
5. Proof of Employment/Income ( Salary Slip for the last three
months, Form 16, ITR/AO)
6. Proof of undertaking the business (For Non-Salaried Class
people) [ Trade license, statement of a/c (CA/CC), Financial
statements)
7. Letter of allotment from housing board /society/ sale Agreement
8. Site visit --- property to be financed as well as place of
residence/business
Sanction stage :
1. Verification of property title ---- Legal opinion / Search
Certificate i. e obtain NEC from bank’s empanelled lawyer
2. obtain certified copy of title deeds & compare and scrutinize
with the original.
3. Credit information score, if having credit history
4. Certificate from the Bank’s Empanelled Chartered Engineer /
Valuer regarding the age of the house / Flat and its residual life
in case of repurchase.
5. Estimate of the cost of construction / repair / extension from the
Bank’s Empanelled Valuer / purchase consideration for ready
built flat.
6. Sanction Plan issued by Corporation/Municipality/Panchayat a
7. Receipt of Initial Payment made to the seller for executing the
agreement for sale.
8. Sanction plans approved by competent authorities
Documentation: lenders obtain documents relating
a. Loans
i. TL agreement
ii. Mortgage deed for simple mortgage & for EMT a letter
subsequent to creation of mortgage, Valuation report
iii. Guarantee letter from guarantor
iv. Assignment of life policy
v. Authority letter from borrower for making payments.
b. Property
vi. Sale deed/agreement to sell
vii. Legal opinion --- NEC along with entire chain of documents
viii. Letter of allotment from society/builder/Board
ix. Copy of approved plan, Possession certificate (if applicable)
x. If 2nd charge or pari passu charge, letter from 1st charge holder/
other lender
Mortgage ---
 Mortgage is the transfer of an interest in specific immovable
property for the purpose of securing the payment of money
advanced by way of loan, an existing or future debt, or
performance of an engagement which may give rise to
pecuniary liabilities ( sce 58 (a) of TPA, 1882).
 Transferor/borrower is called as mortgagor, transferee/lender
as mortgagee & instrument by which transfer is effected is
called as mortgage deed.
 Generally two types
a. Simple or registered or legal mortgage
b. Mortgage by deposit of title deeds or Equitable mortgage
 Mortgagee in whose favour charge is created first shall have
the priority.
 Ascertain the tenure of land ---reehold/leasehold/state owned
Rights of mortgagor/borrower:
a. Right of redemption
b. Right to get mortgage transferred to 3rd party
c. Right to inspection
d. Accession to mortgaged property
Rights of mortgagee/lender:
e. Right to sue for mortgage money
f. Right for sale
g. Right of foreclosure
h. Right of possession in certain cases
i. Accession to mortgaged property
Registration:
i. Properties mortgaged by simple mortgage are necessarily
required to be registered with sub registrar of assurances.
ii. Mortgage created by EMTD are required to be registered in
some states such as Maha, TN, Gujarat, MP etc., thses are
not required to be registered in states like Delhi, Haryana,
Punjab, HP etc.
iii. Registration attracts stamp duty as per resp state laws.
iv. Documents requiring registration must be presented for
registration within 4 months from the date of execution.
v. If registration is delayed , another 4 months may be given
by Registrar after imposing penalty.
vi. Document for registration is to be presented by the
concerned person himself or by his authorised rep.
 Other relevant issues
CERSAI –
i. charge is to be created with CERSAI (Central Registry of
Securitisation Asset Reconstruction & Security Interest of
India) in respect of all loans given against the security of
immovable & movable assets within 30 days from the date of
creation of charge.
ii. Registrar may permit another 30 days at his discretion for filing
beyond stipulated 30 days with penalty.
iii. Objective is to give a notice to public at large that assets are
charged to a particular bank.
iv. It shall help avoid unscrupulous elements availing finance from
multiple sources against same security.
 monitoring- --- details covered in session -3
 Insurance --- against risks of fire/earthquake
Annual review & ratings:
 annual review of account/rating should be carried out to
monitor parameters like:
i. Repayment record in last 12 months
ii. Documentations --- that these are as per sanction terms
iii. Security cover i.e. LTV ratio – lender’s comfort
iv. Income level improvement/deterioration
v. Liquidity position of the borrower
RERA Compliance ---
vi. every state has RERA (Real Estate Regulatory Authority)
and all projects undertaken by the builders/developers
need to be registered with RERA.
vii. lenders while lending ensure that project has approved by
RERA & it has a registration no. allotted by it.
 Home loan frauds
 With the tremendous growth in home loans there have been
large number of fraud incidences. Followings are some of the
home loan fraud prone areas;
i. Fabrication of income documents like IT return/BS ETC.
ii. Loans disbursed by cheques/DD, encashed by third parties
iii. Title deeds forged
iv. Over- valuation of property
v. Multiple financing
vi. Cancellation of booking of flats/property --- collusion between
borrower & builder
vii. Sale of property by loanee without clearing existing loan, by
creating fake title deeds
viii. Siphoning off funds
THANK YOU
Example:
1. Cost of Flat = Rs.50 lakh
2. Stamp duty, registration charges = Rs. 5 lakh
3. loan amt requested = 49.50 lakh
4. Gross monthly income = Rs. 1, 25,000/-
5. Monthly TDS = 15,000/-
6. Monthly PF deduction = 10,000/-
7. Tenor of loan = 20 yrs
8. Interest rate : 10 % p.a (floating)
9. Margin requirement: as per RBI norms
Calculate
10. eligible amount of loan and
11. EMI
Ans:
1. loan amt = 80% of cost = 40 lakh (RBI norms say margin 20 %
& stamp duty & docu not allowed)
2. GMI = 125000/-
a. less ded = 25000/- ( PF & Tax)
b. Net Income = 100000/-
3. EMI = P * r* (1+r)^ n/ [(1+r) -1]
= 100000* 0.10/12 * ( 1+.1/12)^240/ [1+.10/12 -1]^240 -1]
= 100000*0.0083 * (1.0083)^240/ (1.0083)^240 -1]
= 100000* 0.0083* 7.2701/(7.2701 -1]
= 962.37
& for 40 lakh E = 962.37 * 40 = 38494 say 39000/-
A. EMI = 39000
B. NI – 40% = 60000
If B is more than or equal to A , E is acceptable