Housing

FINANCE
 Housing Finance - A Key Driver for Economy
Housing
◦ is a basic necessity, for an individual
◦ supports economic activities, for a family / community
◦ is a catalyst, for creating multiplier effect in other sectors
◦ is a labour intensive activity, for increasing the per capita income
◦ is an engine of growth, for the national economy

Housing Finance
◦ Strengthens the Financial System – Leads to Investment Demand
◦ Increases the Assets Formation – Leads to Formation of Household Physical
Assets
◦ Serves the Social Cause – Key to Development of Human Settlement
◦ Meet a growing housing demand - urbanization, demographics
◦ Prevent slum proliferation - cities built the way they are financed
◦ Reduce poverty - asset building, retirement, empowerment, community
strengthening, improved living conditions
◦ Take part in the financial sector liberalization - banks, non bank lenders,
domestic bond markets, pension funds, etc.
 Housing Finance Market

Financial
Market NHB

HFCs Banks MFIs

Capital
Fiscal and
Market
Credit
Policy Financial Sector
Affordability
Support Informal
Sector
Real Estate Sector
Housing
Market
Land
Public Private & Infrastructure
Agencies Developers Construction
 Evolution of Housing Finance Market in India
Pre NHB Post NHB

National Housing
Centralized 1st private sector Commercial banks get Microfinance institutions
Bank: Regulatory &
direct credit retail housing active in direct lending and foreign banks get
supervisory body /
for housing finance active in the housing
finance institution refinancing agency
finance market.
established 54 HFCs active in the
market

Pre Late 80’s and

1971 1977 1988 Late 90’s 2008 2009-11
1970 Early 90’s

Sub Prime crisis.

HUDCO established: Public Public sector banks / Indian Mortgage Market
Sector, wholesale lending insurance companies shows resilience
promote HFCs

Source: Indian Housing Finance Market Outlook to 2015, Mindpower Solutions

 Housing Finance Market Classification

SBI, Bank of Baroda, Canara Bank,

Banks Public Sector Banks
H PNB, Dena Bank, Bank of India etc.
O
U HDFC Bank, ICICI Bank, Axis Bank,
S Private Sector Banks
ING Vysya Bank etc.
I
N
G Standard Chartered, Citibank, HSBC
Foreign Banks
etc.
F
I DHFL, HDFC, GRUH, Indiabulls Housing Finance, Reliance Housing
Housing Finance
N Finance, Sundaram BNP Paribas, Religare Housing Development Corp
A Companies
etc.
N
LIC Housing Finance, GIC Housing Finance etc.
C
E Insurance Companies Key Players providing Home Insurance: New India Assurance, National
Insurance, ICICI Lombard, Bajaj Allianz, IFFCO-TOKIO, Tata AIG etc.
M
A Micro Housing Finance Corporation, MAS rural housing and mortgage
Micro Finance Institutions
R finance etc.
K
E Development Financial
T HUDCO, NABARD, SIDBI, Apex Co-operative Housing Federations,
Institutions, Co-op State Co-operative Agriculture and Rural Development Banks etc.
Housing Societies
 Characteristics of housing finance

Long term finance with repayments spread over 15-20 years

Most of the people prefer loan at fixed interest rate.

The concept of variable interest rate is slowly picking up with the expectation of further
southward movement of interest rate.

Market is becoming very competitive after the entry of banks in financial institutions in retail
lending.
The spreads are declining the competition and unless long term funds at reasonable interest
rates are made available, it would be very difficult to maintain bottomline.
 Expanding Housing Finance

Products
◦ Credit products (term, rates, amortization)
◦ Broader distribution channels
◦ Mortgage credit insurance for lenders
◦ Micro finance applied to housing
◦ Housing saving schemes
◦ Construction, infrastructure and rental finance

Policy
◦ Affordable land use & urban development rules
◦ Efficient registration of property titles & liens
◦ Smarter HF-related subsidies
◦ Instruments to reallocate part of the additional risks
◦ Framework for long-term mortgage securities (different models)

8
 Indian Mortgage Market

• Steady growth

• Served by specialised HFCs & Commercial Banks - synergies

• Proactive and Risk based Regulation

• Conservative lending practices; Originate to hold

• NPAs well contained

• Shift from high-end market to Affordable housing

• Market segmentation – diversified risk
• Broad based stakeholding – induces stability

9
 INITIATIVES TO STRENGTHEN MORTGAGE FINANCE
Implementation of Foreclosure Norms
 No foreclosure norms existed till 2002
 Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act,
2002 (SARFAESI) enacted to facilitate recovery of defaulted loans
 Helped reduce non-performing assets and brought discipline amongst borrowers to repay loans

Credit Bureau
 India’s first credit bureau established in 2000. Has helped in strengthening the credit appraisal
process

NHB RESIDEX
 Index to monitor city wise residential price movements

Mortgage Registry
 The Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI)
became operational in March 2011.
 Central registry helps to reduce frauds arising from multiple lending by different lenders on the
same immovable property

Mortgage Guarantee/Insurance
 Credit risk will be mitigated to some extent, thereby encouraging lenders to provide loans to those
from the informal sector or lower income groups
 BANKS V/S HFCs

Banks Key Players Housing Finance Companies

(HFCs)

Reserve Bank of India Regulator National Housing Bank

Access to low cost funds via current/saving Advantages Dedicated players, better
accounts customer service
Extensive branch network Lower operating costs

High operating costs Disadvantages Smaller branch network

11
About National Housing Bank (NHB)
An apex Institution for Housing Finance System in India
Established in 1988 by an Act of the Parliament
Preamble of the National Housing Bank Act, 1987
“An Act to establish a bank to be known as the National Housing Bank to operate as a
principal agency to promote housing finance institutions both at local and regional
levels and to provide financial and other support to such institutions and for matters
connected therewith or incidental thereto.”

Equity fully held by the Reserve Bank of India

Functions
◦ Promotion & Development of Housing Finance System
◦ Co-ordination with the Government
◦ Participation in the equity of HFCs
◦ Training Programmes /Workshops
◦ Promotion of RMBS Issues
◦ Research in Housing & Habitat related areas
◦ Regulation & Supervision
◦ Refinance to Primary Lending Institutions
◦ Project Finance to Public Agencies / SHGs / MFIs
 National Housing Bank - Objectives
NHB has been established to achieve the following objectives:

a. 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.
b. To promote a network of dedicated housing finance institutions to adequately serve various
regions and different income groups.
c. To augment resources for the sector and canalize them for housing.
d. To make housing credit more affordable.
e. To regulate the activities of housing finance companies based on regulatory and supervisory
authority derived under the Act.
f. To encourage augmentation of supply of buildable land and also building materials for housing
and to upgrade the housing stock in the country.
g. To encourage public agencies to emerge as facilitators and suppliers of serviced land, for
housing.
 The national housing bank
(amendment) Act, 2000
The parliament passed the 'National Housing Bank (Amendment) Act, 2000' which has
come into force from 16th June 2000.
The need for a summary procedure was long felt for housing finance institutions for giving
impetus for creation of 'Secondary Mortgage Market'.
Bank Project Opportunities (Loans, Guarantees, TA)
•Land use, urban development and housing policy
•Property title registration and effective foreclosure
ENVIRONMENT/ •Construction quality, security and finance
INFRASTRUCTURE
•Land infrastructure
•Professional real estate intermediaries
•Effective rental markets
•Smarter subsidies

•Finance lower income housing

•Safe lending regulations & standards
PRIMARY
MARKET
•Consumer information & protection
•Risk management tools (insurance, guarantees)
•Micro finance, housing savings, Islamic finance
•Capacity building & funding of lenders, insurers

•Choice of proper model (s)

•Legal and regulatory framework
SECONDARY
MARKET •Access to longer-term matched funding
•Take off funding or guarantee support

15
HUDCO

HUDCO, also known as the Housing and Urban Development Corporation Ltd was
formed on 25th April, in the year 1970. It was formed under 1956 Companies Act.

Major public sector agency – channelizes investible funds to State housing boards,
Development Authorities, Improvement Trusts, and co-operative societies.

HUDCO deals with and gives special emphasis on the social perspective of the
infrastructure and housing related amenities.

Despite being commercial in its approach and initiatives, the board gives greater
emphasis on the sections that requires attention than the sector which are
commercially at a higher value. 
HUDCO Objectives
 
•To take total responsibility or fund the development satellite towns. The board takes the
responsibility of setting them up too.

•To assist in the provision of the long term funds for the establishment of the homes for
residential purposes. At times the board also undertakes the entire responsibility of urban
development across the country.

•To help in the development or the allocation of the industrial resources of the building
materials.

•To set up, aid, promote and also provide consultancy services for the concerned projects
undertaken. This involves planning, designing pertaining to housing and urban
development agenda’s in India as well as abroad.

•The board also regulates the fund that is derived or received from the Government of
India, on recurrent basis. Other channels pertaining to this also includes the grants that are
received for urban development across the country.
The Co­op Housing Movement
The co­operative housing movement in India is a four tier
structure: housing co­operatives, district federations, state
level federations and the national federation.

Set up in 1969, the National Co­operative Housing

Federation of India (NCHF) is the nation­wide organization
for the co­operative housing movement in India.

NCHF takes the lead in promoting, co­ordinating and

facilitating the development of housing co­operatives, along
with providing guidance to housing co­operatives and their
federations.

NCHF is also sponsored by the Ministry of Housing and

Urban Poverty Alleviation which enables them to receive
regular grant-­in-­aid.
Characteristics of Indian housing co­operatives are:

• Basic Amenities: They manage the basic amenities like

water, electricity, sanitation.

• Education and Recreation: They build and manage schools,

libraries, parks, and gardens.

• Health and Lifestyle: They can develop programs for the

benefits of their members such as health programs, youth
programs, collective transportation arrangements, and
ecological improvement programs.

• They are managed by paid/honorary staff and an elected

board of directors.
Types of housing co­operatives:

• Tenant Ownership Housing Societies: The land is held either on

leasehold or freehold by the societies; the members own the houses,
and are leaseholders of the land. They must strictly comply with
regulations regarding subletting and transferring of houses but they
can build their houses according to their own needs and taste.

• Tenant Co­-Partnership Housing Societies: The societies hold both

land and building, either on leasehold or freehold basis, and members
have an occupancy right upon paying an initial share and a monthly
rent.
Types of societies­-support system for housing co­operatives

• Housing Mortgage Societies: These are like credit societies

which lend money to their members for the construction of
houses. Though, the arrangement for the construction is the
member’s responsibility.

• House Construction Societies or House Building Societies:

They build the houses on behalf of members, which are then
handed over to them upon completion and the money spent
is recovered through loans.
Financing
Housing co­operatives are financed by members’ shares and savings and
assistance from their federations or other financial institutions.
The federations obtain financing from:

Shares from the housing co­operatives, the States and other co­operative
institutions;

Loans from the Housing and Urban Development Corporation (HUDCO),

the National Housing Bank (NHB), the Life Insurance Corporation of India
(LIC), commercial and cooperative banks, deposits from members;

Debentures guaranteed by the Government.

 Sector Profile – Wide Stakeholding

Central
Real Government Financial
Sector Sector
Policy Policy
& &
Programmes Programmes

PUBLIC
PRIVATE Instns &
Facilitator Partnership Financial
State/Local
& Products
Governments Institutions
Enabler

Formal Informal
Sector Sector

Affordable Housing for All and Financial Inclusion

–Mutually Consistent Themes
 Housing Finance – Moving Forward
• Development Authorities to act as Facilitators for supply of land
• Self-Help Groups and Micro Finance Institutions Involvement
• Legal Reforms - Land Laws, Rent Control Act
• Rationalization of Stamp Duty, Property Taxes
• Streamlining of Land & Property Records
• Creating a Reliable Centralized Database on Housing Sector
• Developing a Housing Price Index – Nation-wide
• Rating Mechanism for the Builders/Projects
• Encouraging Public-Private Partnership (PPP) for the Development of Large
Scale Township/Satellite Housing Projects
• Flow of FDI for Real Estate & Housing Development
• Institutional Arrangement for Mortgage Credit Guarantee/Title Insurance
The Housing Finance Matrix- Fitment of Bank, HFC and MFI
“Housing microfinance is defined as the
provision of unsecured microcredit to meet
the demand of low-income households to
repair or improve their existing homes
or build their own homes over time.

These loans are typically unsecured, and

credit assessment is similar to the same
cash flow and character analysis process
applicable to individual entrepreneurs for
small business loans but often includes
some documentation to verify residence,
a list of building materials and an estimate
for labor.”
Microfinance institutions (MFIs) have long observed that clients use
loan proceeds to incrementally improve their homes, suggesting that the
economically active poor people can finance their needs in a manner
that is incremental and affordable and under conditions that allow the
MFI to cover all associated costs, thus Microfinance has potential
beyond income generating (enterprise) uses and can apply to personal
asset building (housing).
Key Features of Housing Micro Loans
The key features housing microfinance loans are:

(1) Small loan amounts that are based on clients’ capacity to

repay and tend to finance habitat needs in an incremental
manner;

(2) Short repayment periods (especially in comparison to

mortgage lending) and are at par with mid- to high-end
microfinance individual loans;

(3) Loan pricing is expected to cover the real, long run costs--
operational and financial--of providing the service;

(4) Loans are not heavily collateralized, if at all, and collateral

substitutes are often used;

(5) If the provider is an MFI, credit services for housing can be

linked to prior participation in savings or more traditional
microenterprise loan services.
The Pre-requisites for large scale
market penetration of housing
microfinance are:

• Large and profitable

microfinance industry

• Supportive regulatory framework

and enabling environment

• Access to dedicated debt funding

for HMF products

• Institutional champions such as

MFIs, NBFIs and HFCs
The importance of housing microfinance lies in:
• Shelter is a basic human need that helps ensure personal
safety and health. Housing microfinance offers small,
incremental loans that fit with the way poor people build:
progressively and over time.

• The home is a personal asset that usually appreciates in

value over time. Thus, home improvement not only
enhances living conditions, it is an investment.

• Micro entrepreneurs often use their homes as productive

assets in generating income. The home can be a place to
produce goods, store inventory, and conduct business.