HOUSING FINANCE MARKET IN INDIA

Presented By:Onkar Prasad Sanjit Kumar Sonal Kumar Arun Lall Gupta Prateek Vidyarthi Abhisekh Rajpurohit Alok Kumar Pragati Singh
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ECONOMIC HIGHLIGHTS

Social Demographics
Population: 1.03 billion (2001 Census) of which about 28% reside in

the urban areas. Increasing trends of urbanization with mass migration towards cities.
Young

population with median age around 24.9 years. Approximately 54% of the population aged 24 years and below.

A significant proportion (57.7%) of the population in the working age

group of (15 59) years.

Around 26.1% of the population living below the poverty line. Increasing per capita income in recent years has led to the growth of

an emerging middle class with growing purchasing power, providing necessary impetus for growth of consumerism.
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INDIAN ECONOMY - HIGHLIGHTS

All round Infrastructure improvements roads, telecom, ports

Rapid GDP Growth

Financial Sector Reforms

Shift towards market based approach

Strong macroeconomic fundamentals backed by sustained growth. Services sector accounts for around 6570% of the GDP. One of the most attractive destinations for FDI globally. Indication of strong investor confidence. Progressive measures towards Deregulation and Globalization leading to global integration. Financial sector reforms backed by robust regulatory and prudential norms leading to a well-developed banking system and vibrant capital market. Indias Mega-Cities of Mumbai & Delhi will be the words 2nd and 3rd largest cities by 2015. Jones Lang LaSalle.

Indian Economy Recent Trends

Economic recovery during 2010-11 with GDP growth estimated at 8.6%

as compared to 8% during 2009-10. (CSO Estimates) sector grew at 9.6% during the period.

Industrial growth recorded at 8% during 2010-11, while the Services

Accentuated inflationary pressures in the economy mainly attributed to

spurt in food prices during the year mainly due to supply side bottlenecks. Phased exodus from expansionary monetary policy towards monetary tightening so as to curb mounting inflationary pressures.

Trade Deficit declined to US$ 88.96 billion during 2010-11 (April-Jan)

from a peak of US$ 118.4 billion during 2008-09. compared to US$ 252 billion (March, 2009)

Foreign Exchange Reserves stood at US$299.2 billion (January, 2011) as

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HOUSING CONDITIONS

Housing Stock
As per Census 2001, total housing stock in India was about 249

million units. rural areas.

29% of the housing stock was in the urban areas and 71% in

Growing population and sustained urbanization have kept the

available housing stock under increasing pressure. country between 1961-2001.

Sustained improvement in the quality of housing stock in the

A majority of the households live in permanent (pucca) or semi-

permanent (semi-katcha) houses in rural as well as urban areas.

Housing Shortage & Slum Population

Housing shortage in India has witnessed an increasing trend over the years. The housing shortage in urban areas at the beginning of 2007 is about 24.71 million units and is likely to go up to 26.53 million units by 2012. In rural areas housing shortage is estimated to reach 47.43 million units by 2012. 99% of the shortage in urban areas pertains to Economically Weaker Sections and Lower Income Groups. As per the Report of the Committee on Slum Statistics/Census, GOI, the slum population in 2001 was 75.26 million (26.31% of the urban population). One out of every four persons reside in slums in Indias cities and towns with the proportion of population living in slums and squatter settlements significantly higher in metropolitan cities. Slum population is expected to increase to 93 million by 2011 and 104.6 million by 2017.

Stakeholders in Housing
Stakeholders Extent of Participation Focus Areas Policy formulation and implementation of special programs for EWS/LIG sections Supportive and environment conducive Government Central and Formulating and State Level implementing policies and programs particularly for the EWS/LIG sections Monitoring and evaluation exercises Public Sector

Housing Boards, Provision of land and basic Development Authorities, infrastructure Public Agencies, Municipal Focus on EWS/LIG/MIG Corporations etc. housing Developers Builders Construction Companies Self Builders sub-contracting Cooperative societies Integrated Township Development particularly in metro and semi-metro areas. Focus on MIG/HIG segments Individual houses Cooperative societies Self Help Groups

Private Sector

Individuals/SHGs/NGOs
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Housing: An agent for Financial Inclusion

Housing has direct impact on employment and income generation An engine for Equitable and Balanced Economic Growth. Impact in terms of Improved habitat, Living, Educational, Social and Cultural standards leading to Human Capital Formation and thereby the future Income capabilities. Improved productivity leads to enhanced Income, Savings and Repayment potential on sustainable lines. Sustainable Human Settlement: An Effective tool towards Financial Inclusion with Financial Stability and Social Inclusion

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HOUSING FINANCE IN INDIA

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Evolution & Growth

Predominantly comprised of informal sources of credit till the late eighties as

there were very few takers of housing loans and no support for formalized institutions.

In 1988 NHB was established as the promoter, financer and regulator of

housing finance institutions in India. private sector.

Since 1988, number of HFCs have increased in the public as well as the

Commercial Banks, which were initially reluctant to lend, are now into

disbursement of housing loans in a major way.

Low interest rates, rising disposable income, stable property prices and fiscal

incentives have made housing finance an attractive proposition.

Increase in market share of Banks from 31% in 2000-01 to over 60% in 2008-

09; the growth is mainly attributed to their large network, access to low cost deposits and equity support from Govt. which have helped in offering home loans at lower rates of interest.

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Share of HFCs decreased from 69% in 2000-01 to about 38% in 2008-09.

Key Trends
Sustained growth in recent years with a CAGR of around 21% during

2003-11 supported by a prudent regulatory regime and robust performance of Banks and specialized HFCs. NPAs comfortably low. risk.

Prudent and well-regulated lending practices have helped keep the

Market segmentation based on borrower profile has helped diversify

Significant demand for housing as affordability and accessibility are

major challenges for the low and moderate income population. Resultant shift in market focus towards Affordable Housing. from 3.4% in 2001 to 7.25% in 2007. However, continues to be abysmally low compared to other countries.

Estimated outstanding housing loan as a percentage of GDP has risen

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Housing Loan Outstanding

(Rs./billion)
$ 104 billion $ 122 billion

$ 90 billion $ 82 billion $ 71 billion

5471

4691

$ 59 billion
3670

4038

Total Banks HFCs

$ 44 billion $ 32 billion $ 22 billion $ 17 billion $ 13 billion

983 746 586 254 332 328 418 491 492 591 705 862 853 1444 1791 1268 2653

3212

3664 1973 2770 2578 2310 3159

902

1092

1268

1532

1807

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011*

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*Provisional

Housing Finance Disbursements

4,000
$ 40 billion

3,500

Disbursals (INR in billion)

$ 29 billion

$ 34 billion

3,000
$ 27 billion

1,817

2,500
$ 23 billion $ 19 billion
1,520

Total
1,327 1,197

2,000
$ 17 billion
1,017 860

Banks HFCs

1,500
$ 9 billion

$ 12 billion
764

1,105 944 843

1,000
$ 5 billion $ 4 billion
414 504 182 56 126 232 86 146 236 178 328 209 260 274 317 413 537 700 586 784

500

484

575

712

0 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11*

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*Provisional

Institutional Hierarchy
Kind of Institutions All India Institutions NABARD Level Financial such as NHB, Regulator Reserve Bank of India Target Groups Refinancing Institutions catering to all segments of the society with particular focus on EWS/LIG and rural sections. All segments of society in both urban and rural areas. Initiated major steps towards linking the informal sector with the formal sector.. Dedicated institutions which lend towards housing. Catering largely to the middle and higher income groups particularly in the urban and semi urban areas, they have limited presence and reach in rural areas. Deep presence across the country, particularly in the rural areas, however, has had limited success in lending for housing due to poor financials. Recent foray into housing particularly in respect of home improvement finance for the poor and lower income segments.

Banks including Regional Rural Banks, State Co-operative Banks and Foreign Banks

Reserve Bank of India

Housing Finance Companies

National Housing Bank

Cooperative sector Institutions

State Cooperative Acts

Microfinance Institutions/NGOs/SHGs 16

Unregulated (Act to be introduced for regulating the same)

Governance
Housing Finance Companies promoted and regulated by National Housing

Bank.

Banks regulated and supervised by the Reserve Bank of India. Cooperative sector institutions adopt norms as defined under the Registrar

of Co-operatives Societies registered in each State. Resultantly, such institutions can have varied norms depending upon the State laws etc.

MFIs/NGOs/SHGs are currently unregulated and are guided and

governed by their respective norms/principles etc.

Regulatory bodies under their respective acts also frame guidelines and

directions on areas such as lending norms, prudential norms, provisioning requirements, asset quality and capital, asset liability management, customer guidelines, fair practice codes, anti-money laundering requirements of capital, etc.

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Products Offered/Terms & Conditions

Parameter Housing Product offered Banks Wide range of products ranging from new home loans, home improvement loans, land purchase loans etc. HFCs Products include home improvement loans, home extension loan, short term bridge loans, land purchase loan, home equity etc Maximum 80% Maximum 40% Average size INR 0.6 million Maximum 15 years Slightly higher than Banks however more competitive than CSOs/MFIs. Both floating and fixed rates are offered. Mortgage of financed Maximum 2% Maximum 2% the property Co-operative Sector/MFIs/NGOs Limited products mainly catering to home improvement loans being integrated with livelihood finance.

Average LTV Ratio Average IIR Loan Size Loan Tenure Interest rates

Maximum 80% Maximum 40% Average size INR 0.4-0.5 million Maximum 20 years Linked to Base Rates and are usually competitive on account of low borrowing cost. Both floating and fixed being offered.

Maximum 75% Maximum 35% Usually up to INR 0.05 million Maximum 5 years Usually higher than other institutions on account of higher costs. Only fixed rates of interest offered. Mortgage of the property financed/Group Guarantee etc Not available Not insisted upon

Security/Collateral

Mortgage of the property financed

Service charges Prepayment 18 Charges

Maximum 2% Maximum 2%

Issues & Challenges

The buoyant growth in the housing and housing finance markets in

recent years, has not been inclusive.

A majority of Indias population, especially the poor and slum

dwellers, not only lack access to housing and housing finance in the formal sector.
In India, about 23.1% of the urban population reside in slums where

the quality of housing stock and basic amenities like potable water, sanitation, sewerage etc. is extremely poor.
Around 99% of the housing shortage of 24.7 million at the beginning

of the 11th plan period pertains to the EWS and LIG segments.
Initiatives have been taken by the Govt. and formal and informal

institutions, particularly targeting the neglected segments like the EWS/LIGs etc.
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Policies & Programs

 National Urban Housing and Habitat Policy, 2007  Implemented by Ministry of Housing and

Alleviation  Promote & enhance the role of Government as facilitator and regulator  Focus on habitat with regional planning approach  Earmark land for EWS/LIG groups  Focus on governments social housing schemes so as to increase affordable housing  Jawaharlal Nehru Urban Renewal Program  Basic Services to the Urban Poor  Integrated Housing and Slum Development  Indira Awas Yojana  Cash subsidy scheme for rural BPL families Impetus on Affordable Housing  Interest Subsidy Scheme for Housing the Urban Poor  1% Interest Subvention Scheme
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Urban Poverty

Institutional framework
It can be segregated into three categories
Public Sector Finance Banks Private Sector Finance

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Public Sector Finance

a. b. c. d. e.

HUDCO (Housing and Urban Development Corporation Ltd. LICHFL (Life Insurance Corporation Housing Finance GICHFL (General Insurance Corporation Finance Ltd. PNBHFL (Punjab National Bank Housing Finance Ltd. SBIHF (State Bank of India Housing Finance)

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BANKS

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Private Sector Finance

a) b) c) d) e)

HDFC (Housing Development Finance Corporation) DHFCL (Dewan Housing Finance Corporation Ltd.) GHFCL (Global Housing Finance Corporation Ltd.) BHFL (Birla Home Finance Ltd.) Maharishi Housing

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National Housing Finance

y Absence of specialized institutions catering to housing credit needs of the

population.

y Need for an apex level institution for developing a market-oriented housing

finance system in the country.

y NHB Established in 1988 by an Act of Parliament as the Apex Institution

for the Housing Finance System.

y Wholly owned by the Reserve Bank of India.

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 shall act on business principles with due regard to public interest. (National Housing Bank Act, 1987)
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Business of the National Housing Bank

y Underwrites the issue of stock, share, bonds,

debenture and

securities.
y Research and surveys on construction techniques and other

studies
y Formulation of one or more schemes. y Coordination with LIC, UTI and GIC y Act as a an agent of the central Govt.

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Role of the National Housing Bank

y Borrowing and Acceptance of Deposits by National

Housing Bank.
y Power to acquire rights y Access to records or power to inspect y Advisory services y Funds

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THANK YOU