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HOUSING FINANCE
MARKET IN INDIA
Workshop on Housing Finance, Mongolia
June 27, 2011
Mongolia
1
ECONOMIC HIGHLIGHTS
2
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.
3
INDIAN ECONOMY - HIGHLIGHTS
All round
Infrastructure
improvements
– roads,
telecom, ports
Financial
Sector
Reforms
4
Rapid GDP
Growth
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.
• ‘India’s “Mega-Cities” of Mumbai &
Delhi will be the word’s 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)
• Industrial growth recorded at 8% during 2010-11, while the Services
sector grew at 9.6% during the period.
• 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.
• Foreign Exchange Reserves stood at US$299.2 billion (January, 2011) as
compared to US$ 252 billion (March, 2009)
5
GDP Growth Trend
6
Source: Macro-economic & Monetary
Developments, RBI, 2010-11
HOUSING CONDITIONS
7
Housing Stock
• As per Census 2001, total housing stock in India was about 249
million units.
• 29% of the housing stock was in the urban areas and 71% in
rural areas.
• Growing population and sustained urbanization have kept the
available housing stock under increasing pressure.
• Sustained improvement in the quality of housing stock in the
country between 1961-2001.
• A majority of the households live in permanent (pucca) or semi-
permanent (semi-katcha) houses in rural as well as urban areas.
8
Housing Shortage & Slum Population
9
•
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 India’s 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
Government – Central and Formulating
and
State Level
implementing policies and
programs particularly for the
EWS/LIG sections
Monitoring and evaluation
exercises
Focus Areas
Policy
formulation
and
implementation of special
programs
for
EWS/LIG
sections
Supportive and
environment
conducive
Public Sector
Housing
Boards, Provision of land and basic
Development
Authorities, infrastructure
Public Agencies, Municipal
Focus on EWS/LIG/MIG
Corporations etc.
housing
Private Sector
Developers
Builders
Construction Companies
Integrated
Township
Development particularly in
metro and semi-metro areas.
Focus on MIG/HIG segments
Individuals/SHGs/NGOs
Self Builders – sub-contracting
Cooperative societies
Individual houses
Cooperative societies
Self Help Groups
10
Housing: An agent for Financial Inclusion
11
•
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
Housing Demographics
12
HOUSING FINANCE IN INDIA
13
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.
• Since 1988, number of HFCs have increased in the public as well as the
private sector.
• 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.
• Share of HFCs decreased from 69% in 2000-01 to about 38% in 2008-09.
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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.
• Prudent and well-regulated lending practices have helped keep the
NPA’s comfortably low.
• Market segmentation based on borrower profile has helped diversify
risk.
• 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.
• Estimated outstanding housing loan as a percentage of GDP has risen
from 3.4% in 2001 to 7.25% in 2007. However, continues to be abysmally
low compared to other countries.
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Mortgage Debt as a % of GDP
60%
54%
57%
50%
40%
34%
40%
30%
17%
20%
7.25%
7%
10%
0%
USA
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U.K.
European Malaysia Thailand
Union
India
China
Demand-Driven Growth
• Changing borrower demographic profile
• Increasing
demand for housing backed by rising
disposable income and growing social aspirations for early
home ownership.
• Fiscal benefits associated with interest payment on home
loans.
• Aggressive and innovative lending practices implemented
by PLIs in recent years
17
Housing Loan Outstanding
(Rs./billion)
$ 122 billion
$ 104 billion
$ 90 billion
5471
$ 82 billion
$ 71 billion
$ 59 billion
4691
Total
4038
Banks
3670
$ 44 billion
$ 32 billion
HFCs
3212
2653
3664
$ 22 billion
3159
1973
2770
$ 17 billion
$ 13 billion
2578
1444
2310
1791
983
586
746
254
332
328
418
2001
2002
18
*Provisional
1268
853
491
492
591
705
862
902
1092
2003
2004
2005
2006
2007
2008
1268
2009
1532
2010
1807
2011*
Housing Finance Disbursements
4,000
$ 40 billion
Disbursals (INR in billion)
3,500
$ 34 billion
$ 29 billion
3,000
1,817
$ 27 billion
2,500
$ 23 billion
1,520
Total
$ 19 billion
2,000
1,327
$ 17 billion
$ 9 billion
1,197
860
1,105
764
944
1,000
$ 5 billion
$ 4 billion
0
843
537
784
414
504
500
232
182
56
126
86
146
2000-01
2001-02
19
*Provisional
236
178
2002-03
HFCs
1,017
$ 12 billion
1,500
Banks
586
700
328
209
2003-04
260
2004-05
274
2005-06
317
2006-07
413
2007-08
484
2008-09
575
2009-10
712
2010-11*
Institutional Hierarchy
Kind of Institutions
Regulator
Target Groups
Level Financial
such as NHB,
Reserve Bank of India
Refinancing Institutions catering to all
segments of the society with particular
focus on EWS/LIG and rural sections.
Banks including Regional Rural
Banks, State Co-operative Banks
and Foreign Banks
Reserve Bank of India
All segments of society in both urban
and rural areas. Initiated major steps
towards linking the informal sector
with the formal sector..
Housing Finance Companies
National Housing Bank
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.
Cooperative sector Institutions
State Cooperative Acts
Deep presence across the country,
particularly in the rural areas, however,
has had limited success in lending for
housing due to poor financials.
Unregulated
(Act to be introduced for
regulating the same)
Recent foray into housing particularly
in respect of home improvement
finance for the poor and lower income
segments.
All India
Institutions
NABARD
Microfinance
Institutions/NGOs/SHGs
20
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.
21
Products Offered/Terms & Conditions
Parameter
Banks
HFCs
Housing
Product
offered
Wide range of products ranging
from new home loans, home
improvement loans, land purchase
loans etc.
Products
include
home
improvement loans, home
extension loan, short term
bridge
loans, land purchase loan,
home
equity etc
Limited
products
mainly
catering to
home improvement loans being
integrated
with
livelihood
finance.
Average LTV Ratio
Maximum 80%
Maximum 80%
Maximum 75%
Average IIR
Maximum 40%
Maximum 40%
Maximum 35%
Loan Size
Average size INR 0.4-0.5 million
Average size INR 0.6 million
Usually up to INR 0.05 million
Loan Tenure
Maximum 20 years
Maximum 15 years
Maximum 5 years
Interest rates
Linked to Base Rates and are
usually competitive on account of
low borrowing cost. Both floating
and fixed being offered.
Slightly higher than Banks
however more competitive
than CSOs/MFIs.
Both floating and fixed rates
are offered.
Usually higher than other
institutions on account of higher
costs.
Only fixed rates of interest
offered.
Security/Collateral
Mortgage of the property financed
Mortgage of
financed
Mortgage of the property
financed/Group Guarantee etc
Service charges
Maximum 2%
Maximum 2%
Not available
Prepayment
22 Charges
Maximum 2%
Maximum 2%
Not insisted upon
the
Co-operative
Sector/MFIs/NGOs
property
Issues & Challenges
• The buoyant growth in the housing and housing finance markets in
recent years, has not been inclusive.
• A majority of India’s 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
23
institutions, particularly targeting the neglected segments like the
EWS/LIG’s etc.
INITIATIVES &
POLICY MEASURES
24
Policies & Programs
 National Urban Housing and Habitat Policy, 2007
 Implemented by Ministry of Housing and
Urban Poverty
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
25
Initiatives by Formal Sector
• Commercial Banks have successfully linked with SHG’s
for on-lending to their customers.
• HFCs have been making continuous and sustained
efforts to reach the low/moderate income groups
particularly the economically weaker sections.
• State Housing Boards and Development Authorities have
strived to play a proactive role in the supply of housing
particularly to the EWS and LIG segments
26
Informal Sector – Scope & Initiatives
• The role of microfinance institutions , non-governmental
organizations and community based organizations has
remained limited due to challenges such as funding, land title
, loan repayments and products.
• Offering full scale financial services to the poor is critical to the
promotion of financial inclusion.
• In India, the EWS and poor sections depend to a large extent,
on informal sources of credit including personal
moneylenders, pawnbrokers, NGO’s and community based
MFI’s.
• Many semi-formal providers of housing finance such as
SEWA, SPARC etc. co-operate with or build CBO’s to carry
out their community work.
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ROLE OF NHB
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Genesis and Objective
 Absence of specialized institutions catering to housing credit needs of the
population.
 Need for an apex level institution for developing a market-oriented housing
finance system in the country.
 NHB – Established in 1988 by an Act of Parliament as the Apex Institution
for the Housing Finance System.
 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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Ideology
 Vision
“Promoting Inclusive expansion with stability
in the housing finance market”
 Mission
“To harness and promote the market potentials to serve the
housing needs of all segments of the population with
focus on low and moderate income housing”
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Aims and Objectives
 To promote a sound, healthy, viable and efficient housing
finance system to cater to all segments of the population.
 To support housing finance institutions through financing and
capacity building measures.
 To catalyze flow of funds to all regions and incomes groups.
 To develop market infrastructure for sound growth of housing
finance system.
 To ensure expansion and stability in the housing finance market.
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Integrated Approach
•



Mutually synergic roles
Regulation & Supervision
Financing
Promotion & Development
Aimed at confidence-building among Savers, Borrowers, Lenders and
Investors, Policy Makers and International Stakeholders.
• Multi-pronged
Simultaneous intervention on both the demand (financial) and
supply (real) side of the housing sector.
• Multi- Institutions
Financing a range of institutions for extensive outreach.
• Multiple Products
Vision: “Promoting inclusive expansion with stability in
housing finance market”
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Role of the National Housing Bank
 Augmenting Resources for the housing sector
 Leveraging the liquidity
 Support specialized institutions to serve as dedicated
centers for housing credit
 Fill the credit gaps suffered by low income households
by strengthening linkages between formal and informal
sector.
 Strengthening linkages between formal and informal
sector institutions - Financing MFIs
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Summing Up
• The growth in the Indian Housing Finance Sector in recent years has
not been inclusive. To ensure success in lending to all segments of
the society, particularly the low income households, a broad range of
action on many fronts are required.
• SCBs being the largest institutional platform, have to play a vital role
in adopting new approaches and introducing customized and
flexible mortgage products in active partnership with State & Local
Governments and other nonprofit organizations.
• The schemes evolved must not only provide an affordable housing
loan product but also a complete habitat-based solution.
• The Govt. has to forge partnerships with various strategic partners in
the public as well as the private sectors to ensure the vision of
“Affordable Housing for All” is realized.
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THANK YOU