Transcript Indian Economy – An Overview

FICCI – IBA
Conference
on
GLOBAL
BANKING:
Paradigm Shift
P.K. Gupta
Chairman & Managing Director,
National Housing Bank
New Delhi
MORTGAGE
FINANCING
NHB
Welcomes the Participants
to ‘Session V B’
on Financing Real Estate and Housing
on Thursday, the 6th October, 2005
Slide 1
FICCI – IBA
Conference
on
GLOBAL
BANKING:
Paradigm Shift
MORTGAGE
FINANCING
Presentation Outline
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Real Estate and Housing
Housing – A Macro View 1
Housing – A Macro View 2
Contribution of Housing Credit to GDP
Housing Finance – A Key Driver for Economy
Credit Growth to Housing & Real Estate
Spurt in Credit Growth in Housing
Housing Finance Interest Rate in India
Increase in Consumer Demand for Housing
About National Housing Bank – An Apex Institution for
Housing Finance System in India
Rural Housing – Some Aspects
Market for Residential Mortgage Backed Securities (RMBS)
Housing Finance – Moving Forward
Industrialist View on Housing and a Visionary
NHB
Slide 2
FICCI – IBA
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BANKING:
Paradigm Shift
Real Estate and Housing
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Dictionary meaning of Real Estate is immovable property consisting
of land and buildings.
Real estate is a legal term that encompasses land along with
anything permanently affixed to the land, such as buildings/houses.
Reserve Bank of India clarifies exposure to,
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MORTGAGE
FINANCING
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NHB
Residential Mortgages, as lendings fully secured by mortgages on residential
property that is or will be occupied by the borrower or that is rented;
Commercial Real Estate, as lendings secured by mortgages on commercial real
estates (office buildings, retail space, multi-purpose commercial premises, multifamily residential buildings, multi-tenanted commercial premises, industrial or
warehouse space, hotels, land acquisition, development and construction, etc.)
In India, about three fourth (3/4) of real estate development is for
residential use and balance one fourth (1/4) is predominantly for
commercial use.
Indian Real Estate and Housing Industry
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is growing annually at around 30 per cent.
has significant backward and forward linkages with over 250 ancillary industries.
is the second largest employment generator, next to agriculture.
can create a significant impact on our economic growth, over the medium term.
can play a prominent role in the healthy development of our Nation.
From every Rupee spent on construction, an estimated 75 – 80 paise
is added to GDP.
Slide 3
FICCI – IBA
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Paradigm Shift
Housing – A Macro View 1
(in million)
1981
1991
(Source: Census of India, 2001)
2001
Growth
of 1991
over
1981 (%)
Growth
of 2001
over
1991 (%)
Population
MORTGAGE
FINANCING
Rural
523.87
628.70
742.00
20.01
18.02
Urban
159.46
217.60
285.00
36.46
30.97
Total
683.33
846.30
1027.00
23.85
21.35
113.96
142.98
177.50
25.47
24.14
22.53
30.58
35.36
---
---
35.48
52.03
71.60
46.65
37.61
64.70
72.74
74.70
---
---
149.44
195.01
249.10
30.49
27.74
Census Houses
Rural
of which pucca residential
stock (in %)
Urban
of which pucca residential
stock (in %)
Total
NHB
Slide 4
FICCI – IBA
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GLOBAL
BANKING:
Paradigm Shift
Housing – A Macro View 2
Housing Completions & Condition
• Average Annual Housing Completions (housing units per 1000 population)
UN Recommendations
for Developing Countries
Urban Areas of India
Rural Areas of India
8 to 10
Around 7
Around 5
• Condition of Residential Stock-Good &Livable (in %) (Census,2001)
MORTGAGE
FINANCING
Residential Stock
Good
Livable
Ratio
Urban
64.1%
32.3%
2:1
Rural
45.0%
48.7%
1:1
• Housing Shortage (2001)
– Urban
– Rural
– Total
(HUDCO)
7.1 million dwelling units
24.0 million dwelling units
31.1 million dwelling units
• Estimated Investment in Housing
NHB
Tenth Plan (2002-07)
– Public
INR 4,150 bn (US$ 94.15 bn) ( INR/USD = 44.0800 )
– Private
INR 3,113 bn (US$ 70.62 bn)
– Total
INR 7,263 bn (US$ 164.77 bn)
Slide 5
FICCI – IBA
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BANKING:
Paradigm Shift
Contribution of Housing Credit to GDP
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MORTGAGE
FINANCING
Accelerated growth of housing finance in India has increased the
outstanding housing loans as percentage of GDP from 3.4% in 2001
to 6.1% by 2004.
Our Mortgage Debt as per cent of GDP is way below China’s 12%,
22% in Malaysia, 40% in Honk-Kong and 65% in US.
Housing Finance played a significant role in developed economies.
Tenth Plan targeted an average annual growth rate of GDP at 8.1%.
“The government is determined to put in a world class infrastructure to
push all round growth.”
“Money is flowing into the country and if we can mobilize these
investments and channel them into infrastructure development, India's
GDP will easily rise to 9 percent a year” Second Annual India Investment Forum, New York, 21-09-05
“My goal is to maintain 7% and aim at 8% (GDP). In the medium term, it
should go beyond 8%. I am happy with the first quarter (Apr.-Jun., 2005-06)
growth, but we are still second (to China in GDP). We must strive to
become the first.”
The Hindustan Times, New Delhi, 01-10-05
NHB
P. Chidambaram
Hon’ble Finance Minister
Government of India
Slide 6
FICCI – IBA
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BANKING:
Paradigm Shift
MORTGAGE
FINANCING
Housing Finance - A Key Driver for Economy
• Housing
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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
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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
• Household Saving-Per cent of GDP
(at current market prices) (Source: RBI)
Item
NHB
1995-96 to 1998-99 (Ave)
1999-00
2000-01
2001-02
2002-03
2003-04
Household Saving
17.9
20.8
21.9
22.6
23.3
24.3
a. Financial Assets
9.8
10.5
10.7
11.2
10.3
11.4
b. Physical Assets
8.1
10.3
11.2
11.4
13.0
13.0
Slide 7
FICCI – IBA
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on
GLOBAL
BANKING:
Paradigm Shift
Credit Growth to Housing & Real Estate
• Outstanding Gross Bank Credit
Particulars
Gross Bank Credit (GBC)
Housing
22-Mar-02
21-Mar-03
19-Mar-04
18-Mar-05
4691.53
5367.27
6695.34
7643.83
9725.87
161.43
223.46
365.87
519.81
751.73
3.44
4.16
5.46
6.80
7.73
17.66
25.96
58.94
55.77
106.12
0.38
0.48
0.88
0.73
1.09
Real Estate Loans (RELs)
RELs as % GBC
• Outstanding Credit by HFCs
Particulars
Housing Loans
(INR billion)
2001-02
2002-03
2003-04
2004-05
332.50
418.44
492.38
591.44
* 725.00
81.63
96.66
133.58
158.47
* 163.00
• Direct Housing Finance Disbursals
Primary Lending Institutions (PLIs)
2. Housing Finance Companies
3. Co-operative Institutions
4. TOTAL
NHB
5. Annual Growth (in %)
(Source: NHB)
2000-01
Other Loans
1. Commercial Banks
(Source: RBI)
23-Mar-01
Hsg. as % of GBC
MORTGAGE
FINANCING
(INR in billion)
(INR billion)
(Source: NHB)
2000-01
2001-02
2002-03
2003-04
2004-05
55.53
85.66
235.53
328.16
* 457
126.38
146.14
178.32
208.62
260
8.68
6.78
6.42
6.23
---
190.59
238.58
420.27
543.01
717
35.07
25.18
76.15
29.21
32.04
* - Estimated
Slide 8
FICCI – IBA
Conference
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BANKING:
Paradigm Shift
Spurt in Credit Growth in Housing
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•
Liquidity in the System
Lower Inflation Rate
Softer Interest Rate Regime
Housing Loan has the Lowest Non Performing Assets (NPAs)
(as at the end of March, 2004)
MORTGAGE
FINANCING
Retail Portfolio of
Banks
(RBI)
Housing
Loan
Consumer
Durables
Credit Card
Receivables
Other
Personal
Loans
TOTAL
Retail
Loans
TOTAL
Loans &
Advances
1.4
4.0
2.4
1.6
1.6
2.8
Net NPAs
as % of outstanding loans
NHB
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Fiscal Concessions
Legal Reforms
Wider Network - Banks/Housing Finance Companies
Consumer Friendly Products/Approach
Increasing number of Real Estate Developers
Slide 9
Housing Finance Interest Rate in India
Source: HDFC, 2004
19.00
8.50
10.00%
8.00%
4
l-0
4
Ju
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l-0
3
Ja
Ju
3
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Ja
2
l-0
2
Ju
n0
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l-0
1
Ju
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l-0
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Ju
0
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l-9
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6.00%
Months
NHB
Slide 10
8.75
12.00%
10.00
11.25
14.00%
12.50
13.00
16.00%
15.00
MORTGAGE
FINANCING
15.50
18.00%
16.00
17.00
20.00%
15.50
FICCI – IBA
Conference
on
GLOBAL
BANKING:
Paradigm Shift
FICCI – IBA
Conference
on
GLOBAL
BANKING:
Paradigm Shift
Increase in Consumer Demand for Housing
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Services sector remained the key driving force of the economy. The
services sector’s contribution to GDP growth has been more than
50% since 1997-98.
Migration for Employment Opportunities leads to
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MORTGAGE
FINANCING
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Increase in the desire for consumers to have their own homes
Further,
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NHB
Softer interest rate regime
Coupled with
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Changing Demographics
Increase in Households
Formation of Nuclear Families
Burgeoning Middle Class (expected to cross 92 m by 2005-06)
More Disposable Income
Increasing Purchase Power
Fiscal benefits and
Aggressive lending by Primary Lending Institutions (Banks, HFCs, etc.)
Leading to decline in Cost of House to Annual Income Ratio
• DRIVES THE HOUSING DEMAND
Slide 11
FICCI – IBA
Conference
on
GLOBAL
BANKING:
Paradigm Shift
MORTGAGE
FINANCING
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
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NHB
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
Slide 12
FICCI – IBA
Conference
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GLOBAL
BANKING:
Paradigm Shift
Rural Housing – Some aspects
•
•
Estimates indicate that about 10% of disbursements are going
towards Rural Housing, whereas 70% of India lives in villages.
Estimated Housing Requirements – 24 million dwelling units
Share of Agriculture Workforce to Total Workforce has declined
from 60% in 1993-94 to 57% in 1999-2000 and is expected to decline
further to 37% in 2030.
Housing Construction in rural areas can absorb the Rural
Workforce.
NHB’s Golden Jubilee Rural Housing Finance Scheme,
till June, 2005 financed around 1.41 million houses
Impediments
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Need a fillip
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MORTGAGE
FINANCING
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Non-availability of Clear Land Title Deeds
Difficulties in Obtaining Tangible Marketable Securities
Higher Stamp Duties
Irregular earnings
High Operational Cost
to arrest urban migration
to create job opportunities
to reduce poverty
NHB
Slide 13
FICCI – IBA
Conference
on
GLOBAL
BANKING:
Paradigm Shift
MORTGAGE
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Market for Residential Mortgage Backed Securities (RMBS)
• Housing loans of nearly 70% in Canada, 67% in US, 50% in
UK and 50% in Germany, 45% in Italy and 42% in France
are securitized.
• CRISIL study indicated that the share of MBS in total
housing loans has increased from 0.6% in 2000-01 to 5.7%
in 2002-03.
• ICRA reported the growth of RMBS market by 13% during
2004-05 to INR 33.40 bn (2003-04 = INR 29.55 bn).
• NHB has played a pioneering role in RMBS market in
India.
• So far, 13 MBS issues amounting to INR 7.63 bn (US$ 0.17 bn)
have been issued through NHB SPV.
• Secondary Mortgage Market lacks liquidity
– RMBS not reckoned as security under Securities Contracts
(Regulation) Act, 1956, thereby inhibiting the tradability.
– Long-term funds such as Superannuation and Gratuity Fund
are not eligible for investment in RMBS.
NHB
Slide 14
FICCI – IBA
Conference
on
GLOBAL
BANKING:
Paradigm Shift
MORTGAGE
FINANCING
NHB
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
Slide 15
FICCI – IBA
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GLOBAL
BANKING:
Paradigm Shift
MORTGAGE
FINANCING
Industrialist View on Housing and a
Visionary
Let me conclude the presentation with –
“We need to overhaul our land related laws, taxation and
information system. It is estimated that 90% of land in India are
subject to legal disputes over the ownership. Stamp duty ranges
between 8-15% of the property value, encouraging avoidance. On
the other hand, property tax rates are low and collection is
inefficient. All this has led to Indian lend prices being the highest
among the Asian nations related to average incomes and low tax
collections is hampering our ability to maintain urban
infrastructure. Effective land reforms can really boost housing and
retail sectors, two of the largest sectors of the economy outside of
agriculture and generate huge employment opportunities.”
Azim Premji
Chairman, Wipro
NHB
JRD Tata Memorial Lecture, The Economic Times, 31-08-05
Slide 16
FICCI – IBA
Conference
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GLOBAL
BANKING:
Paradigm Shift
MORTGAGE
FINANCING
Thank You
NHB
Slide 17