HOUSING FINANCE

A set of all financial arrangements that are made available by Housing Finance Companies (HFCs) to meet the requirements of housing is called ‘housing finance’. Indian housing industry is the second largest employment generator next to agriculture. The industry grows at the rate of 3% in physical terms and 30% per annum in financial terms having forward and backward linkages with over 250 auxiliary industries. Its contribution to GDP is about 6%.

Models of Housing Projects

1. Town Planning Schemes

The town – planning department prepares a scheme for the improvement of a certain area, which includes land owned by various land owners. The scheme comprises of earn marking of roads, open spaces, civic amenities, and some social facilities. Some of the prime and most developed areas of cities like Mumbai, Ahmedabad, Bangalore and Chennai were developed under these schemes.

2. Development Authority Projects

Development authorities implement projects in accordance with the master plan for the city. They usually get the land acquired through the Central Land Acquisition Act (CLDAA) of 1894 and then develop the lands. These projects are usually funded through national funding agencies like the National Housing Bank (NHB) or the Housing and Urban Development Corporation (HUDCO). Sometimes the World Bank also funds the projects. The development authorities execute various development projects like housing projects, industrial estates, markets, parks, shopping complexes, etc.

3. Housing Board Projects

Housing boards are state level organisations whose main objective is to develop housing. This is done by acquiring land and then executing the project on a ‘No Profit No Loss’ basis with funds obtained from funding agencies or from purchasers themselves.

4. Cooperative Society Projects

This is a popular method of land and housing development where people come together and form a cooperative society.

5. Private Real Estate Developers

The real estate developers purchase land from the landowner. After getting all the required permission from various government agencies, the real estate developer does the booking of the houses and collects advance money from the end-users. The construction is then carried out and the property is handed over to the end-users.

6. Public-private Partnership

These are partnership between the government organisations like the development authorities and private business enterprises such as real estate developers. The ultimate objective is better management access to capital, speedier delivery and better quality.

7. Slum Boards Projects

They are built on the lines of Housing Boards. They are state level organisations, which carry out slum clearance and improvements, with emphasis on resettlement, on-site improvements or in-site upgradation.

8. Government Employees Housing

There are a large number of government organisations, both at state and central level which provide accommodation to government employees as part of salary perquisites. Examples include Central Public Works Department, Public Works Department in various states, the Railways, the Police, Post and Telegraph Departments, Defense, etc.

9. Government Programmes

Over the years, the Government of India has launched various schemes for promoting houses like Indira Awaz Yojana. Under these schemes fixed amount of financial assistance are given to selected group of people for building houses.

Housing Finance in India – Major Issues

1. Archaic Laws

There are certain legislations that hamper the growth of housing finance in India. For instance, the archaic Urban Land Ceiling Regulation Act (ULCRA) has been a failure in the Indian housing finance system. The Act has only helped contribute towards the galloping prices of land, because it has failed to release adequate land for the purpose of housing development and financing.

2. Lack of Clear Title

Another major issue confronting Indian housing is that lack of clear title to property. Around 90% of all the land in India does not have a clear title. The ownership is unclear and hence, the land is off the market, thereby creating scarcity of land. This problem could be attributed to poor record keeping and complicated processes.

3. High Stamp Duty

The cost of transferring land, stamp duty and registration charges payable are prohibitively high. This dissuades people from seeking housing development and financing. Moreover, the procedure followed is also not transparent.

4. Obsolete Rental Laws

Obsolete tenancy and rental control laws keep a large part of the urban properties off the market. The rental laws must be revised to protect the owner and the property from the tenant. It is incumbent that steps are taken to get rid of all the old tenancies, remove restrictions on increase of rentals and empower owners to reclaim their properties without any court proceedings, which currently may even take decades.

5. Foreclosure Laws

Though the level of foreclosure for the housing finance companies are relatively low at around 1.5 to 2 percent, the foreclosure laws are obsolete and outdated. The laws for non payment of Equated Monthly Installment (EMI) and consequent foreclosure and repossession of the property must be revised.

6. Inadequate Building Codes and Standards

Although there are several building guidelines and standards in various cities and states, neither the housing developers follow them and nor do the authorities implement them. The system needs to be made more transparent and direct, so that there is no room for ambiquity and confusion.

7. Inadequate Development and Planning

The city or state authorities must use professionals to plan and execute all development plans for cities and towns, with future development in mind. This must done without any political compulsions. The plans must be prepared in advance and executed without any exceptions and all regulations must be strictly enforced.

8. Inadequate Infrastructure

Most Indian cities lack the infrastructure since they fail to keep pace with the growth in population and development.

9. Recognition of Housing as an Industry

The Indian real estate industry has been lagging behind the rest of the world for too long, and this is one industry which can provide boost to the overall economy.

10. Slum Clearance and Public Housing

For nearly 40 years, developing countries sought to solve the problems of poverty and housing deficiencies by removing the poor from slum neighborhoods and rehousing them in more durable shelters. The failure of these policies led many developing countries to try massive public housing construction during the sixties and the seventies.

11. Land Supply

The limited supply of land, which accounts for 75 percent of the housing costs in urban areas, makes it the most valuable factor of production. The Urban Land Ceiling and Regulation Act (ULCRA) and Land Acquisition Act (LAA) further constrain land availability.

12. Rent Control Act

Land is just one hurdle in housing sector development. The antiquated act was originally meant to protect tenants from greedy landlords. It did that but ended up hurting the landlord by legalizing payment of ridiculously low rents.

Housing Finance Institutions in India

The National Housing Bank (NHB)

The National Housing Bank was set up in July 1988, under the Act of Parliament, and is wholly owned by RBI. NHB at present has a paid up capital of Rs.350 crores. It was conceived and promoted to function as the apex institution in the housing sector.

Objectives

1. To promote a sound, healthy, viable and efficient housing finance system to cater to all segments of the population
2. To establish a network of housing finance outlets to adequately serve different regions and different income groups.
3. To make housing more affordable.
4. To promote appropriate technologies for housing.
5. To augment the supply of land and building material for housing.
6. To enable the housing finance system to access the capital market for resources.
7. To augment the financial resources for the sector.
8. To augment and upgrade the housing stock in the country.
9. To strengthen the backward and forward linkages of the housing sector with the rest of the economy.
10. To augment and upgrade the housing stock in the country.

Housing Development Finance Corporation Limited (HDFC)

In the year 1977, HDFC was incorporated with the main objective of promoting home ownership by providing long-term loans. It was promoted as a company with an initial share capital of Rs.10 crores.

Objectives

1. To increase the number of residential houses in the country by providing housing finance in the systematic and professional manner.
2. To promote home-ownership.
3. To increase the flow of funds to the housing sector.
4. To strengthen housing finance by improving the domestic financial market and financial services.
5. To maintain its position as one of the premier housing finance institutions in the country.
6. To transform various ideas into viable and creative solutions, i.e., building houses on the basis of cost, utility and modernization.
7. To provide consistently high returns to shareholders.
8. To diversify activities to client-base by entering into mutual funds, leasing, commercial banking, insurance, etc.
9. TO align with national priorities and adopt flexible housing finance policy by providing more houses to the weaker sections of the society.

Life Insurance Corporation Housing Finance Limited (LICHFL)

The corporation was set up under the Companies Act, 1956. Incorporated on 19th June 1989, it is recognized by NHB.

Objectives

1. To assist individuals by providing finance to construct/purchase residential house/flat. Assistance for second residential house/flat is also available.
2. To provide assistance for extension/renovation of residential unit.
3. To grant loans to corporate bodies (Public Limited Companies/ Public Sector Undertakings) for staff quarters.
4. To provide loans to corporate bodies for onward lending to employees to construct/purchase residential houses/flat on ownership basis and loans to individual employees of the company as guaranteed by the employer.
5. To extend loans to corporates for office premises.
6. To sanction loans to cooperative societies-Loans to individual members of cooperative housing societies formed by employees of Public Sector undertaking/Public Limited Companies with guarantee of the undertaking.
7. To provide loans to public agencies like housing boards, etc. for residential housing projects
8. To extend bridge loans to reputed developers/builders for housing projects.

Housing and Urban Development Corporation of India

Incorporated on 25th April, 1970, HUDCO was an expression of the concern of the Central Government towards the deteriorating housing conditions in the country, and a desire to assist various agencies in dealing with in a positive manner.

Objectives

1. To provide long-term finance for construction of houses for residential purposes in urban and rural areas, and finance or undertake housing and urban infrastructure development programmes in the country.
2. To finance or undertake, wholly or partly, the setting up of new or satellite towns.
3. To subscribe to debentures and bonds issued by the State Housing and Urban Development Boards, Improvement Trusts, and Development Authorities, etc. especially for the purpose of housing and urban development programmes.
4. To finance or undertake the setting up of industrial enterprise for building material.
5. To administrate the amount received, from time to time, from the Government of India and other sources as grants or otherwise, for the purpose of financing or undertaking housing and urban development programmes in the country.
6. To promote, establish, assist, collaborate and provide consultancy services for the projects in designing and planning of works relating to housing and urban development in India and abroad.