Housing Finance And National Housing Bank

Housing Finance

INTRODUCTION
Shelter being one of the three basic human needs, every human being aspires to own a home. Homes are not just houses-they project the aspirations of individual families to live a better life. An individual shares an emotional bond with his home. It gives him a sense of security and comfort.

NEED FOR HOUSING FINANCE

The UN Conference on Environment and Development,1991, has stated that access to safe and healthy shelter is essential to a persons Physical Psychological Social economic well-being

NEED FOR HOUSING FINANCE(contd.)

Yet, even today, one-sixth of the worlds total population does not have a proper housing

NEED FOR HOUSING FINANCE(contd.)

According to National Building Organization(NBO), the total demand for housing is estimated at 2-million units per year and the total housing shortfall is estimated to be 26.53-million units by 2012. This shortage is acute in rural areas

EVOLUTION OF HOUSING FINANCE

In 1970, Housing and Urban Development Corporation (HUDCO), a wholly government owned enterprise, was setup with the objective of housing and urban development as well as infrastructure development. In 1977, another Corporation named Housing Development Finance Corporation (HDFC) was set up in private sector. Housing was given due priority only in 1988 when a National Housing Policy was announced. The policy reflected the trust that housing was not merely consumption expenditure but also a productive investment which would provide economic activity in the country. The institutional mechanism for housing was strengthened by the establishment of National Housing Bank (NHB) by the Reserve Bank of India.

Housing finance is a business of financial intermediation wherein the money raised through various sources such as:
Public deposits(which are subject to the regulatory stipulations of NHB) Institutional Borrowings (from Banks) Refinance from NHB their own capital, is lent to borrowers for purchasing a house.

Section 96 of the Transfer of Property Act,1882, Financial intermediaries lend money by accepting mortgage by 1)deposit-of-title deeds on the same conditions as a simple mortgage, and 2)attracts stamp duty and 3) also requires registration under the Registration Act,1908. If the borrower fails to pay according to the contract , the lender has the right to sell off the mortgaged property by the intervention of the court.

ROLE OF HOUSING AND HOUSING FINANE IN THE ECONOMY

Housing is one of the top employment generators for the economy. It has both forward as well backward linkages with over 250 industries. A small initiative in housing can boost multiplier effects in the whole economy through the generation of demand. It is supposed to be the most-preferred investment avenue in a recession-prone economy.

STRUCTURE
Types of Housing Finance 1.Formal 2.Informal

Formal Housing Finance is done through: A. Government Sector - HUDCO B. Banking Commercial Banks , Cooperative Banks , Other Banks C. Non Banking LIC /GIC , Specialized Institutions like HDFC

Informal Housing Finance is done through: A. Household Savings B. Disposal of Existing Properties C. Borrowings from friends , relatives & money lenders

Types of Home Loans

1. Home Equity Loans: A form of finance to the customer by way of mortgage of existing property to the financier for taking a loan for some other purpose. The current market value of the property is the basis for providing home-equity loans. 2. Home Extension Loans: These loans are given for expanding or extending an existing home. For e.g.: addition of an extra room. 3. Home Improvement Loans: These loans are provided mainly for repairs and maintenance of existing houses. These could include internal and external repairing , waterproofing and roofing , complete interior renovation , tiling and flooring and so on. 4. Home Purchase Loans: Finance provided for the purchase of ready-made houses.

Types of Home Loans(Contd..)

5. Home loans to self-help groups(SHGs)/Microfinance institutions(MFIs): To achieve the objective of inclusive growth , HFIs now finance SHG and MFIs. 6. Land Purchase Loans: These loans are available for purchasing land for both construction and investment purposes. 7. Loans to NRIs: This loan is sanctioned to NRI wishing to build or buy a home in India in accordance with the guidelines issued by RBI

HOUSING FINANCE IN INDIA

Major Home Loan Providers

Banks & Public Sector Housing Finance Companies State Bank of India, Corporation Bank, Punjab National Bank, Central Bank, Dena Bank, Allahabad Bank, Bank of Maharashtra, Bank of Baroda Housing Finance, Can Fin Homes, GIC Housing Finance, LIC Housing Finance, PNB Housing Finance, SBI Home Finance, Centbank Home Finance, HUDCO, LIC, etc.

Financial Institutions

HDFC, ICICI Ltd, Citibank, HSBC, Standard Chartered- Grindlays, IDBI Bank, etc

Policy Initiatives & Measures related to Housing Sector in India

The National Housing and Habitat policy(NHHP) was formulated in 1998 and stressed on : Removing legal, financial & administrative barriers for facilitating access to loans, finance & technology. Creation of surpluses in housing stock Providing quality and cost-effective shelters, especially to poor people.
The National Urban Housing & Habitat Policy, 2007, while focusing on urban shelters, to meet the revenue requirements of urban housing & infrastructure using innovative tools.

(Contd..) National Rural Housing and Habitat Policy goals to ensure adequate and affordable housing for all and to facilitate development of sustainable and inclusive habitats by expanding Govt. support , promoting community participation , self-help and public-private partnership within the framework of Panchayati Raj. To improve the habitat conditions in the rural areas, various rural housing like: Rajiv Awas Yojana(2010-2015): make the country slum free. Indira Awas Yojana(1985) - a sub-scheme of Jawahar Rozgar Yojna , a cash subsidy programme to provide assistance to rural BPL families for constructing dwellings units on their own.

Golden Jubilee Rural Housing Finance(1997-1998): to provide people living in rural areas an improved access to housing finance. Bharat Nirman : construction of 60 lakh houses in rural areas. Rural Housing Fund : a sum of Rs.2200 crore has been allocated from the short falling of commercial banks.

The loan amount generally depends on:

The period for which the loan is needed

The repayment capacity of the borrower

The estimated value of property

Deeds of borrower
The rate of Interest on these loans depends on a number of factors, such as tenure of loan, loan amount, purpose of loan, repayment capacity of borrowers & the cost of fund of the financier.

Housing Finance Institutions(HFIs)

1. Scheduled Commercial Banks(SCBs) These banks have floated housing-finance arms to avail the NHBs refinance facility and the tax concessions available to HFCs.Both public and private sector as well as foreign banks large network and access to low-cost retail deposits helped them to offer home-loan products at competitive rates , giving stiff competition to the housing finance business by the HFCs. Scheduled Cooperative Banks They include scheduled statecooperative banks, scheduled district-cooperative banks and scheduled urban-cooperative banks . These are connected with semi-urban and rural areas. Regional Rural Banks(RRBs) They were set up to develop the rural economy by providing credit and other facilities , particularly to the small and marginal farmers , agricultural labourers , artisans and small entrepreneurs. Agriculture and Rural Development Banks(ARDBs) A few state govts. permitted ARDBs to lend for housing.The NHB has formulated a scheme to subscribe to special rural-housing debentures floated by ARDBs.

2.

3.

4.

5. Housing-Finance Companies(HFCs) A housing finance company is required to have certificate of registration from NHB , a minimum net-owned funds of Rs. 200 lakhs. In India , of 43 HFCs , only 20 can accept public deposits. 6. The National Cooperative Housing Federation of India(NCHF)-top organization for coordinating , guiding and promoting cooperative housing activities in the country.ACHFS at state level are affiliated to NCHF,which looks after their growth strategies and policy formulations. 7. Apex-cooperative Housing-finance Societies(ACHFS) Primary housing cooperatives are functioning all over the country with a membership of over 6.5 million.These ACHFS represent 92,000 housing cooperatives all over the country,out of which 31,000 are affiliated to state level.

Risk Management By HFCs

HFCs have to manage various risks associated with mortgage business.These risks include Credit Risk Liquidity Risk Foreign-exchange Risk Interest-rate Risk

Marketing Strategies of HFCs

Marketing approaches now take into account the changing preferences of the customer. Positioned themselves not only finance providing company but also provides loan counseling, technical and legal assistance and other property-related solutions. Build up credit appraisal skills and trained their personnel to become customer focussed

Marketing Strategies of HFCs(contd.)

Using mobile telephony to communicate with new and existing customers Cross-selling of financial products and services Expanding network of offices Organizing property fairs in different parts of the country Appointing direct-selling agents to cater to customers who prefer door service. Designing and developing web sites as a marketing tool , especially for attracting nonresident Indian customers.

NEW RULES FOR HOME LOANS: RBI

The Reserve Bank of India has tightened home loan norms by asking banks not to lend more than 80 per cent of the value of the house to borrowers. This means that new borrowers will have to shell out at least 20 per cent of the total value of the house from their pockets. The central bank has also increased the risk weight for housing loans above Rs. 75 lakh to 125 %. It implies that loans above Rs. 75 lakh will now become more expensive.

NEW RULES FOR HOME LOANS: RBI(CONTD..)

The RBI has also made it harder for banks to offer teaser rates where the home loan rates is fixed for few years and later it turns into a floating rate RBI forbids foreclosure fees on floating rate home loans

HOME LOAN RATE OF INTEREST ( Last edited on : 03 September 2012 )

Bank State Bank Of India ICICI Bank HDFC Ltd Interest Rates 10.25% - 10.40% 10.50% - 11.75% 10.50% - 11%

LIC Housing
India Bulls Union Bank of India Bank of Baroda First Blue Home Finance

10.70% - 11.65%
10.50% - 11.25% 10.50% -11% 10.75% - 11% 10.50% - 11.75%

Tax Implication on Home Loans:

Home loans are the cheapest loans available in the market.
Tax rebate on interest repayment of home loan upto Rs.1,50,000/-.