Housing Finance in India; Growth Factors, Housing Finance Institutions in India

Urban Land Ceiling and Regulation Act (ULCRA) of 1976 has been wrongly implemented and is the main culprit of the spiralling real estate prices. Land is not available to housing due to restrictions placed on conversion of agricultural land to non-agricultural land. The land prices in Bombay, Calcutta and Delhi are very high as compared to cities in the west like London and Washington. A boost to housing can rejuvenate the economy since has the maximum propensity to generate income and demand for materials, equipment and services. Moreover, funds allocated to shelter, return in the shape of income and demand to other sectors. To boost growth in the housing sector, there is an imperative need to have greater access to credit for housing in a regulated fashion. This necessitates a good housing finance system. Housing finance companies need to be recognized as being part of the total financial system, and should be given a level playing field.

Amidst liberalization, certain provisions of the Companies Act 1956, such as restrictions on inter-corporate loans and deposits continue to discriminate housing finance companies against other NBFC’s. Also certain tax laws such as deduction of tax at source, and restrictions acceptance of cash as deposits are disadvantages to housing finance companies. RBI has put housing finance on priority as core sector lending. In the developed countries, the flow of housing finance forms a substantial share of the total finance system. In fact, the savings for housing is among the single largest source of funds in their entire financial system.

Thus, it is imperative that India priorities the housing sector in order to enable a varied advantage to the economy in the form of employment, non-inflationary growth and reduced pressure on the balance of payments. The housing sector in India has been put under a lot of strain since Independence. Builders and developers too face varied problems.

Growth Factors

The Pradhan Mantri Awas Yojana (PMAY) aims to build over 2 crore affordable homes across 305 rural and urban centres.

Under this scheme, which is a part of the Housing for All vision, people can avail interest subsidy of 4% on loans up to Rs 9 lakh and 3% for loans up to Rs 12 lakh. There is also a 3% interest subsidy on a Rs 2 lakh loan for a new home in the rural areas.

The subsidies, which have made home loans affordable for the low-income group, have greatly helped people working in the unorganised sector, according to Arvind Hali, chairman of ART Affordable Housing Finance.

The government help has also resulted in housing finance companies disbursing more loans. To lend perspective, loans up to Rs 2 lakh witnessed the maximum year-over-year (Y-O-Y) growth of 10.4% in FY 2016-17.

New Dynamics:

An important development in the housing finance business has been the entry of new players. The relatively low risk in a housing portfolio has spurred new entrants in the last few years. Arguably the most significant entrant has been ICICI Home Finance. Among non-banking finance companies, Sundaram Finance and Tata Finance have launched housing finance subsidiaries in the recent past, while banks shown increased interest in acquiring housing assets.

The entry of new players and the consequent increase in competition has been followed by an interesting trend. The interest rates of most housing finance companies (HFC) move in unison, thereby suggesting that interest rate is not likely to be a competitive tool. The high level of competition has made it impossible for an HFC, with branches across the country, to charge an interest rate higher than the competition. Commercial banks are an exception to the rule, in the sense that they always charge lower than the competition.

Budgetary Support:

Tax benefits, a low interest rate regime and high salary levels among certain sections are chiefly responsible for fuelling fast growth in the housing financial services sector. Tax benefits for housing finance contribute to housing development. For this purpose, RBI maintains a soft interest rate regime. The bank rate of interest is constantly being slashed so that it acts as a stimulant for housing demand.

Similarly, a sharp increase in size of pay packets has played an important role in making a house affordable. Regardless of salary levels, if the cost of a house comes down, it would pep up the demand for housing finance. There is reason to believe that we are witnessing a gradual movement towards loosening the restrictions that increase the cost of a house.

Housing Finance Institutions in India

The below-mentioned list of housing finance companies have been granted Certificate of Registration (COR) with permission to accept public deposits –

• Aadhar Housing Finance Limited (Formerly: DHFL Vysya Housing Finance Limited)
• Housing and Urban Development Corporation Limited
• Housing Development Finance Corporation Limited
• Can Fin Homes Limited
• Cent Bank Home Finance Limited
• Manipal Housing Finance Syndicate Limited
• PNB Housing Finance Limited
• Dewan Housing Finance Corporation Limited
• ICICI Home Finance Company Limited
• LIC Housing Finance Limited
• Sundaram Home Finance Limited

Listed below are the Housing Finance Companies having valid Certificate of Registration that can accept public deposits with prior permission obtained from the National Housing Bank for accepting public deposits:

• National Trust Housing Finance Limited
• Saral Home Finance Limited.
• GIC Housing Finance Limited
• Ind Bank Housing Limited
• REPCO Home Finance Limited
• L&T Housing Finance Limited