HOUSING FINANCE

Presented by:

Shubhendu mallick Abhishek mishra

INTRODUCTION

Basic need

Provide the funds to home buyers

infrastructure

Large no agencies providing direct finance to individual

Household were encouraged to form cooperative societies

Housing building advance to employees of the public sector

INITIAL STAGE

EVOLUTION OF HOUSING FINANCE

NHB was established in 1988 under NHB ACT in 1987 as an apex bank

In 1970 HUDCO established to finance housing and infrastructure

Emergence of HDFC in 1977 as a first housing finance co. in the private sector in India

PROFILE OF NHB

Established in 9,july ,1988 under NHB ACT 1987

Headquaters in delhi

NHB RESIDEX Cell, Regulation & Supervision, Refinancing Operations, Direct Finance Operations, Enabling Processes, Information Technology, Resource Mobilization .

9 departments which includes:

NHB also raises resources for the housing sector towards increasing new housing stock and provides refinance to a large set of retail lending institutions.

These include scheduled commercial banks, scheduled state cooperative banks, scheduled urban cooperative banks.

Why Housing Finance is important?

• Housing markets have significant forward linkages with financial market.

• It is routinely monitored as an important leading indicator of overall macroeconomic activity.

• This sector has a tremendous development impact in terms of providing Social stability & Economic development.

Cont..

• Social stability:- Enabling households to purchase an assets which will

represent their largest single investment. Housing represent 15% to 40% of the monthly expenditure

of households worldwide.

• Economic development:- Investment in housing accounts for 15% to 35% of aggregate

investment worldwide. The IFC promotes a successful economic sector and frees

personal savings.

Housing Finance and the World Bank

• HF plays an important role in world bank’s overall financial sector strategy.

• Clearly linked to overarching mission of reducing poverty & improve peoples lives.

• HF group works closely with the treasury Department of the IFC and the world bank to develop integrated approach.

Housing and GDP (Growth Development Progress.)• Housing and GDP are interlinked and contribute to

each other’s growth.• Every rupee invested in Housing & Construction,

78paisa gets added to the GDP.• Housing ranks Fourth in terms of the multiplier

effect on the economy.• The Investment in the Housing sector has steadily

increased from Rs.1150 Cr. In the First plan period to more than Rs.1,20,000 Cr. In the ninth plan period.

Cont…

• Estimates of the tenth plan peg the figure at about Rs.7,00,000 Cr.

• The growth rate has averaged around 7% since 1997 and India was able to keep its economy growing at a healthy rate even during the 2007-2009 recession, managing a 5.355% rate in 2009.

What is home loan?

Home loan

• The Home loan is a loan taken by a borrower from the bank issued against the property/ Security intended to be bought on the part by the borrower giving a conditional owernship over the property.

TYPES OF LOANS• Home purchase loans• Home improvement loans• Home construction loans• Home extensions• Land purchase loans• Bridge loans• Balance transfer• Stamp duty loans• NRI home loans

Home purchase loan

Home improvement

loan

Home construction

loan

Home extension

loans

Land purchase

loans

Bridge loans

Balance transfer

Stamp duty loans

NRI home loans

Home Loan Rate of Interest

(Last edited on 01 Dec 2010)

Bank Rate of interest

LIC Housing 8.9% - 9.50%

HDFC Ltd 8.25% - 9.25%

ICICI Bank Home Loan 8.25% - 9.25%

SBI 8%-11%

Reverse Mortgage Loan (RML)

• A type of mortgage in which a home owner can borrow money against the value of his or her home.

• No repayment of the mortgage (principal or interest) is required until the borrower dies or the home is sold.

• After accounting for the initial mortgage amount, the rate at which interest accrues, the length of the loan and rate of home price appreciates, the transaction is structured so that the loan amount will not exceed the value of the home over the life of the loan.

Features • Facilitates Senior Citizens.• Monthly repayments of principal and interest to the lender

is not required. • RMLs are extended by Primary Lending Institutions (PLIs)

viz. Scheduled Banks and Housing Finance Companies (HFCs) registered with NHB.

• The loan amount is dependent on the value of house property, age of the borrower(s) and prevalent interest rate.

• The loan can be provided through monthly/quarterly/half-yearly/annual disbursements or a lump-sum or as a committed line of credit or as a combination of the three.

Cont….• The maximum period of the loan is 20 years. • The loan amount may be used by the Senior Citizen

borrower for varied purposes including up-gradation/ renovation of residential property, medical requirements, etc. However, use of RML for speculative, trading and business purposes is not permissible.

• Valuation of the residential property is done frequently and intervals as decided by the reverse mortgage lender, which in any case shall be at least once every five years.

• The quantum of loan may undergo revisions based on such re-valuation of property at the discretion of the lender.

Cont….• The borrower(s) will continue to use the residential

property as his/her/their primary residence till he/she/they is/are alive, or permanently move out of the property, or cease to use the property as permanent primary residence.

• On the borrower’s death or on the borrower leaving the house property permanently, the loan is repaid along with accumulated interest, through sale of the house property.

• The borrower(s)/heir(s) can also repay the loan with accumulated interest and have the mortgage released without resorting to sale of the property.

• The borrower(s) or his/her heirs also have the option of prepaying the loan at any time during the loan tenor or later, without any prepayment levy.

Reasons for the growth in the sector

DemandAffordabilityCompetitionPolicySecuritization

Assessment and Prospects• HDFC was India’s first retail housing finance company• HDFC develop the market base by co-promoting the three housing finance companies-

GRUH Finance CAN Fin Homes SBI Home Finance

• In a third stage, market participants had to re-assess the way they carried out their business, as the tide of competition rose to an almost unsustainable level with the aggressive entry of banks into housing credit.• And finally, the current stage features a few dominant institutions with large-scale operations.

Housing Finance system in India• India is a good example for developing countries looking to kick off their primary housing markets.• Indian experience is of special import as it shows that housing finance institutions have been successful despite unfavorable conditions, such as

lack of foreclosure norms for several years poor access to long term funding sources lack of clear titles

• So, despite of the constraints, the market developed without waiting for the govt. and regulators tocreate a favorable environment.

Scope in India

• The housing finance industry in India is estimated to be US $ 5 billion approx.• The market at 35-40% per annum for the last five years• The main players are housing finance companies, commercial banks, co-operative banks and NBFIs