The 21st Century Indian City

-Developing
Agenda forand
Urbanization
in
Panel
5: TheanPolitics
Economics
India
March 23-25, 2011

of Land and Housing (March 24,

2011)

R. V. Verma
National Housing Bank
India

Indian Mortgage Market

Steady growth
Served by specialised HFCs & Commercial Banks - synergies
Proactive and Risk based Regulation
Conservative lending practices; Originate to hold
NPAs well contained
Shift from high-end market to Affordable housing
Market segmentation diversified risk
Broad based stakeholding induces stability
2

Housing Finance Market

Financial
Market

NHB
HFCs

Fiscal
and
Credit
Policy
Support

Affordability

Banks

MFIs

Capital
Market

Financial Sector

Real Sector

Informal
Sector

Housing
Market
Public
Agencies

Private
Develope
rs

Land
&
Construction

Infrastructure

Outstanding Housing Loans

Trends in Housing Finance

Disbursals (INR in billion)

Trends in Housing Finance

Housing Loans outstanding 7.9% of GDP
Supportive Regulatory/Fiscal Policies
Financial Deepening
Supply Responses: Demand Driven
Main beneficiaries - salaried class, professionals
and tax payers
Challenge
for Low Income
Accessibility and Affordability

Housing

Financial Environment
Financial Sector and Capital Markets - Development
Interest rates deregulation
Growing Disintermediation
Shift towards Market Oriented Resource Mobilisaiton
Level Playing Environment
Market Determined Cost

Bearing on
Affordability
Availability
Accessibility
7

Issues in Low Income Housing

Rapid growth in housing sector has bypassed
Low-Income Households
Demand Identification
Risk Perception
Price Rise, Interest Rates - Impact on Low
Income Housing
Market/Subsidy based Approach
8

Issues in Financing
Limited access to housing credits
Cannot contract debts on terms of the financial
market
Unstable income and unstable cash flows
High risk & high cost - to - service customers
Role of Guarantee/Risk Fund
Role of Government & Financing Institutions in
Market Environment
Leveraging effect of Subsidy

Supply Constraints
Competing Demand on Land and Finance
Land supply is constrained:
Land availability
Land use rules
Efficient use of Land
Title and Tenure
Finance Flow Constrained
Stability
Growth
Risk Perception
Need for Integrated Approach

10

Affordability Issues
Real Sector
Land Supply

Financial Sector

Project Finance

Individual Loans

Infrastructure provision

Supply of Funds

Construction & Delivery

Cost of Funds

Role of Public & Private

Sector

Whether market
based solution?

Cost of Land
Land market functioning

Role of Incentives
Subsidized Housing Credit
Subsidized House Prices

11

In Other Words
Supply Side

Land Acquisition
Infrastructure Provision
Sale of Land
Housing Construction
Housing Sale
Role of Public Agencies/
Developers
Credit Delivery

Demand Side

Purchase Price
Income Level
Affordability
Loan eligibility
Subsidy component
Risk Mitigation
Role of NGOs/MFIs
Demand Aggregation

Ensuring access to housing with infrastructure

at affordable prices
12

Challenges
Formal sector accounts for only 25% of the total
investments in housing; skewed distribution of
credit
Affordability and security; perceived higher risk
Financial assistance through informal sector at
nascent stage
Subsidized housing programmes: limitations
Targeting and sustainability of such programmes
13

Challenges
Markets limitations / Subsidy Limitation
Private Capital and Public Objective
Formal & informal sectors compartmentalized
Demand aggregation, demand
intermediation and risk mitigation

registration,

Incentives for Savings

Policy Reforms

14

Where is the Disconnect?

Not enough supply at lower prices. Impact of
lowering prices on the stock of housing, the flow
of housing and housing finance
Price Supply relationship. Profit on Value or
Volume
Profitability
to
excite
the
suppliers/builders. Price/cost structure
Demand sensitive to price but supply not
forthcoming
Measures to convert the investors market into
consumers market

15

Search for Synergies

Partnership Approach : Public/Private/Community
Innovative instruments for benefit of All
Incentives for Low Income Housing Credit
Demand led
Incentives for Low Income Housing Construction
16

Sector Profile Wide Stakeholding

Central
Real
Sector

Government
Policy
&
Programme
s

Facilitato State/Local
r
Governments
&
Enabler

Formal
Sector

Policy
&
Programme
s

PUBLIC
PRIVATE
Partnership

Financial
Sector

Financial
Institutions

Instns &
Products

Informal
Sector

Affordable Housing for All and Financial

Inclusion

17

Institutional Support
Government Support
Liquidity
Pricing
Risk Mitigation
Targeting - Low Income Housing

Guarantee Fund / Subsidy

Subsidy support to EWS/LIG housing
Leverage institutional finance
18

Policy Issues
GOVERNMENT INTERVENTION
The Government could consider enabling legal and
regulatory reforms and create an enabling environment

through efficient functioning of the land market

Streamlining of all approval processes

provision of efficient infrastructure

e-governance viz. introducing electronic record for land

and bringing in more transparency in the record of land
and houses
19

Growth of Housing Finance Sector

Specialized Institutions vs. Universal Institutions
Augmenting funds for the sector

Resource Mobilization & Deployment

Facilitating the growth of Secondary market

Lending Discipline & Quality of Assets
Tapping Overseas Market Lendings & Investments
20

Policy Reforms
Housing Policy at National & Regional level
Integrated with Financial Sector
Fiscal & Financial Sector Policy
Institution-Building & Product Innovation (Supply &

Demand Side)
Deregulation

with closer Supervision (Finance &

Construction Sector )

Flow of Funds & Efficient Housing Market

21

Market Segments
Identify subsidy-based and market-based segments and
nature of interventions
Complementarities
Ensure adequate and sustained funding for both
segments
Ensure adequate supply of land and housing for both
segments
Market-based approach and state/local level policy
interventions
22

Policy Prescriptions
De-risk the segment through suitable risk
mitigants both in the financial segment and the
real sector segment (demand and supply side)
Develop a role for the government in low income
housing, consistent with the market orientation of
the rest of the segments (without conflicting)
Develop securitisation for funding
Revisit the fiscal and credit regime to ensure that
housing gets its fair share of financing from the
system
Develop policies so that housing is able to
23

Institutional Stakeholders
Individual
Loans

Banks/ HFCs/ MFIs

Borrowers

Enabling
Fiscal
and
Credit Policy
Subsidy/
Guarantee Fund/
Credit
Enhancement

SPV
Project

Construction
Finance
Specialized
Funding
Agency

State Govt./
Builders
Enabling
Land Policy
for
Construction
Land Tenure
First / Second
Loss Facility

24

Summing Up
No Broad-brush Approach
Need for Segmented Intervention
Role of State Governments & Public Agencies
Supportive Fiscal & Credit Policy
Market/Subsidy based Approach
Developing innovative products and institutional
mechanism
25

Summing Up
Identify land for construction
Liberalize construction finance for low income
housing
Project approach and economies of scale
Price determination a critical consideration
Develop mechanism for Demand Registration
Tap Savings potential building borrowers equity
Actively involve supply side agencies, private and
public
26

Going Forward
Widening stakeholders base
Broadening Institutional infrastructure
Securitisation through Government support
Risk Mitigation Vehicle
Funding Source and Delivery Channels
Construction and Finance Delivery

27

Conclusion
Affordable House Price
Affordable Credit
State Govt./Municipal Bodies to provide land and
infrastructure
Public/Private builders to construct
Pricing & Credit critical
Credit Risk Mitigation
Credit Guarantee Fund
INCLUSIVE GROWTH WITH STABILITY
28

Thank You