Housing Finance Glore

brigade metropolisThe constitution of India includes the right to live and have a livelihood as a fundamental right. IT also includes the right to housing policy. The directive principles of the state policy make it an obligation on the state to facilitate housing. Housing demand is an universal problem. Housing is one of the three prime necessities of life. Food and clothign the other two prime requirements have been met to some extent. Housing demand still needs to be fulfilled.  This is because of the shortage of funds and inadequacy of financial institutions, coupled with an increase in building material, labour and land costs.

The unfulfilled housing demand in India is currently about 38 million units and i.e. expect to increase to over 50 million by the year 2001. The Indian economic planning has, apparently, neglected housing right form the beginning. The seven and eight five year plans have put focus on housing.
The Eight five year plan envisages housing as the generator of employment, both direct and indirect in the economy. The plan data states that a 10% increase in investment in housing would lead to 10% increase in employment in the housing sector giving an employment elasticity of unity. For the entire economy the employment elasticity is less than half. In India, housing data such as “housing starts” and “housing completions” are not available.
The contribution of housing to economic development is generally measured in terms of Gross Fixed Capital Formation (GFCF) in housing, it share in Gross Domestic Product (GDP) and the share of income from housing. The Gross Fixed Capital Formation at constant prices, grew at an annual rate of 3.6% in 1980’s. However, the Gross Fixed Capital Formation as proportion  of Gross Domestic Product reduced from 3.2 % in 1980-81 to 2.6% in 1990-91. The share of income from housing in GDP declined from 5.9% in 1980-81 to 4.7% in 1990-91.

The share of investment in housing in the Gross Domestic Product has fallen from 5% in 1960’s to 3% in 1980’s. The total plan outlay for housing has fallen from 34% in the 1st five year plan to 9% in the 7th five year plan. The plan outlay for housing is proposed to be 12.2% in the 8th plan. This fall in investment in housing has resulted in demand  – supply imbalances resulting in overcrowding, decline in per capita space, increase in slum settlements in urban areas, poor housing conditions, very sparse access to loans for housing and economic development.

Currently less than 4 dwelling units per 1000 of population per annum get constructed in India. However the UN recommendation for developing countries is of 8 to 10 dwelling units per 1000 per annum in the next 20-30 years to arrest the detoriation of housing situation.
Access to land at reasonable prices for housing is impossible. This has led to acute housing shortages. The Urban land ceiling and regulation act (ULCRA) of 1976 appears to have been wrongly implemented and is the main factor for the spiraling 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 more than those in the western cities like London and Washington D.C. In fact, in the prevailing market rates for housing in Bombay, at Rs. 400 per square feet to Rs. 20,000 per square feet, 97% constitutes the cost of land and 3% the cost of construction.
Boost to housing can rejuvenate the economy. Housing has maximum propensity to generate income and demand for materials, equipment and services. Funds allocated to shelter return in the shape of income and demand to other sectors.

To Boost the housing sector there is a need to regulate and have a greater access of credit for housing. Thus a good housing finance system is imperative. Housing Finance Companies (HFC) need to be recognised as a part of total financial system and should be given a level playing field.
Amidst liberalization certain provisions of the Company’s Act 1956, such as, restrictions on intercorporate loans and deposits continue to discriminate Housing Finance Companies against other non-banking financial companies. Also certain tax laws, such as deduction of tax at sources, restrictions on acceptance of cash as deposits are disadvantages to HFC. The Reserve Bank of India has put housing finance on priority core sector lendings.  In the developed countries, the flow of housing finance  a substantial share of total financial system. In fact, the savings for housing is among the single largest source of funds in their entire financial system.

Hence the developed countries invest about 5% of Gross Domestic Product in housing compared to a negligible amount in India. Promotion of ownership of houses as on economic and political objective has been backed by the necessary policies to stimulate household savings and investment for housing.
In India there is a need to crate awareness about housing linked saving schemes also needed I is an efficient legal frame work for foreclosure, securitisation of mortgage debts, secondary mortgages markets, variable rate mortgages and innovative housing credit schemes.
Thus, it is high time that India prioritizes the housing sector which will enable varied advantages to economy in form of employment, non-inflationary growth and reduced pressure on the Balance of Payments.

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