Housing Finance sector is working better than any other segment in economy: Kalyanraman, MD & CEO, NHB

Sriram Kalyanraman

By Accommodation Times News Service

By Nimisha Gupta

1. What are the corrections with the residential index for January-March period? What are the recent price trends?

Ans: The NHB RESIDEX is currently being reworked with base year changes, and is expected to be published by third quarter of this year. It will be made more comprehensive by linking with proposed new indices like Land Price Index and Building Materials Index to reflect the contemporary rate of change in the house prices. NHB is in the process of working with an industry expert for this.

2.Do you think the Real Estate Sector is always under pressure of resource crunch? How much do you agree in this?

Ans: The real estate sector had been facing a slowdown in the higher segments. The weak market sentiment has resulted in weak sales in higher segments which, in turn, has made it difficult for many developers to even service their interest obligations. Rising debt levels and reduction in sales at high income segment housing have made the builders to shift their gear on affordable housing projects.

However, the government’s flagship programme of ‘Housing for All by 2022’, affordable housing is expected to play a key role in the revival of real estate in the affordable segment. Further, some of the private players are in the process of setting up of dedicated funds to make long-term equity investments in affordable housing segment possible. Real estate reforms, including FDI reforms undertaken last year have considerably increased opportunities for foreign investors. Alternate sources of funding like FDI, PE Funds and, to some extent ECB, have helped the real estate sector. Again, the Real Estate (Regulation and Development) Act, 2016, is expected to build confidence among investors to the sector.

However today debt seems to be the mainstay of developers and since new sales remain weak they depend more on external financing. Builders need equity as a long term resource and hopefully some of the new private equity players would bring this in.

3. Frauds in home loans or any kind of loans occurs. This problem is getting bigger day by day. How do you look into it?

 Ans: Government of India, Reserve Bank of India as well as the National Housing Bank have taken several initiatives / steps to contain home loan frauds.

(a)  NHB has been compiling information on housing loan frauds from HFCs, RBI and Indian Banks’ Association since 2005 and circulating them to HFCs on quarterly basis to enable them to take adequate precautions, exercise due-diligence and initiate timely corrective actions to avoid occurrences of such fraudulent incidences in future;

(b) NHB has also directed all the registered HFCs in 2010, to put in place a system to regularly provide information to Credit Information Companies, as required, and further advised to disseminate credit information pertaining to wilful defaulters and also to report data on wilful defaulters to all Credit Information Companies.

(c) NHB was instrumental in the establishment of Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI) in 2011, a central online security interest registry of India for registration all kind of mortgages to prevent frauds involving multiple lending on the same asset by different institutions, and has contributed to its equity support.

(d) NHB has issued circulars to all the registered HFCs from time to time for sharing of information on some irregularities and take corrective steps for preventing frauds in housing loans and has also advised them to implement the processes to link disbursal of housing loans sanctioned to individuals to be closely linked to the stages of construction of the housing projects/houses, etc.

4. These frauds happen mostly in real estate. So is it a developer specific problem or sector specific problem?

Ans: This could be a combination of both. However most of the reputed developers have their systems in place and so do the financial institutions. By far frauds on multiple financing on property are confined to few pockets and projects.

 5.Slowdown in economy has impacted the growth in home loans. Do you agree? Why?

 Ans: We find that the housing finance sector is coping better than many other segments of the economy. The combined housing loan disbursements of HFCs and Public Sector Banks have grown by more than 23%over the last year’s figures, while outstanding housing loans at the end of the year have shown 20% growth. Factors like low delinquency rates in home loan portfolio, long term deployment of funds and long term relationship with the borrowers, along with the attendant potential for cross-selling other services are some of the factors which continue to make the lenders bullish on the housing loan product.Going forward, the affordable and below ten lacs segments are expected to play a major role in the sector’s growth, and the following intiatives would help boost thesesegments

(a)  PMAY CLSS – The Credit Linked Subsidy Scheme under the Pradhan Mantri Awas Yojana is a major initiative of the Government towards achieving the goal of Housing for All by 2022.Under the Scheme, beneficiaries of Economically Weaker Section (EWS) and Low Income Group (LIG), not owning a pucca house anywhere in India and seeking housing loans (for new construction and for addition of rooms, kitchen, toilet etc. to existing dwellings as incremental housing) from Banks, Housing Finance Companies and other such identified institutions would be eligible for an interest subsidy at the rate of 6.5% for a maximum tenure of 15 years. The credit linked subsidy is available only for loan amounts upto ?6 lakh and additional loans beyond ?6 lakh, if any, will be at nonsubsidized rate. The interest subsidy will be credited upfront to the loan account of beneficiaries and the Net Present Value (NPV) of the interest subsidy to be calculated using discount rate of 9%. The carpet area of houses being constructed should be upto 30 m2for EWS and 60 m2 for LIG, respectively in order to avail of the credit linked subsidy. The beneficiary, at his/her discretion can build a house of larger area but the interest subvention would be limited to first ? 6 lakh only.

NHB is a Central Nodal Agency under PMAY CLSS and we have entered into partnership with 145 institutions till date.

(b) Tax concessions – The Union Budget 2016-17 has announced many tax concessions for the housing sector. Additional interest deduction for first time buyers, tax exemption on profits for affordable housing projects, service tax relief for affordable housing projects in the public or PPP sector, and excise duty exemption on Ready Mix Concrete, are all expected to provide a major upward thrust to affordable housing in the country.

 6. How does NHB balance the demand and supply issues?

Ans: On the demand side, NHB, through its regulatory framework, has always endeavored to stay with the curve, i.e. we have always tried to ensure that our regulations are such that they develop the HFC sector while at the same time protecting and promoting the interests of the customers. Ensuring greater transparency in HFCs’ operations, better disclosures and information dissemination, and efficient grievance redressal mechanism are the hallmarks of NHB’s regulation. We also extend refinance assistance to the primary lending institutions at concessional rates, so that the overall cost of funds to the end beneficiary could be reduced.

On the supply side, we interact with developer associations and represent their genuine requests to the government. We also do project financing for state participative projects.

7. Does NHB have its own rating system to keep an eye on the housing finance companies?

 Ans: NHB has two separate rating systems in place which serve different purposes.

We have a supervisory rating system, developed internally, which is used for our regulatory function. The inspection team which conducts the regulatory inspection of an HFC awards a supervisory rating to that HFC based on the compliance levels observed. This rating is shared with the concerned HFC.

We also have another internal credit rating system which we use for rating the client institutions to whom we extend refinance. It takes into account various pertinent factors including financial health and performance, governance and quality of management, etc. to give us an insight into these institutions.

8. Real Estate Regulation Bill has passed and will come into an Act. Do you think this will bring any transparency in the sector?

Ans :The Bill is aimed at bringing transparency as well accountability in realty sector. The Bill requires mandatory registration with the real estate regulatory authority in case of all commercial and residential real estate projects having over 500 m2land area or 8 apartments. This is will ensure more disclosures on part of builder and also ensure timely completion and handover of units/projects. Pricing will be more transparent, as builder will be charging on basis of the carpet area and not on built-up area.The advent of a regulator is a welcome move for an estimated 160 billion dollar industry.

9. Does NHB have some kind of norm of itself to make the real estate sector more transparent? What initiatives has NHB taken?

 Ans: NHB has issued guidelines to HFCs to carry out due diligence while extending financial assistance to developers and their adherence with the provisions/guidelines of local authority or body.

10. Tell us the average ticket size of loans at Housing Finance Companies?

Ans: The average ticket size of the Individual Housing Loan extended by HFCs is around Rs.11-12 lakhs.

11.Tell us how many HFCs are registered with NHB? How much is the target to achieve the mission of Housing for All?

 Ans: As on date, there are 74 HFCs registered with NHB. NHB as a regulator does not have any target for this. However, we have seen extensive interest in new applications and some of the new players are also concentrating on the Rs.10-15 lakh segment which would help in the mission of PMAY. NHB in its promotional role would also work towards developing a robust micro housing system in the country.

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