'The Development of Housing Finance in the Changing Business Scenario\r'

'THE DEVELOPMENT OF HOUSING pay IN THE CHANGING BUSINESS SCENARIO Mr. P. S. Ravindra** squeeze tradition eithery in India, or so plurality use to depend on their farsighted investing trust and gratuity amounts received by and by solitude while considering buying a class. However, with the outcome of living accommodations pay as a major(ip) business in the country, an more and more large number of race argon going for living accommodations bestows. The lodgment welkin in India is face up an estimated famine of 4. 1 crore septs and according to the 9th Plan, the yield-supply open up in urban hold is 3. 3 crore houses.\r\nThe manu situationuring comprises of nearly 383 lodgment pay companies although expenses from only the leading 26 institutions argon eligible for re- pay from National admit Bank, which is the restrictive body for these companies. These trapping pay Companies (HFCs) cause nearly 95 % of the total spending by the manuf practiseure . The tax income unsusceptibility on the absorb paid on lodgment loans has similarly been extended up to the course of study 2003. This move entrust social welf be the remunerative employees, especially the middle-class populace. A aspiration of providing 25 hundred thousand hobnailed houses has been envisaged in the cypher.\r\nOut of these, 12 hundred thousand houses provide be built d testifystairs the ‘India Awas Yojana’ and an sepa site one-hundred thousand houses would be provided chthonian the ‘Credit-cum-Subsidy’ intrigue for families with an yearly income be diminished Rs. 32,000. More everyplace, around 1. 5 lakh houses to be constructed under the ‘ rosy Jubilee rustic admit Finance synopsis’ result be eligible for refinance from the NHB. The intentness is witnessing a boom at present boosted by the generous budget sops and quaver bottom genuinely estate prices. The learn is a mode stride of genuine individual(a) needs for housing.\r\nThe prospects of the industry would be kick upstairs strengthened on the amendments to the Rent hold Act and repealing of the debatable Urban state of matter chapiter Act. This look into paper focuses on the Demand for trapping field, food market Profile, Market Trends, Price sensitiveness factors and outlook of Development of trapping Finance in the changing Business scenario. ____________________________________________________________ ____________ _________________nd Ceiling Act. _________________________________________________________ THE DEVELOPMENT OF HOUSING FINANCE IN THE CHANGING BUSINESS SCENARIO Mr. P. S. Ravindra**\r\nIntroduction Roti, Kapada aur Makaan argon the three basic necessities of human beings. Traditionally in India, most people used to depend on their provident fund and gratuity amounts received after retirement while considering buying a home. However, with the e mergence of housing finance as a major business in the countr y, an increasingly large number of people atomic number 18 going for housing loans. Incomes of families are uphill and their purchasing capacity as surfacespring as loan repaying capacities is going up. property prices are more or slight on a stabilizing trend. A large number of home loan options are available.\r\nHFCs are becoming increasingly liberal. Interest pass judgment fork over been increasingly falling. The Government of India has been enceinte substantial rise to the housing sector. The social structure of the Indian families is going through a ocean change as the joint family is disruptive giving way to the nu crystallise family concept. The oblige to have one’s let home is high among these families. in high spiritslights • Signifi arsetly, there has been no dearth of call for for housing and wherefore for finances for the same have been abundant. • Market dynamics play a frigid part in de considerationining the bring rate.\r\nConsid ering the same, the housing finance industry has been in a slump in late times. • The entry of banks into the housing finance sector has contractd a serious curse to already existent players in the field. • The housing sector is witnessing a clash amidst major players. Foremost amongst this is the ICICI and HDFC imbroglio. The later is giving sleep slight nights to HDFC. • Tax sops provided by the Government of India is a significant whole step towards upholding the future prospects of this industry. Sector Comments Nearly 25 lakh houses are built every(prenominal) year in India. However, the nation’s needment is around 65 lakh houses per annum.\r\nThe housing sector in India is facing an estimated compactage of 4. 1 crore houses and according to the Ninth Plan, the demand-supply gap in urban housing is 3. 3 crore houses. In case, all these urban housing dwellings were to be built, it would take an investment of Rs. 150,370 crore. Traditionally, the housing finance business has been concession a margin of around 2 per pennyimeimeime. The skill of the players is in converting their advances that have a maturity period of 15-30 geezerhood with the deposits that progress within three old age. Though, the National Housing Bank (NHB) refinances housing loan up to Rs. lakh disbursed to the lower income group, this is just a negligible proportion of advances to the major players. The primal sources of silver are resolved deposits, debentures, sequestered placement of bonds and borrowings from banks and fiscal institutions. Thus, efficient financial management has a key role to play in this industry. Lending rates are predominantly market-driven and in assure of the same, the housing finance industry has been in a slump in new times with there being low demand from builders and investors a want. Furthermore, the entry of banks into the housing finance sector has also not augured well for the industry.\r\nMost housing fina nce companies supply mainly to the higher income group having passably assured creditworthiness. In a scenario tag with the absence of speedy foreclosure regulations, most companies privilege to stay away from rural and the Low-Income theme  (LIG). However, it must be noted that demand for housing in the Middle-Income Group and High Income Group segments has also recorded a steady rise lately. Market profile The Indian housing finance sector is crowded with players of all sizes and nature: government activity organisations, insurance companies, banks, housing finance companies and co-operative organisations like HUDCO and NHB.\r\nMajor players in the Industry are HDFC, LIC Housing Finance, Dewan Housing, Can Fin plates, SBI infrastructure Finance and Gujarat Rural Housing. The newbornest entrant into the Industry, which is keen rapidly, is ICICI. Interestingly, both Can Fin Homes special(a) and its parent Canara Bank are into housing finance. It is the same with quite a some banks, for example, SBI and SBI Home Finance moderate, Bank of Baroda and phellem Finance, Vysa Bank and Vysyabank Housing. Though HDFC and ICICI also have their banking arms, they compete with each other in personal loans, but not housing loans.\r\nThe industry comprises of nearly 383 housing finance companies although disbursements from only the leading 26 institutions are eligible for re-finance from National Housing Bank, which is the regulative body for these companies. These Housing Finance Companies (HFCs) reach nearly 95 % of the total disbursement by the industry. However, owing to the slump in real estate market over the break down few years, the industry stick on a fairly low disbursement growth. Market trends The housing sector is witnessing a clash between major players. HDFC had rule this sector with a lion’s stranglehold.\r\nIt was smooth sailing for HDFC all these years and it seemed that its monopoly was there to stay forever. However, out of the blue emerged ICICI Home Loans, when this financial institution pertinacious to clash arms with HDFC on its home front. Within a year of its launch, ICICI Home Loans is giving the industry loss leader, HDFC, sleepless nights. Under come outting in the sideline rates is all in the game and so is every other trick in the book. HDFC is gathering its marbles to beat its competitor at its own game. It launched an aggressive hoarding campaign knowing in the style of ‘follow the leader’.\r\nHDFC has launched its website propertymartindia. com as a joint chance with the Mahindras. Following suit, ICICI too, launched its home portal indiahomeseek. com. So the war rages on both at the retail level and also in the variant of a cyber war. ICICI has lowered its crown lending rates on unretentive and medium term loans from 13 per cent to 12. 5 per cent. Thus, bringing the care on housing loans at par with the unusual exchange loans. HDFC also reduced the absorb rates on its housing loans from 13. 25 per cent to 13 per cent. It went an extra sea mile to woo the borrowers of loans up to Rs. crore by allowing them the knack to every opt for a fixed interest rate of 13 per cent or a rudderless interest rate of 12. 5 per cent. As the put forward indicates, a borrower opting for the first choice will have to repay the loan at an interest rate of 13 per cent irrespective of any future bum or cut in the rates. Those choosing the mho option would be subject to the vagaries of the interest market and may gain or relapse in the bargain. The company has also reduced the interest on loans borrowed by non-resident Indians. These loans repayable within five years will attract an interest rate of 11. 5 per cent per annum while loans ith a term of 6-10 years will be charged interest at 12. 5 per cent. The above rates are under the fixed interest rate option. uniform floating rate loans would be charged at 5 per cent less interest. Originally, only the commercial banks offered housing loans on floating interest rates, now that HDFC is religious offering loans at a 12 per cent floating rate, ICICI also has a floating rate home loan in the pipeline. Price sensitivity factors • Noteworthy fact here is that NHB refinance to the HFCs comprises a unadulterated 7% of the loans disbursed. In other words, most HFCs have to arrange for a major part of the disbursals from their own resources.\r\nThus, low spreads, uneven asset and liability, competition posed by banks with recent regulations requiring commercial banks to invest 40 per cent of their advances towards the priority sector, etc. pose problems for the lending division. • The first housing finance company to cut down its interest rate after RBI shortened the PPF interest rate by 1 per cent on January 14, 2000 was HUDCO. When the National Housing Bank, the refinancing agency of all housing finance companies, slashed its rates by up to 50 basis points, it triggered off a virtual interest war in the industry.\r\nHDFC, ICICI, LIC Housing Finance, PNB Housing Finance Limited and a host of others followed suit. In a game of one-upmanship, the companies have been vying with one other to offer the best deal in a rapidly growing market. • CRISIL has guess an increase in the interest rates in the second half of this year. This will be due to the demand of property by the Centre and also the corporates exceeding the supply. The Central Government has projected a Rs. 31,000 crore higher borrowing this year than last year’s figure of Rs. 86,000 crore. The give in Government borrowings would add up to a further Rs. 7,500 crore and the corporate demand would be higher by Rs. 11,000 crore. As compared with the supply, CRISIL expects the short fall to be around Rs. 15,800 crore. To get ahead up this short fall, even if there is a 1 per cent cut in CRR, interest rates are whitewash bound to increase. • The Union compute 2000-01 has giv en a shot in the arm to the industry by ski tow the exemption applicable to individual borrowers on the interest paid on housing loans to Rs. 1 lakh. The existing tax price reduction of 20 per cent under voice 88 of the Income tax Act of 1961, cover repayment of housing loans, subject to a maximum of Rs. 0,000. The same has now been twofold to Rs. 20,000. This, coupled with the lowering of the interest rate would enable a borrower to enjoy tax exemption upto a loan of Rs. 7. 5 lakh for a 15-year term. He can now have access to demote tax planning options on bill of the exemption and a lower Equated periodic Installment (EMI) due to longer term of repayment. Furthermore, individuals who already own a house can now invest in a new house and besides claim exemption from capital gains on the sale of the asset. The tax exemption on the interest paid on housing loans has also been extended up to the year 2003.\r\nThis move will benefit the salaried employees, especially the middle -class populace. A dream of providing 25 lakh rural houses has been envisaged in the budget. Out of these, 12 lakh houses will be built under the ‘India Awas Yojana’ and another(prenominal) one-lakh houses would be provided under the ‘Credit-cum-Subsidy’ scheme for families with an annual income below Rs. 32,000. Moreover, around 1. 5 lakh houses to be constructed under the ‘Golden Jubilee Rural Housing Finance Scheme’ will be eligible for refinance from the NHB. The industry has found new avenues such as securitisation, which are expected to be launched in the market very soon. This mechanism would require a pool of assets (mortgages), which would be sell by the HFCs to NHB. These assets in turn would act as a Special decide Vehicle (SPV) and would be sold as pass through certificates to investors, which initially would be from groups earning pension funds, mutual funds, financial institutions, commercial banks and other trusts or institution which require monthly fixed income. The mortgages would be for loans up to a period of 10 years, on which HFCs would earn 16 % from borrowers. The spread is to be passed back to the concerned HFCs in the form of premium at purchase of mortgages or service charge over a period of time. It is expected that with the success of securitisation the circulation of funds would increase coupled with cash flows generated by these funds. Furthermore, a secondary market for mortgages would fuck off feasible for HFCs. Outlook The industry is witnessing a boom at present boosted by the generous budget sops and rock bottom real estate prices.\r\nThe demand is a result of genuine individual needs for housing. The prospects of the industry would be further strengthened on the amendments to the Rent Control Act and repealing of the controversial Urban Land Ceiling Act. Thus, the housing finance industry is on solid ground and has arouse prospects ahead. As for the small players, they will have to take the harsh decision to either exit the industry or merge with bigger entities. It is also amply clear that in the future, industry leader HDFC will have to share the spoils with the aggressive young turk †ICICI.\r\nNotwithstanding the competition, the customer has nothing to lose as he can recognise the best loan scheme from the ICICI and HDFC fold, with lower limit interest and a nil touch fee. Conclusion Despite the abovementioned factors, several bottlenecks still exist in the industry, which have to be taken care of before any of the above can bring nearly an improvement in the prospects of the industry. From an overall tie-up demand for housing is ever climb and the same would be reflected on the demand for funds. Hence, the profitability of the industry should commence on the positive track in the future.\r\n promptly housing finance products are at par with other consumer goods, where use of all marketing mix has become obligatory for the banks to attract and r etain customers. References 1. Basu D. N and Mehta V. K. , 1993. Housing Finance System India, Urban India, XIII, (1) January-June: 36-50. 2. Manoj P. K. 2004. dynamics of housing finance in India, 3. Vora P. P 2002. The Indian housing finance system, Housing Finance Investment. 15(Jan): 18-25. 4. Nambirajan, R, 2001. Home Loans and Tax benefits, Indian Infrastructure, May, pp. 42-43. http://www. indianloans. com http://www. indiainvest. com http://www. lichousing. com * * * * *\r\n'