REPORT ON TREND & PROGRESS OF HOUSING IN INDIA
JUNE 2001
REPORT ON TREND & PROGRESS OF HOUSING IN INDIA, JUNE 2001
CONTENTS
Chapter Heading / Pages- HOUSING IN THE BACKDROP OF OVERALL ECONOMIC SCENARIO : 2000-01
- INSTITUTIONAL FRAMEWORK FOR HOUSING FINANCE : HOUSING FINANCE COMPANIES
- INSTITUTIONAL FRAMEWORK FOR HOUSING FINANCE : SCHEDULED COMMERCIAL BANKS
- INSTITUTIONAL FRAMEWORK FOR HOUSING FINANCE : COOPERATIVE SECTOR
- ASSET QUALITY IN HOUSING FINANCE
- NATIONAL HOUSING BANK (NHB)
- GOVERNMENT HOUSING INITIATIVES
- ASSESSMENT & PROSPECTS
- GLOSSARY
Chapter-I:HOUSING IN THE BACKDROP OF OVERALL ECONOMIC SCENARIO 2000-01
The strengthening of local economic infrastructures through community development and housing initiatives is essential for any economy irrespective of its stage of development. The majority of the population in most of the developing nations of today’s world live and work in segregated inner-city or rural areas, characterized by decaying infrastructure and substandard housing. Homeownership is the primary means by which households achieve financial security and communities achieve stability, yet discrimination in respect of housing has severely limited the economic and social opportunities available to human beings.
The housing issue is the most fundamental of social problems relating to environment. The lack of a stable domestic life will unmake a nation. The home is the basic unit of society, and with limited opportunity for the free play of positive forces that make for health, happiness, and virtue, social degeneration and decay is inevitable. Great cities are the danger points of modern civilization, and any community which leaves to a large part of its inhabitants inadequate facilities for the true development of domestic life must fight deteriorating forces at tremendous cost. Satisfactory housing & housing satisfaction are, therefore, integral part of socio-economic development, political stability, and development of intellectual capital and thus have a far-reaching impact on the well being of the generations to come.
In India the housing economy is intertwined with the macro economic scenario through its numerous forward and backward linkages both on the supply as well as the demand side. On the one hand, favourable budgetary policy pronouncements and legislative reforms facilitate enhanced supply while expansionary fiscal and monetary policy incentives encourage increase in effective demand for housing by enhancing disposable income and reducing the effective cost of borrowing.
Fiscal and monetary policy incentives coupled with the overall downward movement of the interest rates in the economy and increased competition among the institutions engaged in providing financial assistance for housing have also eased both the accessibility and affordability factors thereby resulting in a greater demand for housing. The housing finance sector has been maintaining a good growth rate when compared with the other sectors of the economy and considering the fact that the level of non-performing assets is low in the sector, it has attracted a number of market players to do more housing finance business. In order to attract the customers, the financial institutions have liberalised the lending norms, reduced the rates of interest, increased the period of loan, eased the collateral requirement etc.
The Macro-economy and Budgetary Stance
The service sector of the Indian economy registered sharp decline in the year 2000-01 which aggravated the continued deceleration in the overall growth rate. Low agricultural productivity for the second consecutive year also contributed to the recessionary cycle. The real GDP growth during the year came down to 5.2% as against the 6.4% growth rate witnessed during the year 1999-2000. A hike in the world petroleum price also led to significant inflationary pressure during the initial part of the year. However, this pressure eased towards the end of the year.
The Indian economy, however, exhibited characteristic resilience with relatively stable price trend in essential commodities and manufacturing sector and a sustained export sector performance. The major bottlenecks facing the economy after a decade of first generation of economic reforms that started in 1991, are inadequate agrarian reforms, non-acceleration of industrial growth, inadequate fiscal adjustments, insufficient public sector resources to facilitate investment in infrastructure and social sectors and inadequate infrastructure climate for increased private sector investments.
The Union Budget for the year 2001-02 broadly outlined an all-encompassing strategy for overall economic growth that included:
- Faster agrarian reforms
- Intensified infrastructure investment and structural reforms
- Continued reforms in the financial sector and capital market
- Development of human capital through increased opportunities and social security
- Rigorous expenditure control measures and rationalisation of subsidies
- Speeding up in privatisation and restructuring of public sector
- Widening and rationalisation of tax regime to enhance revenue base
Successful realisation of these strategies was expected to usher in an era of higher growth for the entire economy provided these were accomplished in a focussed and time-bound manner.
Monetary Policy Measures
The monetary policy measures remained little volatile during 2000-01. In July 2000 the Reserve Bank of India (RBI) decided to increase the bank rate by 100 basis points and CRR by 50 basis points in view of the developments witnessed in the international and domestic financial markets. Subsequently in February 2001, RBI reduced the bank Rate and CRR by 50 basis points. The Bank rate was further reduced by 50 basis points in March, 2001, thus reverting back to the position prior to July, 2000.
The Housing Finance Scenario: 2000-2001
The housing finance disbursements by the primary lending institutions continued to witness significant growth during the year 2000-2001. The housing finance companies (HFCs) approved by NHB for its refinance assistance disbursed a sum of Rs. 12637.85 crores during the year as compared to Rs. 9812.03crores disbursed during the previous year registering a growth of around 29%. These approved HFCs account for nearly 98% of the housing loans disbursed by all the HFCs. The disbursement by these companies has witnessed an average growth rate of around 28% over the last four-year period.
The scheduled commercial banks are required to lend a minimum of 3% of their incremental deposits during the previous year towards the housing sector either directly or indirectly. The banks have been exceeding this allocation over the last few years. The housing finance allocation for the year 1999-2000 for the banks was Rs.3051.52 crore whereas the banks registered a disbursement figure of Rs. 9911.35 crore during the same period. The allocation subsequently increased to Rs.3409.95 crore for 2000-01, which was also achieved with a huge margin as the disbursement by the banks during the year 2000-01 stood at Rs.9787.24 crore.
The third category of housing finance institutions is the apex cooperative housing federations (ACHFs). At present, there are 26 apex cooperative housing federations at the State level, which meet the financial requirement of primary housing cooperatives and also extend promotional support to them. During the last four years, the state level apex cooperative housing federations had disbursed an amount of Rs. 2754.03 crores as loans to primary housing cooperatives for construction of 3.37 lakh housing units. During the year 2000-01, these institutions have disbursed around Rs.868 crore facilitating construction of more than 55,000 dwelling units.
Housing in the backdrop of economic reforms
Despite the slow-down in the performance of the other sectors of the economy, the housing finance sector has been witnessing an impressive growth rate over the last four years. However, as per the figures released by the Central Statistical Organisation (CSO), the construction industry has recorded a lower growth rate of 5.5% during the year 2000-01 as compared with a growth rate of 8.8% witnessed during the previous year (1999-2000). Notwithstanding the lower growth rate witnessed in the construction industry, the housing finance sector is expected to experience a substantial growth rate in the coming years provided the various fiscal concessions continue, the lower interest rate regime is not reversed for some time in future, there is no unexpected boom in real estate and the disposable income of the majority of the populace increases.
The main constraint facing the housing sector presently is availability of long-term finance. This in turn requires the institutions to have access to long-term resources. The long-term market for resources is yet to develop in the country. In this context, the Government has to play a significant role in developing long-term debt market. One way of raising long term resources needed for the housing sector could be securitisation of mortgages. Securitisation offers a viable, sustainable and market oriented sourcing mechanism for funds. However, in order to make the instrument acceptable to the investors, a few measures are required. Government support in these measures will help the housing finance sector to raise the long-term resources.
Fiscal Policy Measures
The Government of India continued with its thrust to the housing and housing finance sector by way of various fiscal and budgetary concessions that featured in the Union Budget for the year 2001-02 as well. The measures provided in the Budget to encourage the housing sector can be segregated into two broad categories:
For individuals:
i) Amendment to Section 24 of the Income Tax Act, 1961:
a) Interest on capital borrowed: Under the existing provisions contained in Section (24)(2) of the Income Tax Act, 1961, interest payable on capital borrowed on or after April 1, 1999 for acquiring or constructing one self-occupied house was deductible upto rupees one lakh where such acquisition or construction is completed before April 1, 2003. The limit under this section has been enhanced to Rs. 1.50 lakhs.
b) Cumulative deductions allowable under this section: The current provisions under Section 23 of the Income Tax Act, 1961 provide for determination of the annual value of the house property subject to certain deductions allowable under Section 24. Under the existing provisions of Section 24, the income chargeable under the head “Income from House property” is computed after deducting (i) one-fourth of the annual value in respect of repairs and collection charges, (ii) interest on capital borrowed and (iii) other deductions on account of insurance premium, ground rent, annual charges etc. The provisions of this section have been modified to provide for only two deductions viz., the amount of interest on capital borrowed as mentioned above and an amount equal to thirty percent of the annual value as against twenty five percent of the annual value towards repairs and collection charges.
ii) Amendment to Section 230A of the Income Tax act, 1961:
Under the existing provision of Section 230A of the Income Tax Act, 1961, any document purporting to transfer, assign, limit or extinguish the right, title or interest of any person to, or in a property valued at more than five lakh rupees, cannot be registered without the satisfactory certification of the Assessing officer about the tax liability of the person. The Union Budget 2001-2002 has sought to remove this section entirely. Therefore, in cases of transfer of property of the value above Rs. 5 lakhs also, no clearance from the Income Tax Department is mandatorily required.
For the Corporate and the Housing Sector in general:
iii) Liberalisation of tax holiday provisions for Infrastructure:
Section 80 IA of the Income Tax Act, 1961, provides for a tax holiday for five years and deduction of 30% of the profits in the next five years in respect of those enterprises engaged in developing, operating or maintaining any infrastructure facility as defined under the section. In order to encourage the investment in infrastructure, the Union Budget 2001-2002 has removed the two tier fiscal concession and provided a ten year holiday for these companies which can be availed of consecutively within a block of twenty/fifteen years depending upon the kind of infrastructure facility the company is engaged in. The mandatory requirement of transferring such infrastructure facility to the Central/ State Government or local authority or statutory authority has also been done away with.
All these fiscal and monetary policy measures are expected to boost the demand side of the housing economy by enhancing the affordability of housing finance especially for the lower and middle-income segment of the population which constitute a significant portion of the Indian economy.
Chapter 2: INSTITUTIONAL FRAMEWORK FOR HOUSING FINANCE:
HOUSING FINANCE Companies
The total number of HFCs in the mailing list of NHB as on 31st March, 2001 was 342 as against 341 in the preceding year. In terms of Section 29A of the National Housing Bank Act, 1987, effective from 12th June, 2000, companies are required to obtain Certificate of Registration from NHB to be eligible to carry on / commence the business of a HFI. 257 companies on the bank’s mailing list had failed to apply for registration within the stipulated period and, therefore, have become ineligible to carry on the business of an HFI. NHB has received data from 85 HFCs during 2000-2001 under its system of off-site supervision in terms of the Housing Finance Companies (NHB) Directions, 1989. For the purpose of analysis of the data, these 85 HFCs are grouped into three categories as follows:
Categoriesof HFCs / 31st March, 1999 / 31st March, 2000 / 31st March, 2001
A] HFCs which have furnished the data / 100 / 83 / 85
B] Out of [A], HFCs approved for financial assistance from NHB (approved HFCs) / 29 / 26 / 28
C] Out of [A], HFCs having of NOF Rs.50 lakh and above(excluding approved HFCs) / 30 / 29 / 26
D] Out of [A], HFCs having NOF less than Rs.50 lakh / 41 / 28 / 31
As the financial year of most of the HFCs is from April to March, the financial data given in this chapter is as on 31st March, 2001.
Table 1 : Broad financial information as on 31st March, 2001
(Rs. in crore)
Categoryof HFC / Paid up capital / Free Reserves / NOF / Public Deposits outstanding / Housing Loans outstanding
A] HFCs approved for financial assistance from NHB
As on 31st March, 2001 / 1892.55 / 3921.18 / 5483.54 / 8640.90 / 33100.96
As on 31st March, 2000 / 1393.88 / 3426.00 / 4701.62 / 7180.98 / 25140.13
As on 31st March, 1999 / 1128.57 / 3126.89 / 4121.80 / 6088.95 / 24975.10
B] HFCs having NOF Rs.50 lakh and above
As on 31st March, 2001 / 68.39 / 12.93 / 71.60 / 51.98 / 127.41
As on 31st March, 2000 / 121.82 / 11.62 / 124.71 / 44.98 / 175.95
As on 31st March, 1999 / 81.94 / 17.97 / 95.17 / 47.77 / 98.69
C] Other HFCs
As on 31st March, 2001 / 10.01 / 0.59 / 0.67 / 26.41 / 21.43
As on 31st March, 2000 / 5.94 / 0.53 / 3.75 / 7.47 / 9.93
As on 31st March, 1999 / 6.27 / 0.58 / 4.40 / 14.50 / 10.01
Total
As on 31st March, 2001 / 1970.95 / 3934.70 / 5555.81 / 8719.29 / 33249.80As on 31st March, 2000 / 1521.64 / 3438.15 / 4830.08 / 7233.43 / 25326.01
As on 31st March, 1999 / 1216.78 / 3145.44 / 4221.37 / 6151.22 / 25083.80
Source: Annual returns
There has been substantial increase in the paid up capital of the approved HFCs during the year 2000-01. Paid up capital which was Rs.1393.98 crore as on 31st March, 2000 increased to Rs.1892.55 crore as on 31st March, 2001, an increase of Rs.498.57 crore. As a result of increase in the paid up capital, the NOF of approved HFCs which constitute the major part of the housing finance sector, increased at around 17% (previous year 14%) from Rs.4701.62 crore as on 31st March, 2000 to Rs.5483.54 crore as on 31st March, 2001. The NOF of HFCs having NOF of Rs.50 lakh and above has, however, decreased from the earlier level of Rs.124.71 crore as on 31st March, 2000 to Rs.71.60 crore as on 31st March, 2001. On an overall basis, the NOF of the HFCs increased from Rs.4830.08 crore as on 31st March, 2000 to Rs.5555.81 crore as on 31st March, 2001, a net increase of Rs.725.73 crore.
The outstanding housing loans, which were Rs.25326.01 crore as on 31st March, 2000 increased to Rs.33249.80 crore as on 31st March, 2001. Of these outstanding housing loans, the approved HFCs account for Rs.33100.96 crore, representing 99.55% of the total housing loan portfolio of the reporting HFCs. Similarly, of the total outstanding public deposits of Rs.8719.29 crore as on 31st March, 2001, the approved HFCs account for Rs.8640.90 crore, representing 99.10% of the total outstanding public deposits.
The amount of housing loans sanctioned and disbursed by approved HFCs have also shown steady growth over the last four years:
Housing loans sanctioned and disbursed by approved HFCs*
(Rs. in crore)
1997-98 / 1998-99 / 1999-2000 / 2000-2001SANCTIONED / 8155.99 / 10319.18 / 14351.20 / 14829.16
DISBURSED / 5767.55 / 7399.69 / 9812.03 / 12637.85
*figures given in this table are enumerated from the publishedreports of approved HFCs/quarterly data and not from statutory returns & HUDCO figures include disbursement for land acquisition, integrated low cost and sanitation programme, other Government action plan as well as individual housing loan of HUDCO Niwas
Public deposits
The outstanding public deposits with all reporting HFCs increased by over 20.54% to Rs.8719.29 crore as on 31st March 2001 as against the previous year’s figures of Rs.7233.43 crore.
A] HFCs approved for financial assistance from NHB
The outstanding public deposits with the approved HFCs which stood at Rs.7180.98 crore as on 31st March, 2000 rose by Rs.1459.92 crore and stood at Rs.8640.90 crore as on 31st March, 2001, an increase of 20.33%.
B] HFCs having NOF Rs.50 lakh and above
The outstanding public deposits with HFCs having NOF Rs.50 lakh and above were Rs.51.98 crore as on 31st March, 2001 as against Rs.44.98 crore as on 31st March 2000, an increase of Rs.7 crore. This was largely due to the fact that some of the non-reporting HFCs in 2000 which were holding public deposit started submitting returns in 2001.
C] Other HFCs
The outstanding public deposits with other HFCs, which were Rs.7.47 crore as on 31st March, 2000 increased to Rs.26.41 crore as on 31st March 2001. The increase in the public deposits of these categories of HFCs is due to addition of few new HFCs which are holding substantial amount of public deposits.
Table 2: Category-wise public deposits
(Rs. in crore)
Outstanding public deposits as on 31st MarchCategory / 1999 / 2000 / 2001
of HFC / No. of
A/cs / Amount / No. of
A/cs / Amount / No. of
A/cs / Amount
a) HFCs approved for financial assistance from NHB / 1622399 / 6088.95 / 1537531 / 7180.98 / 1633781 / 8640.90
b) HFCs having NOF of Rs.50 lakh and above / 33391 / 47.77 / 28048 / 44.98 / 28730 / 51.98
c) Other HFCs / 56217 / 14.50 / 13695 / 7.47 / 31861 / 26.41
Total / 1712007 / 6151.22 / 1579274 / 7233.43 / 1694372 / 8719.29
2. Classification of public deposits