The 21st Century Indian City
-Developing an Agenda for Urbanization in India
March 23-25, 2011
Panel 5: The Politics and Economics
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
Developers
Land
&
Construction
Infrastructure
3
Outstanding Housing Loans
( Rs. / Billion)
4691
4038
3670
Total
3212
Banks
HFCs
2653
3159
1973
2770
2578
1444
2310
1791
983
586
746
254
332
328
418
2001
2002
1268
853
491
492
591
705
2003
2004
2005
862
902
1092
1268
2006
2007
2008
2009
1532
2010
4
Trends in Housing Finance
3,500
Disbursals (INR in billion)
3,000
2,500
1,520
1,327
2,000
Total
1,197
Banks
HFCs
1,017
1,500
860
764
944
1,000
843
537
784
700
414
504
500
182
56
126
0
2000-01
232
236
328
86
146
2001-02
178
2002-03
586
209
2003-04
260
2004-05
274
2005-06
317
2006-07
413
2007-08
484
2008-09
575
2009-10
5
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 Housing – “Accessibility”
and “Affordability”
6
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 LowIncome 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
9
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
• Cost of Land
• Land market functioning
• Infrastructure provision
• Construction & Delivery
• Individual Loans
• Supply of Funds
• Cost of Funds
• Whether market based
solution?
• Role of Public & Private
Sector
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
• Market’s limitations / Subsidy Limitation
• Private Capital and Public Objective
• Formal & informal sectors compartmentalized
• Demand aggregation, demand registration, intermediation
and risk mitigation
• 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 investor’s market into
consumer’s 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
&
Programmes
Facilitator State/Local
&
Enabler Governments
Formal
Sector
Policy
&
Programmes
PUBLIC
PRIVATE
Partnership
Financial
Sector
Financial
Institutions
Instns &
Products
Informal
Sector
Affordable Housing for All and Financial Inclusion
–Mutually Consistent Themes
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 compete fairly
with other sectors for funds
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