Housing Finance

pic pic pic BY SHALEEN BAWEJA (15946) PUROO SONI (15907) DIWAKAR ANAND (15912) MUDIT KALRA (15918) AMAN ARORA (15944) ACKNOWLEDGEMENT We as a group would akin to show our sincere thanks to MR.KUMAR BIJOY our financial SERVICES faculty for seconding us study the undetermined in depth thus giving us a whole approximately experience. We also express our gratitude towards COLLEGE OF BUSINESS STUDIES for giving us the opportunity to r all(prenominal) on the project. INDEX S. No. PARTICULARS PAGE 1. PROFILE OF NATIONAL trapping BANK 4 2. wherefore HOUSING pay IS great? 7 3. HOUSING & GDP 8 4. TYPES OF nursing legal residence bestowwordS 9 5. HOUSING pay COMPANIES IN INDIA 11 6.SUMMARY OF FINANCIALS OF SELECTED HOUSING FINANCE COMPANIES 21 7. REVERSE MORTGAGE LOAN 22 8. HOUSING FINANCE- SCOPE IN INDIA 24 9. ASSESSMENTS & PROSPECTS 30 10. FUTURE EXPECTATIONS 32 11. LIMITATIONS OF HOUSING FINANCE 33 12. ANNEXURES 35 PROFILE OF THE NATIONAL HOUSING BANK The theme admit cashbox (NHB) was causeed on 9th July 1988 to a lower place an personation of the Parliament videlicet he National accommodate Bank Act, 1987 to function as a principal agency to promote Housing Finance Institutions and to provide financial and former(a)wise support to much(prenominal) institutions. The Act, inter alia, empowers NHB to ? Issue targetions to trapping pay institutions to ensure their growth on sound lines ? Make adds and advances and render any former(a) family of financial assistance to scheduled banks and trapping pay institutions or to any authority established by or under any Central, carry or Provincial Act and engaged in slum improvement and Formulate schemes for the purpose of mobilisation of resources and extension of credit for hold OBJECTIVES NHB has been established to achieve, inter alia, the hobby objectives ? To promote a sound, healthy, viable and represent effective admit finance arranging to cater to in all segments of the commonwealth and to integ dictate the caparison finance system with the all overall financial system. ? To promote a network of dedicated housing finance institutions to adequately serve various regions and different in have intercourse groups. To augment resources for the celestial sphere and direct them for housing. ? To progress housing credit to a greater extent(prenominal) inexpensive. ? To regulate the activities of housing finance companies establish on regulatory and supervisory authority derived under the Act. ? To encourage augmentation of emerge of buildable background and also building materials for housing and to upgrade the housing stock in the country. ? To encourage normal agencies to emerge as facilitators and suppliers of serviced contri scarcee, for housing. BUSINESS ACTIVITIESNHB, as the black grocery storeer take aim financial institution for the housing celestial sphere in the country, performs the following fictitious characters ? Regulation and Supervisi on NHB exercises regulatory and supervisory authority over the HFCs in the proceeds of acceptance of deposits by them pursuant to the powers vested in it under the Act. As per the amendments to certain provisions of the Act, which came into effect from June 12, 2000, NHB is vested with powers to grant Certificate of Registration to companies for commencing/carrying on the business of a housing finance institution.Besides, NHB regulates the deposit acceptance activities in accordance with the Housing Finance Companies (NHB) Directions, 2001, amended from time to time, in the matter of ceiling on borrowings (including public deposits, rate of inte stay on, period, liquid assets, etc). NHB has also issued Directions on prudential norms in regard to swell adequacy, asset classification, concentration of credit, income recognition, provisioning for bad and doubtful debts etc. NHB supervises the working of HFCs d aceness on- range inspection and cancelled-site surveillance. ? Financi ngNHB raises resources for the housing sector towards increasing b atomic number 18-assed housing stock and provides refinance to a large set of retail lending institutions. These include scheduled commercial banks, scheduled state cooperative banks, scheduled urban cooperative banks, specialised housing finance institutions, apex co-operative housing finance societies and agriculture and rural education banks. Refinance is provided by NHB under various schemes, which are formulated taking into account, several aspects of the National Housing Policy, the constraints face the sector etc.NHB has also a window for direct lending to Public Agencies such(prenominal) as, State Level Housing Boards and Area reading government activity for large scale integrated housing projects and slum redevelopment projects. NHB is also operating a special window for extending financial assistance to the people unnatural by natural calamities viz. earthquake, cycl ane etc. ? Resources of NHB NHB ra ises resources from diversified sources, both domestic and external by issuing Bonds/ debentures, borrowing from RBI and financial institutions/organisations etc. at a lower place the Act, NHB is authorised to issue and sell Bonds with or with come forward the assure of the Central Government for the purpose of carrying on its functions. ? Rural Housing NHB launched the Swarna Jayanti Rural Housing Finance schema to mark the golden jubilee of Indias Independence. The Scheme seeks to provide improved introduction to housing bestows to borrowers for anatomical structure/acquisition/ up-gradation of a dwelling in rural areas of the country. Statistics Comparative information on Housing Finance Disbursement Housing Finance Companies (Amt in Rs. crore) July-Sep 2003 July-Sep 2004 UNIT AMT 101182 5207. 42 UNIT AMT 104225 6286. 15 Why housing finance is in-chief(postnominal)? Perhaps few things are more developmental than housing. Given its linkages to many sectors in the eco nomy including land merchandises, crook, and labour marts housing finance is key to stinting growth. It has been estimated that there are roughly 600 other industries that bugger off links to the housing markets.A excitant to the take away for housing provide feature a direct or indirect stimulatory impact on all of these industries. The availability of owe financing also stimulates the social structure of new housing units. family unit construction and connect industries are labour-intensive and thus provide signifi behindt interlocking opportunities thus, a greater demand for housing provides a very large economic stimulus to the broader economy. There are also numerous other societal and Developmental benefits to providing decent living space to the poorer segments of society, which are our principal target markets.Productivity and employment are very often enhanced by providing a living space close to where people work. IMPORTANCE OF HOUSING SECTOR IN INDIA ? Inco me generation It is estimated that the construction sectors income multiplier is approximately 5, while construction related manufacturing has an income multiplier of 7. 6. ? Employment Generation Today, there are 2. 5 cr. construction workers in the country. In landmarks of direct, indirect and induced employment generation, the construction sectors employment multiplier is 7. 76. ? Revenue Accruals to GovernmentAn investment of Rs. deoxycytidine monophosphate gene pass judgment Rs. 11. 4 as revenue to the Government in the form of sales, excise taxes and octroi. ? A basic human necessity supporting economic activities. ? Have forrard and backward linkages with over 250 ancillary industries. ? Every Rupee spent on construction, an estimated 75-80 paise is added to GDP. ? Housing Industry Growth in last 5 geezerhood physiological Terms 3. 0 % p. a. Financial Terms 30% p. a. ? Contri unlession of Housing in GDP is just about 6%. ? Percentage of Mortgage Debt to GDP is 8. 0% ( E) in 2005-06, still way downstairs Chinas (12%), Malaysia (22%), Hong-Kong (40%) and US (65%). ? An engine of equitable economic growth Investments, Savings.. Housing and GDP Housing construction contributes approximately 1-2% to Indias GDP as compared to the absolute construction sectors contribution of around 6%, which includes roads, ports, housing, dams and tailals etc. The construction exertion is the solely industry which compensates use of all other industries you need ceramics, pipes, steel, cement, glass, tiles, iron, wood, cloth.Start construction and you provide employment for hundreds of labourers, you go forth use transport for transferring materials, so the transportation industry impart get a boost, labourers income exit annex, spending will increase. Over and above, you solve the housing problem. If this is d integrity, the contribution might go up to 10% for the construction sector and around 3-4% for the housing sector. A nonher way of looking at the hug e potential of housing construction sector for the development of economy is through its impact on GDP.A 10% increase in final expenditure in the construction sector increases the GDP by 3%. TYPES OF HOME LOANS interior(a) Purchase lendwords This is the basic home bestow for the secure of a new home. plateful Construction gives This add is available for the construction of a new home on a said place. The documents that are need in such a case are slightly different from the is you submit for a normal Housing Loan. If you project purchased this plot within a period of one course of instruction before you started construction of your house, most HFCs will include the land apostrophize as a component, to value the wide speak to of the attribute.In cases where the period from the date of purchase of land to the date of application has exceeded a course, the land toll will not be included in the gist cost of property while calculating eligibility. nucleotide Improvem ent Loans These imparts are condition for implementing repair works and renovations in a home that has already been purchased, for external works wish structural repairs, waterproofing or internal work like tiling and flooring, plumbing, electrical work, painting, etc. nonpareil keep avail of such a loanword facility of a home improvement loan, later obtaining the demand approvals from the relevant building authority.Home Extension Loans An extension loan is one which helps you to consider the expenses of any alteration to the animated building like extension/ change of an existing home for example addition of an extra room etc. One usher out avail of such a loan facility of a home extension loan, after obtaining the requisite approvals from the relevant municipal corporation. Home Conversion Loans This is available for those who have financed the present home with a home loan and wish to purchase and move to another home for which some extra funds are required.Through a h ome conversion loan, the existing loan is transferred to the new home including the extra amount required, eliminating the need for pre- salary of the previous loan. Land Purchase Loans This loan is available for purchase of land for both home construction or investment purposes Stamp Duty Loans This loan is sanctioned to pay the stamp duty amount that needs to be paid on the purchase of property. Bridge Loans Bridge Loans are designed for people who wish to sell the existing home and purchase another. The bridge loan helps finance the new home, until a buyer s found for the old home. Balance-Transfer Loans Balance Transfer is the transfer of the balance of an existing home loan that you availed at a higher rate of bear on (ROI) to either the same HFC or another HFC at the current ROI a lower rate of interest. Re-finance Loans Refinance loans are interpreted in case when a loan for your house from a HFI at a particular ROI you have taken drops over the historic period and you stan d to lose. In such cases you may opt to swap your loan. This could be done from either the same HFI or another HFI at the current rates of interest, which is lower.NRI Home Loans This is well-kept for the requirements of Non-Resident Indians who wish to build or buy a home or property in India. The HFCs offer attractive housing finance plans for NRI investors with suitable quittance options. HOUSING FINANCE COMPANIES IN INDIA I. BOB HOUSING FINANCE pic BOB Housing Finance Limited was set up in December, 1990 by Bank of Baroda in association with National Housing Bank. The company became a wholly owned subsidiary of Bank of Baroda since March 31, 2006. Purpose For purchase of land /site from Govt. statutory bodies such as housing boards, Development Authorities/CIDCO etc. Amount (Least of the following subjects to minimum of Rs. 50,000/-) 85% of the cost/purchase price of the land. Rs. c lacs. 42 months gross salary or 3 1/2 times of average annual income as per income tax returns last 3 long time of which ever is less. . Rate of Interest The current interest rates are as under FIXED valuate OPTION TENURE NEW RATE 1-5 9. 00% 6-10 9. 25% 11-20 9. 75% VARIABLE OPTION TENURE NEW RATE 1-20 9. 75% Interest will be calculated on annual rest basis. Installment to commence from the next month, from the month in which loan is fully disbursed or expiry of 1 1/2 year from the date of first gear disbursals whichever is earlier. Pending EMI, Pre-EMI interest is to be paid on monthly basis on loan disbursed. Security Equitable mortgage of the plot of land to be purchased. Personal guarantee of one soul. II. CAN FIN HOMES pic Can Fin Homes Limited was set up in 1987, the International Year for Shelter for the Homeless, by Canara Bank in association with reputed financial institutions including HDFC and UTI. The first bank sponsored Housing Finance Company in India Can Fin Homes has emerged as one of the jumper tercet players in the countrys home l oan segment.Canara Bank offers home loans for construction/purchase of house/flat and also for renovation of existing flat/house. The bank offers a supreme loan of Rs. 1,00,00,000/- depending on the borrowers repayment capacity. The loan repayment period is 5 10 years for site loans and 5 20 years for other loans. Canara Bank home loans are offered for purchase or construction of any residential house or flat. The bank also provides finance for companies or corporations or Societies for purposes of construction or purchase of residential houses or flats.Canara Bank provides loans to individuals for site purchase where the allotment of site shall be for the residential purpose by State Development Agencies, Municipal Bodies, and Associations. How much amount you get a loan Upto Rs. 1,00,00,000/- depending on your repayment capacity. quittance capacity will be considered after assessing your income, age, qualifications, work experience, hail of dependents, partners income, stab ility of income and employment, assets, liabilities, etc. You can apply for a loan upto 80% in the case of site loan and 85% of otal project cost for the remaining section depending on your repayment capacity. Your loan repayment will be 5 10 years for site loans, 5 20 years for other loans. They are payable in easy, Equated periodic Installments III. LIC HOUSING FINANCE pic LIC Housing Finance Limited is one of the leading players in the home loan segment. Incorporated on June, 19, 1989 and promoted by the Life Insurance Corporation of India, LIC Housing Finance Limited boasts of an extensive distribution network and a massive marker presence by virtue of being one of the earlier entrants in the market for housing loans.Griha Prakash Loan Amount Min. Rs. 25,000 Max. Rs. 1,00,00,000. Loan to post damage 85% of essence Cost of the property including Stamp Duty and Registration Charges. Loan Term Upto 20 Years or Retirement Age or 70 years of Age, whichever is earliest. R epayment Mode Equated monthly Installments(EMI) Monthly Rest Basis Security 1. Equitable Mortgage of House/Flat 2. One Guarantor. Risk cope Any existing or new insurance under any acceptable plan of insurance (issued by LIC of India) on the lives of the appliers, having risk cover to the boundary of loan amount.Front End Charges 1. 00% of Loan Sanctioned. Loan for Purchase of Vacant Plots/Sites Loan Amount Min Rs. 50,000 Max Rs. 20,00,000. Loan to Property Cost 85% of the Cost of Plot/Site. Loan Term Upto 15 Years or Retirement Age, or 70 years of Age, whichever is earliest. Repayment Mode By Equated Monthly Installments (EMI) Monthly Rest Basis. Security 1. Equitable Mortgage of Plot/Site 2. One Guarantor. Risk Cover Life Insurance Cover is not required but advisable in the interest of the applicants. Front End Charges 1. 0% of Loan Sanctioned. V. SBI HOME FINANCE pic State Bank of India (SBI), the largest bank in India, is one of the market leaders in the home loan segment. But SBIs reputation has surely taken a hit following the collapse of the erstwhile SBI Home Finance Limited in which SBI was the largest shareholder along with other institutional promoters like HDFC and LIC. Due to continued losses and complete erosion of its net value, the companys enfranchisement of registration had been cancelled by the National Housing Bank.SBI offers home loans for a variety of purposes purchase/ construction of new House/ Flat, purchase of an existing House/ Flat, purchase of a plot of land for construction of House and extension/ repair/ renovation/ alteration of an existing House/ Flat. SBI home loans come with some unique features that make them stand out in the competition no cap on maximum loan amount for purchase/ construction of house/ flat, option to club income of ones spouse and children to compute eligible loan amount, free personal accident insurance cover and complimentary international ATM-Debit card.Besides the touchstone package of home lo ans, SBI has some customized home loan products in its kitty that address the needs of niche customer segments. SBI-Flexi Home Loans are designed to modify borrowers to hedge their Home Loan against unfavorable movement in interest rates and gives the customers a one time irrevocable option to choose one of the three customized combinations of stubborn and locomote interest rates. SBI-Freedom Home Loans are customized for high net worth individuals and offer benefits such as 100 per cent finance of the project and no mortgage f the property, provided the individual could show liquid securities such as LIC policies or NSCs. SBI Housing loan schemes are designed to make it simple for you to make a choice at least as far as financing goes SBI-Home Loans Loan AmountApplicant/ any one of the applicants are aged over 21 years and upto 45 years 60 times discharge Monthly Income (NMI) or 5 times Net Annual Income (NAI), subject to aggregate repayment obligations not exceeding 57. 50% o f NMI/ NAI Applicant(s) aged over 45 years of age- 48 times NMI or 4 times NAI, subject to aggregate repayment obligations not exceeding 50%of NMI/ NAI VII.HDFC pic Both in terms of business volume and market standing, HDFC stands head and articulatio humeri above the competition in the home loan segment. With an expertise gathered over 25 years of existence in the business, HDFC has managed to create an impressive loan portfolio that caters to varied housing finance needs. HDFC offers home loans for individuals to purchase (fresh / resale) or construct houses. HDFC finances up to 85% maximum of the cost of the property which is inclusive of placement value, stamp duty and registration charges.HDFC lends a maximum amount of Rs 1 crore and the maximum period of repayment is 15 years or retirement age, whichever is earlier. HDFCs Home Improvement Loan facilitates internal and external repairs and other structural improvements like painting, waterproofing, plumbing and electric works, tiling and flooring, grills and aluminium windows. HDFC finances up to 85% of the cost of renovation (100% for existing customers). HDFC Land Purchase Loan can be employ to purchase land. HDFC finances up to 70% of the cost of the land and repayment of the loan can be done over a maximum period of 10 years.Features Maximum loan85% of the cost of the property (including the cost of the land) and based on the repayment capacity of the customer. Maximum Term20 years subject to your retirement age. Adjustable Rate Home LoanLoan under Adjustable Rate is linked to HDFCs Retail Prime Lending Rate (RPLR). The rate on your loan will be revised every(prenominal) three months from the date of first disbursement, if there is a change in RPLR, the interest rate on your loan may change. However, the EMI on the home loan disbursed will not change*.If the interest rate increases, the interest component in an EMI will increase and the principal component will reduce resulting in an extension of t erm of the loan, and vice versa when the interest rate decreases. Fees1% of the loan amount applied plus applicable service taxes and cess. No Charges for Part or Full Prepayment of loan under Adjustable Rate (except in case of prepayment through a refinance from other bank or institutions prepayment charges will be applicable) Fixed Rate Part prepayment upto 25% of opening loan outstanding in a financial year Replacement of chequesIncome Tax Certificates Accelerated Repayment Option VIII. ICICI pic ICICI Bank offers home loans for purchase or construction of house and the loan amount can be up to 85% of the cost of the property. The loan must terminate before or when the borrower turns 65 years of age or before retirement, whichever is earlier. ICICI home loans come with benefits like easy interest rates, simplify documentation, doorstep service and free personal accident insurance. ICICI MaxMoney Home Loans offer the unique advantage of higher loan eligibility with a lower ini tial induction.One can get up to 30% higher amount against ones current income and the facility amount gets stepped up over the years. ICICI SmartFix Home Loans combine the safety of laid rates plus the advantages of floating rates. For the first 3 years the borrower gets a fixed interest rate and the fourth year onwards, the loan gets switched to the prevailing floating interest rate. Home Improvement Loans You can get a loan for renovation /refurbishment of your home. Get the same interest rate as applicable on Home Loans Avail of loan upto Rs. 50 Lakhs Avail of loan upto 70% of cost of improvement Enjoy repayment period of upto 15 years. IX. SUNDARAM FINANCE GROUP pic The south-based Sundaram Home Finance Limited was launched on July 2, 1999, by Sundaram Finance Limited with comeliness participation from International Finance Corporation (IFC), Washington and FMO, Netherlands. later on consolidating its business in the south, Sundaram Home Finance has made forays in the Northern states as well. Sundaram home loans are offered for purchase or construction of any residential house or flat.The house/flat can be purchased from a builder or from a Statutory Authority. The maximum loan amount can be Rs. 1 crore or 85% of the agreement value, whichever is less. The tenure of the home loan can be 20 years or retirement age, whichever is earlier. Sundaram provides Home Improvement Loans to individuals for carrying out internal and external repairs to an existing home. The maximum loan amount can be Rs. 1 crore or 70% of the agreement value, whichever is less. The term of the home loan can be 10 years or retirement age, whichever is earlier.Sundaram Land Loans facilitate purchasing of land for construction of residential units. The maximum loan amount can be Rs. 1 crore or 50% of the agreement value, whichever is less. The tenure of the land loan can be 15 years or retirement age, whichever is earlier. Sundaram also provides loans against existing residentia l properties. The maximum loan amount can be Rs. 25 lakhs or 50% of the value whichever is less. The maximum term of repayment for remunerated captains is 10 years or retirement age whichever is earlier.Maximum loanRs. 1 crore or 85% of the agreement value, whichever is less, subject to repayment capacity as assessed by SHFL. Maximum term of loan Salaried Category20 years or retirement age, whichever is earlier for all salaried categories of customers. For Self-employed15 years or 65 years, whichever is earlier. X. Housing and Urban Development Corporation Ltd. (HUDCO) pic Established on April 25, 1970, the Housing and Urban Development Corporation Ltd. (HUDCO) is a fully owned organization of the Government of India.HUDCO was instituted with the objective of providing long-term finance for construction of houses, undertaking urban development programmes and infrastructure facilities. HUDCO stands out in the burgeoning housing finance industry for its focus on the social aspect of housing and utility infrastructure provision. In spite of its commercial orientation, HUDCO has espouse a policy of preferential allocation of resources to the socially disadvantaged. It continues to emphasize on sectors which are more socially relevant rather than only on commercially viable and profitable sectors.HUDCO has played a stellar image in the implementation of National Housing Policy. It has been entrusted with the implementation of the priority programmes of the Ministry like Low Cost Sanitation, Night Shelter for Footpath Dwellers, Shelter Upgradation under Nehru Rozgar Yojana, Rural housing under Minimum Needs Programme. Although commercial banks and housing finance companies are doing festive business in the swelling housing finance sector, the housing needs of the poor and low income groups have remained unaddressed. In such a scenario, HUDCOs role has flummox even more significant.HUDCOs social orientation of is evident from the fact that about 92 pct of the 1 50. 93 lakh houses financed by HUDCO are for the benefit of economically Weaker sections and Low Income categories. In the face of growing competition, HUDCO has adopted innovation in its lending operations. HUDCO Niwas, which was launched in 1999, is an extremely popular housing loan scheme. Under HUDCO Niwas, individual housing loans are given directly to the borrowers instead of the established practice of disbursing loans through the state governments and their housing agencies.Moreover, HUDCO has moved the government seeking permission to encrypt the banking and insurance sectors. PropertyHousing Urban Development Corporation (HUDCO) offers Niwas scheme. The scheme is a housing finance instrument for individual families which offers loan assistance to individuals constructing or buying a house or a flat. Similar loan assistance is also extended to extend or improve an existing house or flat. Amount The maximum loan amount will not exceed 85 per cent of the total cost of the ho using unit, including incidental cost like stamp duty and registration. The maximum loan amount granted by HUDCO is Rs 15 lakh. Payment Term It is normally up to 15 years, but the period will not extend beyond the age of 65 years of applicant. However, HUDCO Niwas will endeavor to determine the repayment period to suit the gizmo of the applicant. In case the applicant wishes to extend the period of repayment beyond 15 years, it can be extended up to 20 years. However, in such cases, additional interest of 1 per cent per annum will be charged over and above the regular rates. Summary of Financials of Select Housing Finance Companies in 2005 PARTICULARS LIC Housing Finance Ltd. Can Fin Homes Ltd. Sundaram Housing Finance Ltd HDFC Ltd. Summarised Balance Sheet Assets Loans 360,115. 00 15,292. 70 13,105. 00 8,165. 27 Investments 31,300. 40 1,201. 80 333. 10 218. 03 Fixed Assets (Net Block) 2,948. 0 301. 00 35. 80 82. 77 Net Current Assets/Others 10,941. 10 766. 10 188. 60 341. 3 1 sum up Assets 405,305. 00 17,561. 60 13,662. 50 8,807. 38 Liabilities Share Capital 2,491. 0 501. 20 204. 90 265. 00 Reserves 36,339. 80 1,394. 70 1,320. 70 469. 54 Total Shareholders funds 38,831. 00 1,895. 90 1,525. 60 734. 54 Loan funds 366,474. 00 15,665. 70 12,136. 90 8,072. 4 Total Liabilities 405,305. 00 17,561. 60 13,662. 50 8,807. 38 Summarised Profit and Loss Statement Total Income 34,100. 80 10,687. 20 1,273. 30 855. 43 Total Expenditure 21,532. 95 8,611. 10 991. 20 648. 0 Gross Profit 12,567. 85 2,076. 10 282. 10 206. 73 Profit After Tax 10,365. 53 1,437. 20 211. 20 167. 08 Other Financials Dividend (%) 170 50 20 21 EPS (Rs. 41. 74 16. 21 5. 06 6. 31 Book Value Per Share (Rs. ) 179. 00 140. 59 37. 83 27. 72 Capital Adequacy Ratio (%) 13. 40 15. 00 16. 46 15. 71 Debt Equity Ratio 9. 44 8. 26 7. 6 10. 98 CALCULATION OF LOAN On receiving a loan application, financial institutions carry out the credit idea of the applicant/s. Credit appraisal is the step that decides the loan amount an applicant is eligible for. The objective of credit appraisal is to determine the ability and willingness of an applicant/s to repay a loan. A set of financial and non-financial techniques is used to meet this objective. Different financial institutions have different methods and norms of credit appraisal and for calculating the loan eligibility.Usually the ability to repay is determined by analyzing information like present income, consistency of income, experience, profession, additional sources of income, assets, liabilities, amount of installments of other loans (if any), past loan repayment history, investments, educational qualification, age, number of dependents etc. The financial ratios considered during the process of credit appraisal to determine the amount of loan an applicant is eligible for include A. Installment to Income Ratio (IIR) Expressed as percentage, this ratio is calculated asIIR = (Home loan installment amount / Monthly i ncome) * 100 Installment to Income ratio (IIR) denotes the portion of monthly income that can be spent towards home loan repayment. It is believed that about 35% to 40% of monthly income can be comfortably allocated towards home loan repayment. Based on this broad assumption, an IIR of 35% to 40% is considered to arrive at eligible loan amount. For example, at 40% IIR, an applicant having monthly income of Rs. 40,000 can repay Rs. 16,000 as home loan installment.As mentioned, an IIR of 40% is a broad assumption and can be higher or lower based on other parameters like consistency of income, experience, profession, additional sources of income, assets, liabilities, past loan repayment history, investments, educational qualification, age, number of dependents, age of dependents etc. In case of an earning co-applicant, co-applicants monthly income can be clubbed with applicants monthly income to increase the loan eligibility. With your monthly income known, you can calculate your appro ximate home loan eligibility as explained in the example below Monthly incomeRs40000IRR40% Desired Loan Tenure 20 Interest Rate 10% STEP1 affordable LOAN INSTALLMENT=(40000*40%) = Rs. 16,000 STEP2 Determine installment amount per lack of loan for desired loan tenure. In this example, installment for a loan of Rs. 1,00,000 for 20 years at an interest rate of 10% is Rs. 965 STEP3 Eligible Loan Amount = (Affordable loan installment / installment per lack) * 1,00,000 In this example Eligible loan amount=(Rs 16000/Rs. 965)*100000=Rs. 16,58,030 B. Fixed Obligation to Income Ratio (FOIR) Expressed as percentage, this ratio is calculated as FOIR = (Home loan installment amount + other loans installments) / Monthly income) * 100 Fixed Obligation to Income Ratio (FOIR) is calculated to determine the portion of monthly income that can be spent towards home loan installment after considering other fixed obligations like car loan, consumer durable loan, deduction towards salary advance recovery etc. Statutory deductions such as provident fund, professional tax, investments, insurance premium are excluded from the fixed obligation component. For example, for an applicant having a monthly income of Rs. 40,000 and a car loan installment of Rs. 4,000, at 40% FOIR, can repay Rs. 2,000 towards home loan installment (Rs. 40,000*40%) Rs. 4,000 . Some of the financial institutions do not consider loans outstanding with maturity less than one year as fixed obligation and installment paid towards these short terms loans is excluded from the FOIR calculation. This means, your loan eligibility can be higher despite of short term fixed obligations. It is worth checking the institutions policy on fixed obligations before finalizing the lender. With your monthly income and other fixed obligations known, you can calculate your approximate home loan eligibility as explained in the example below Monthly Income Rs 40000Car Loan Installment Rs 4000 FOIR% 40% Desired Loan Tenure 20 years Inte rest Rate 10% STEP 1 Affordable Loan Installments = (Rs. 40,000 * 40%) Rs. 4,000 (OF ALL OUTSTANDING LOANS)=12000 STEP2 Determine installment amount per lack of loan for desired loan tenure. In this example, installment for a loan of Rs. 1,00,000 for 20 years at an interest rate of 10% is Rs. 965 STEP3 Eligible Loan Amount = (Affordable loan installment / installment per lack) * 1,00,000 In this example Eligible loan amount=(Rs 12000/Rs 965)* Rs 100,000 = Rs12,43,000 C.Loan to value ratio (LTV) Expressed as percentage, this ration is calculated as LTV = (loan amount / property value) * 100 Loan to value (LTV) denotes the portion of value of the property that is financed by a financial institution. Each financial institution has a cap on maximum loan amount that can be extended towards financing a property. Most of the financial institutions offer loan upto 85% of the property value. The LTV offered by a financial institution may differ in certain cases. For example, LTV may be diff erent for an ratified project from an unapproved project.Instances where loan amount computed based on income (IIR/FOIR) is different from the loan amount computed based on property value (LTV), the lower of the two is considered as the eligible loan amount. SOME IMPORTANT POINTS TO BE MENTIONED 1. Income of salaried class people includes income of the applicant +income of the co-aplplicants(max2)+rental income(generally 50%) 2. Income of a self employed It is determined by the INCOME TAX RETURN of the applicant +depreciation(generally100%) 3. The IRR and FOIR can be 100% only in certain exceptional cases. 4.Another all important(p) point to note is that as the tenure of the loan decreases the loan he loan he is eligible for also decreases. Will the Installment to Income Ratio (IIR) AND Fixed Obligation to Income Ratio (FOIR) always remain the same? No, it will not always remain the same. As the income increases both IRR and FOIR also increases but it generally remains in the limi ts of 40% to 70%. Reverse Mortgage Loan Many senior citizens, retired from work worry about the dwindling amount in their bank accounts? Wondering how to maintain a steady cash flow to meet their daily needs?An option often thought of to deal with this problem, is to rent the existing house which seems a obligation and move to a littler house or to sell the house altogether and invest the proceeds to earn a higher monthly income. Why not turn that liability into an asset? The answer Reverse Mortgage. Reverse mortgage is a financial product that alters senior citizens (60 +) who own a house to mortgage their property with a lender and convert part of the home equity into tax-free income without having to sell the house.Instead of you making monthly payments to a lender, as with a regular loan, the lender makes payments to you. Multiple options are available for repayment of the loan in lumpsum at the end of the loan term. Maximum period of loan is of twenty years. The loan is not required to be serviced as long as the borrower is alive and in occupation of the property. On the borrowers death, the loan is repaid through sale of property. About 350 crore worth of Reverse Mortgage has been sanctioned. The National Housing Bank has received innumerable calls of inquiry from senior citizens wanting to know more.It is to tackle this influx of calls and give each senior citizen attention as per his/her needs, that information and counseling centres will be functional throughout the nation, at various HelpAge offices in 10 cities of India Delhi, Chandigarh, Lucknow, Hyderabad, Chennai, Jaipur, Bangalore, Kolkata, Ahmedabad, and Bhopal with especially instruct staff. Qualifications for reverse mortgage eligibility ? Should be a Senior Citizen of India above 60 Years of age. ? Married Couples will be eligible as joint borrowers provided one of them being above 60 years of age and other not below 55 years of age.Benefits of a reverse mortgage ? It aims at partly mee ting the financial needs of senior citizens without selling the property and enables recurring funds inflows to the senior citizens during their life time. ? After the death of the senior citizen, the surviving spouse can continue to occupy the property till his/her demise ? It can also be an investment tool for youngsters who plan for a retirement solution. They can start investing in a housing property and take benefit of the same during their retirement life. They have a secured investment which has benefit of capital appreciation.In India, the Reverse Mortgage concept faces a few challenges ? Indian culture dictates that property is bequeathed to heirs and housing property is a sign of social legacy. Indians have to work out of this mindset to adopt this novel concept. ? Also, on the legal front, handling the title transfer, possession of house, other regulation etc can be tricky. ? know but not the least income tax treatment for money received from the HFC is also an open issu e, since the loan disbursements cannot be considered as the income for senior citizens.reportedly National Housing Board is working on the resolution of these issues and Reverse Mortgage will be introduced in a full fledged air in India very soon. . HOUSING FINANCE-SCOPE IN INDIA pic Macroeconomic Background On the back of economic reforms undertaken in 1991, India has grown at an average rate of over 5% through the nineties peaking at about 8% in FY04. It is currently the fourth largest (in PPP terms) economy in the world with GDP turnout at USD 554 billion. Indias services led-growth strategy is well documented and is a departure from the rest of Asias manufacturing-led model for growth.Both domestic and global demand for Indias services remains robust with globally competitive firms emerging from the countrys historically protected private sector. With still much telescope for reform, Indias healthy progress in liberalization, private sector-led development, and newly establis hed political support (irrespective of the ruling party) for economic and structural reforms suggest that India could well be setting up the necessary conditions to support the type of long-term growth path over the next 2-3 decades. Inflation through the nineties has hovered between 7% and 13%.Demographics The population of India is over 1 billion and accounts for one sixth of the entire worlds population. The population is second only to China with one quarter of the worlds youth living in India. 54% of the Indian population is below the age of 25. In 2001 the productive population (age 25-44) was 278 million which, by 2013, will grow to 369 million a growth of 33%. This explosive growth will result in higher demand for housing loans in the foreseeable future. According to the 2001 Census of India the total number of households in India is 191 million, up from 147 million in 1991.Much in line with world trends of locomote household size, in India, the average household size has fallen from 5. 71 in 1991 to 5. 34 in 2001. This trend is expected to continue as individuals reincarnate to urban centres in search of work, coupled with movement away from the joint family system to single family households that is further accelerating lower household sizes. The following graphs interpret the number and bubble of housing finance in the country. picpic series1=housing finance series2=consumer durables series3=credit cards eries4=other personal loans Housing Finance The value of total residential mortgage debt moved up from USD 1. 84 billion in 1994 to USD 12. 26 billion in 2004 a CAGR of 21%. The housing finance market has recorded robust growth in the last 5 years, clocking an annual growth rate of about 40% between FY99 and FY04. Residential mortgage debt as a percentage of GDP was a mere 0. 58% in 1994 which has moved up to 2. 21% in FY04, still miniscule when compared to about 45% in the EU, 70% in the US and upwards of 30% in East Asian economies.Interest ra tes on housing loans have fallen from a peak of 17% in 1996 to 7. 5% last fiscal making owning a home more affordable. This combined with increasing loan tenures, increasing loan-to-value ratio and a rise in the installment-to-income ratio are precipitating high growth rates in the housing finance market. The organise lenders in the housing finance industry, comprising 30% of housing units constructed, are currently concentrated in the urban markets, with a greater presence in the major metros and Tier 1 cities.They are however, moving to the Tier 2 cities and smaller towns but are yet to venture into the rural markets. Also, salaried borrowers constitute the hatful of the clientele for the financier in comparison to the self-employed borrowers, who constitute a miniscule proportion. As a segment, the self-employed category is much bigger than the salaried segment, but the organized lenders have, historically, been concentrating on the salaried borrowers due to the lower risks as sociated with them. Traditionally housing finance was dominated by a handful of private sector institutions.These Housing Finance Companies (HFCs) commanded 70% market share in FY99, which has subsequently fallen to 50% In FY04 as a direct result of policy changes that permitted the entry of banks into this industry. Banks now control 40% of this market and continue to show explosive growth on account of government policy that categorizes this lending under priority sector lending and the low NPA levels experienced in this industry Shortage of Housing Official and updated statistics on the shortfall of housing units in the entire country is not readily available.According to the National Buildings Organisation (NBO), the components of housing shortage include (a) the excess of households over houses, including homeless households, (b) congestion i. e. the number of married couples requiring a separate room, (c) replacement or upgradation of unserviceable houses and (d) obsolescence /replacement of old houses. The last official estimate on the shortage of housing units was from the NBO which estimated a total shortfall of 19. 4 million units comprising 6. 6 million units in urban areas and 12. 8 million units in rural areas.Further, over 90 percent of this shortage is for the poor and low-income category (Ministry of Urban Affairs, 1998). This, shortage however, is based on the 1991 Census figures and thus is outdated. The unofficial estimate of the housing shortage is currently pegged at over 40 million dwelling units. Despite the absence of reliable statistical information, the growing population and increasing urbanisation has resulted in rising pressure on the available housing stock. As per the Planning Commission estimates, the total requirement of urban housing during the tenth five year plan, covering the period 2002-2007, is 22. 4 million dwelling units in urban areas. This comprises two components an urban housing backlog of 8. 89 million dwelling un its estimated at the beginning of 2002 and an addition of 13. 55 million new dwelling units. As per the Census 2001, housing completions (defined as the absolute increase in housing stock during a particular period) is around 5 houses units per 1,000 population per annum in India. The average annual housing completion in urban areas per 1,000 population was steady at around 7 housing units during the past three decades.This however, is lower than the minimum threshold as recommended by the United Nations of 8 to 10 housing units per 1000 population for developing countries (NHB motility and Progress Report, 2004). Table 1. 2 Addition of Census Houses per 1,000 Population 1971-81 1981-91 1991-01 Urban Added Census Houses (million) 11. 55 16. 55 19. 3 Added Households (million) 10. 00 11. 64 12. 95 Annual Housing Completions/1,000 population 7. 23 7. 61 6. 83 Rural Added Census Houses (million) 19. 25 29. 02 34. 56 Added Households (million) 15. 0 19. 16 25. 61 Annual Hous ing Completions/1,000 population 3. 66 4. 62 4. 65 Total Added Census Houses (million) 26. 53 45. 58 54. 08 Added Households (million) 25. 50 30. 80 38. 6 Annual Housing Completions/1,000 population 3. 87 5. 39 5. 26 Source Census 2001, NHB Trend and Progress Report, 2004 Rapid Urbanisation Housing needs are strongly influenced by growth in population and demographic changes. While in the recent period the total population growth has been slowing down, the urban population continues to grow rapidly. The urban population has increased from 20 percent in 1971 to almost to 34 percent currently (SSKI, 2006).Urbanisation is particularly concentrated in urban agglomerations or mega cities, defined as cities having a population in excess of one million people. These mega cities account for almost 40 percent of the total urban population. As per the 2001 Census, there were 35 mega cities and the polarization of growth towards them poses a greater challenge in providing housing in the se areas as the housing stock is unable to keep pace with demand (Nallathiga, 2005). This is exacerbated by the continuing trend of in-migration to urban areas.As a result, there has been a disproportionate rise of slums. For instance in Mumbai, almost 60 percent of the total population live in slums. Restrictive Laws One of the major issues constricting the addition of homes is the series of archaic laws governing the Indian housing and literal estate sector. Of the over 100 laws governing various aspects of real estate, many date back to the 19th century. Significant ones are the Indian Contracts Act, 1872, the Transfer of Property Act, 1882 and the Registration Act, 1908.Despite the plethora of laws, the legal framework requires a complete overhaul to make it more relevant to todays requirements. These laws often lead to prolonged litigation and create artificial scarcity of land, thereby raising prices. In India, land is a state subject1. Thus, while the centre may make amendme nts and issue guidelines, the responsibility for implementing it remains optional for a state government. With 28 states and 7 union territories (areas directly managed by the central government), support for reforms has varied advantageously from state to state.ANALYSIS Despite the problems alluded above much development has been made by the country in the field to promote housing finance during the past few decades. With the entrenchment of HDFC in1977, a system of specialized housing finance companies(hfcs) discussed above, now in hundreds was bought into being. This include 25 large and stable organizations which have been approved as eligible for refinancing from NHB which was formed in 1989. The institution as mentioned earlier is the watchdog for housing finance. It egulates all the HFCS dealing in housing finance and then sets its rules, regulations and policies binding the same. The recent developments in the field mark the effort made. The recent cut in interest rates for housing finace below 20lac clearly bring up the role played by the agencies today in countering the problem of availability of housing finance. These coups will not only help consumers (middle and lower middle class) find a trade protection for themselves but it will also motivate infrastructure companies to invest in building low cost homes for the desired category.This in turn will lead to increase in the the capital goods, development of infrastructure therefore overall development of society, increase in job opportunities for the labour class (which will earn more=spend more savings = continuous earning and spending=increase in gdp =increase in living standard). ASSESSMENTS AND PROSPECTS The housing finance market in India has undergone unprecedented change in recent times. This evolution has been interesting, especially for developing countries looking to establish or strengthen their primary housing finance markets.From a time where HDFC established itself as the first retai l housing finance company, to the next level where HDFC helped broad-base and develop the market by co-promoting three housing finance companies, GRUH Finance, Can Fin Homes and SBI Home Finance. In effect, HDFC co-promoted its own competition. The third level saw existing players having to actually re-assess the way they did business as the tide of competition rose to an almost unsustainable level with the aggressive entry of banks into the housing finance market.And finally, the present stop where there are a few dominant players with large scale operations. India today is a good example for developing countries wanting to kick off their primary housing market. The advantage of using the Indian housing finance experience is that housing finance players have been successful despite unfavourable conditions such as not having foreclosure norms for several years, difficulty in accessing long-term reinforcement sources, lack of clear titles, no reliable statistics on housing or consu mer info and an acute shortage of housing units.Rather than waiting for the government and regulators to create a favourable environment to foster a housing finance system, the market developed despite these constraints. Pre-requisites for Well Functioning Housing Finance Systems Listed below are prerequisites for a well functioning housing finance system which are universal requirements for any country ? Sound macro-economic policies Low mortgage interest rates triggered by sound macro economic policies are more important in developing mortgage markets than tax incentives and subsidies. ? Keep transaction costs low and mortgage registration systems efficient. Concentrate on getting the primary market right, e. g. transparent property rights, mortgage and credit registration, efficient mortgage collateral and repossession procedures, before creating a secondary market to finance those loans. ? Create transparent markets for lenders through approved valuation methods, house price in dices and data on mortgage industry. ? Protect and inform the borrowers, for instance, by helping them compare mortgages products. ? Access to long-term funding sources and other instruments such as covered bonds, mortgage backed securities. Broad Basing the Market Need for an Independent Floating Rate BenchmarkThere is a need to explore the creation of an independent benchmark for adjustable rate mortgages which can be adopted by all players, thereby leading to more credibility, especially in the case of upward movements in the benchmark. Better Access to Credit History India has no easily shared method of verifying a clients credit history or loan record. This has resulted in the housing finance industry witnessing a rising number of fraud incidents in the sector. There have been instances of clients taking out multiple mortgages on the same property from different lenders or providing fake documents for the site that do not exist.To enable access to better credit history for cust omers and preventing malpractices, some important steps have been initiated in the recent period. In 2005, citing increasing cases of fraud in the system, the National Housing Bank has set up a Fraud Management Cell to collect information from housing finance companies on frauds committed. The National Housing Bank as collected this data and issued circulars detailing causative factors and suggestive remedial action. . Removal of Conflicts of Interest The National Housing Banks role as a promoter should be considered as successfully completed.Serving as both a regulator and equity investor in housing finance companies creates an unnecessary conflict of interest (World Bank, 2004). At the time of inception, the National Housing Banks mandate was to promote the housing finance sector. Today this role is not required. Thus, there is no longer any rationale for the National Housing Bank to provide equity investments, thereby creating a conflict of interest as regulator and investor. Bes ides, in 2005, the National Housing Banks investments in housing finance companies was miniscule, accounting for less than one percent of its total assets. FUTURE EXPECTATIONSHigh interest rates coupled with soaring property prices have only impacted the affordability of buyers, demand, however continues to persist and will become stronger and more intense in near future. Housing Sector in India to Be On a Growth Spree By 2015 Housing demand is gathered to see a growth of around 80 one million million million for the lower-income and the lower-middle income groups. Housing Sector in India is also likely to generate around 4 Million new jobs within a decade with a whooping investment of US$ 670 Billion. Its also expected that housing and real estate sector will undergo a revolutionary transformation to grow at around 14% annually.Presently, the contribution of Indian Housing to the countrys GDP is minor at less than one percent. In 2010 the demand would further grow to a massive v olume of around 400 Million Units. This will take up a minimum outlay of US$ 890 Billion. There is a shortage of more than nearly 20 Million housing units in India and this is a collateral sign of the untapped opportunities for this sector. LIMITATIONS OF HOUSING FINANCE The housing sector in India for several decades faced a number of set-backs, such as an unorganized market, development disparities, a compartmentalized development approach and a deterrent rent control system.There was not even a concerted attempt to get wind the housing problem let alone promote it. Reforms introduced in the sector during the 1990s, however, have overturned the situation to a great extent. The designing of a shelter policy, the organization of the housing finance market, the introduction of fiscal incentives, increased public investment, legal reforms and others initiatives have brought about a number of changes in the housing sector.Interestingly, these changes have been concerned with both re ducing the housing shortage and increasing the number of quality housing stock besides increased access to various other housing amenities like safe drinking water, good sanitation and household electricity. In spite of the high growth rates exhibited by the Indian housing finance industry, this sector too has its share of problems. The survey revealed the following growth constraints 1) Limited exposure of the industry Housing finance assistance of evening gown institutions has been limited to the middle income and high-income groups.Companies have also not been able to penetrate the rural areas. 2) Absence of proper title deeds High down payment requirement and non-availability of title deeds in the absence of land records are some of the reasons responsible for the inability of the companies in reaching out to the vast population living in the rural areas. 3) No access to long-term funds Non-availability of long-term funds with housing finance companies and banks results in an a sset liability mismatch. 4) escape of foreclosure norms Lack of foreclosure norms for housing finance companies, which, if in place, will encourage HFCs to disburse more loans ) Regional Constraints ? Disparity and high rates of Stamp duty crossways the country on registration leads to the suppression of the value of property/evasion of registration. ? Imposition of stamp duty on equitable mortgages (i. e. on property used as a collateral for taking a home loan), the rate of which varies across states acts as a deterrent factor in availing housing finance as the prime security for these loans is equitable mortgage of the property financed. This form of stamp duty is a cost to the customers and should be done away with or reduced to affordable levels. ) Constraints faced by Housing Finance Companies as against banks ? Banks have access to lower cost of funds compared to HFCs because of the following reasons Banks have access to low cost retail funds Minimum capital adequacy ratio for banks is 10% whereas for HFCs it is 12% ? The Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act 2002 is applicable to banks but not to housing finance companies ANNEXURE I 2009 will be the year of affordable housing 29 Dec 2008, 0342 hrs IST, Mayur Shetty, ET Bureau pic S Sridhar NHB chairman & MD National Housing Bank (NHB) a subsidiary of the Reserve Bank of India (RBI) was created two decades ago to regulate and promote housing finance institutions in India. Given the current economic environment, home finance has gained centrestage, with housing construction being the largest employment generator with linkages to 250 ancillary industries. As the apex housing finance institution, NHB has taken several initiatives to promote affordable housing.In an interview with Mayur Shetty, NHB chairman and managing director S Sridhar speaks on why he expects 2009 to be the year of affordable housing. House prices have crashed in the West. The re is an expectation among buyers that prices will decline in India as well. How do you see the situation? The situation in India is quite different from that of the West. In India, the conduct of the monetary policy and regulation over banks and housing finance companies ensured that the housing bubble did not develop. Further, the actual equity component in housing is much higher than in the West.Thus, housing prices in India have fallen a bit and may fall further, but unlikely to get into a free-fall situation. What needs to be done to reduce housing shortage? I expect 2009 to be the year of affordable houses, when affordable houses will be available to the middle and lower income groups in sufficient volumes. This will happen mainly through a combination of fall in house prices and reduction in home loan interest rates. The latter has happened. I hope developers reduce prices to stimulate demand and public housing agencies will take up affordable housing in a big scale.Additiona l hygiene factors are reduction in transaction cost in home purchases through reduction in stamp duty and registration charges and the availability of risk mitigants such as mortgage guarantee, title insurance, credit guarantee for lower income houses. Where do you see interest rates on home loans? Is the NHB refinance rate likely to come down further? Interest rates are headed southward. Public sector banks (PSU banks) have set the pace. Others, including housing finance companies, are following suit. NHBs refinance rates have also come down to single digit.Refinance for rural housing at concessional rate of 8% per annum for seven years has also been provided. Our PLR has been reduced to 10. 75% per annum. NHB has announced a package for the housing sector. At what interest rate will you lend to HFCs? The refinance facility of Rs 4,000 crore extended by RBI to NHB will be on-lent by NHB to housing finance companies with the following major conditions. It will be available at an int erest rate of 8%, and will be available only for loans below Rs 20 lakh. The facility is available up to March 31, 2010.You have launched an index of home prices. How is the index doing? NHBs RESIDEX, which is Indias first official property index, was launched in July 2007 for five cities Bengaluru, Bhopal, Delhi, Kolkata and Mumbai covering the period 2001-2005. It has since been updated to December 2007. The property index has been well received. It is being expanded to cover 15 cities and up to December 2008 wh