S. Sridhar

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• FICCI International Real Estate Summit 2008

Observations on Affordable Housing - Financing
Aspects
S. Sridhar Chairman Managing Director Mumbai,
September 11, 2008
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Presentation outline

• Housing Scenario in India
• Affordable Housing
• Way Forward

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• The test of our progress is not whether
• we add more to the abundance of those
• who have much it is whether we provide
• enough for those who have too little.
• Franklin Delano Roosevelt

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Housing Scenario in India
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Housing in India

• A basic human necessity
• Second largest employment generator, next to
  agriculture
• Forward and backward linkages with 250 ancillary
  industries
• An engine of equitable economic growth
  Investments, Savings, Wealth
• Promotes financial stability and economic
  resilience
• Largest Component of Wealth (asset building, old
  age security, women empowerment, a sound
  collateral for various finances)
• Contribution of Housing in GDP is still about 4
  despite supportive Fiscal, Monetary and Legal
  Environment
• Percentage of Mortgage Debt to GDP is 8.50(E)
  in 2005-06, still way below Chinas (12),
  Malaysia (22), Hong-Kong (40) and US (65).

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Housing Shortage in India
Phenomenal growth in housing stock, yet housing
shortage exists mainly due to Nuclearisation
of families and Increasing urbanisation
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Housing and Funds Requirementsduring 2007-12

• With supportive Fiscal, Financial and Legal
  environment created by Government,
• Still Vast Non-Formal Segments remaining
  un-served
• As per NHB Estimates 48 million additional houses
  will be required during 2007-12 (31.1 million
  (E) during 1997-02)
• More than 70 housing requirement estimated in
  EWS/LIG segments
• Total estimated Financial Requirement during
  2007-12 is gt Rs. 10 lakh crore

MAPL Marginally above poverty line
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Housing Some Key Characteristics
During 2000-06 CAGR No. of Accounts -
12.3 CAGR Outstanding Housing Loan
- 46.4

• Housing Finance Market is Value Driven rather
  then Volume Driven
• Increased emphasis on loan categories above
  Rs. 5 Lakhs Trend Continuing
• Large portion of low income households
  remained unserved and underserved
• Need to develop New Financial Architecture
  for Affordable Housing

Source BSR, RBI TP, NHB Reports
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Housing finance for the Poor

• For the poor, home is critical
• Hence the need for housing finance
• Existing housing finance system has, by and
  large, bypassed the poor
• Issues
• Access
• Affordability
• Risk mitigation
• Legal and Regulatory framework

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Affordable Housing
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Affordable Housing

• National Urban Housing and Habitat Policy (Dec
  2007) Goal Affordable Housing for All
• No definition of affordability
• GOI sets up High level Task Force
• Affordable Housing- Ownership and Rental
• Migration from Rental to Ownership

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Affordable Housing - Issues

• Limited supply- State the major player-JnNURM
• Cost-property, finance
• Land- Security of Tenure
• Legal and Regulatory Framework
• Technology-Little mass innovation in residential
  housing
• Finance

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Affordable HousingFinancing Aspects

• Demand for construction finance from developers,
  mainly small, medium for Affordable housing.
• State Housing agencies also interested.
• Construction finance during XI Plan required
  Rs.150,000 Crores.
• Housing loans to LIG/EWS individuals Rs.200,000
  Crores i.e. Rs.40,000 Crores per year.
• Individual housing finance will take out
  Construction finance.
• Represents lt10 of Non-Food Gross Bank Credit.
  Hence, doable, if banks are incentivised.
• RBI will need to consent

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Interest Subsidy Scheme for the Urban Poor
(Proposed)

• NHBs proposal for an Interest Subsidy of 5 p.a.
  for 5 years on housing loans from banking system
  to urban poor is under favourable consideration
  of MHUPA.
• In the nature of Viability Gap Funding.
• Such Interest Subsidy is conceived to be
  equitable vis-à-vis the higher income tax payer ,
  who enjoys tax deduction on housing loans.
• Annual Interest Subsidy is estimated at d 3 of
  total subsidy bill of GOI.
• A Rs.1 lakh loan with interest subsidy will
  result in repayment outgo of d 20 of monthly
  income of the LIG/EWS borrower.
• Thus, Affordable Housing Programme financing by
  banks with Interest Subsidy Scheme is feasible
  from funds availability and individual
  affordability.

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Way Forward
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Way Forward Risk Mitigation

• Mortgage guarantee regulatory guidelines issued
  by RBI
• NHB launching a JV
• In addition, NHB studying the feasibility of a
  credit guarantee fund for EWS housing
• Need to avoid moral hazard

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Way Forward Role of Developers

• Developers need to take up Affordable Housing
  projects to increase supply
• Cross subsidization with commercial, high income
  housing
• Lower margins but higher volume
• May consider PPP projects for Affordable Housing
• PPP for Affordable Housing may seek incentives in
  the form of higher FAR, fast track approvals, etc.

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Way Forward Role of State

• Specific policy measures on Affordable Housing
• Task force on Affordable Housing appointed
• Incentivise Affordable Housing
• Financial incentives through market
• Facilitative procedures to reduce transaction
  costs
• Viability gap funding
• Social Rental Housing Projects with involvement
  of civil society

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Serving the unserved and underserved

• Thank You

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