Housing finance industry - an overview

15 May 2001

Sector Comments

Nearly 25 lakh houses are built every year in India. However, the nation's requirement is around 65 lakh houses per annum. The housing sector in India is facing an estimated shortage of 4.1 crore houses and according to the Ninth Plan, the demand-supply gap in urban housing is 3.3 crore houses. In case, all these urban housing dwellings were to be built, it would require an investment of Rs. 150,370 crore.

Traditionally, the housing finance business has been yielding a margin of around 2 per cent. The skill of the players is in converting their advances that have a maturity period of 15-30 years with the deposits that mature within three years. Though, the National Housing Bank (NHB) refinances housing loan up to Rs. 2 lakh disbursed to the lower income group, this is just a negligible proportion of advances to the major players. The primary sources of funds are fixed deposits, debentures, private placement of bonds and borrowings from banks and financial institutions. Thus, efficient financial management has a key role to play in this industry.

Lending rates are predominantly market-driven and in view of the same, the housing finance industry has been in a slump in recent times with there being low demand from builders and investors alike. Furthermore, the entry of banks into the housing finance sector has also not augured well for the industry. Most housing finance companies cater mainly to the higher income group having reasonably assured creditworthiness. In a scenario marked with the absence of speedy foreclosure regulations, most companies prefer to stay away from rural and the Low-Income Group  (LIG). However, it must be noted that demand for housing in the Middle-Income Group and High Income Group segments has also recorded a steady rise lately.

The Indian housing finance sector is crowded with players of all sizes and nature: government organisations, insurance companies, banks, housing finance companies and co-operative organisations like HUDCO and NHB. Major players in the Industry are HDFC, LIC Housing Finance, Dewan Housing, Can Fin Homes, SBI Home Finance and Gujarat Rural Housing. The youngest entrant into the Industry, which is penetrating rapidly, is ICICI. Interestingly, both Can Fin Homes Limited and its parent Canara Bank are into housing finance. It is the same with quite a few banks, for example, SBI and SBI Home Finance Limited, Bank of Baroda and BOB Finance, Vysa Bank and Vysyabank Housing. Though HDFC and ICICI also have their banking arms, they compete with each other in personal loans, but not housing loans.