Housing Scenario : An Overview

1.1 Shelter being one of the basic needs of human life, the houses that people live in touch upon almost every facet of their lives and of the society as a whole. An ideal human settlement should have the potential of encompassing each and every aspect of a satisfactory human life and it must offer its inhabitants sufficient opportunity to flourish by expanding the set of available alternatives and effectively enhancing their productive capabilities so as to enable them to reach the acme of their potential. Housing can contribute effectively in fixed capital formation as well as creation of productive employment. Unfortunately, despite considerable investment and efforts over the successive Plan periods, there still exists a major gap between the demand and supply of housing stock in our country. The growth of population in our country gave rise to simultaneous increase in demand for the housing requirements. But these demands could not be successfully met on account of variety of factors. This resulted in a gap between the need and availability of dwelling units and an acutely capital-deficient housing sector.

1.2 While the number of institutional outlets for housing credit has increased considerably during the last decade, volume of funds for the sector as a whole, accessibility of credit to the economically weaker sections and affordability continue to be critical aspects for the housing sector. In addition the housing finance companies have been increasingly exposed to varying opportunities accompanied by challenges in the wake of the ongoing process of economic reforms and financial sector deregulation. In the wake of the financial sector reforms witnessing fluctuations during the year in the liquidity, fiscal and interest rate conditions, funds management (mobilisation and deployment) has been an area of concern. While cost-effectiveness in mobilising resources will be the real cutting edge of the business of housing finance companies, their competitive rates of lending to the ultimate borrowers will determine their ability to serve the market and survive over the long haul in a progressively deregulated environment. For a continued growth and expansion in borrowings at the retail level, mobilisation of funds is a critical issue. The trend towards dis-intermediation has brought into sharp focus the need to integrate sector-specific financial markets into a national capital market, and to broaden and deepen the capital market by increasing the variety of alternative instruments. The capital markets are fast emerging as the central pool of resources which the housing sector must be enabled to access.

1.3 Based on the 1991 census, the National Buildings Organisation has estimated the shortage of housing by the year 2001 at 19.40 million units. While a vast majority of our population live in rural areas, inadequate finance for individual loans and lack of supply of buildable/serviced land, building materials, non-availability of cost-effective technologies and other related know-hows, have been factors which has resulted in housing shortage. Concentration of urban population and economic activities has the benefits as well as the costs. While economies of scale and agglomeration economies are among the benefits, the capacity of the urban economy to withstand the pressures on housing, infrastructure and adequate financial services for urban development is limited, which results in deficiencies in these sectors which in turn constrains the productivity. And this directly affects the macro-economic performance. Keeping this in view, the National Agenda for Governance announced by the Government of India envisaged construction of 2 million additional dwelling units annually, with particular focus on the poor and the deprived.

1.4 The eighth five-year plan had envisaged an outlay of Rs.97,500 crores in the housing sector during the period 1992-97. The formal sector’s contribution during this period, was projected at Rs. 25,000 crore against which the actual flow of funds to the sector has been estimated at Rs.19,530 crore. Thus, the estimated shortfall in the formal sector’s contribution was Rs. 5,470 crore as at the end of 1997. In connection with the formulation of the 9th Five year plan, sub group on Housing was appointed by the Panning Commission. The sub group has estimated an outlay of Rs. 1,50,000 crore for the housing sector with the formal sector’s contribution at Rs. 38,000 crore, out of which Rs.26,600 crore is for urban areas and Rs.11,400 crore is for rural areas. This is, however, exclusive of Government’s contribution of Rs.14,000 crore. This would mean that the net annual contribution from formal sector institutions are expected to be Rs.8,694 crore, on an average, including the backlog of the 8th plan period. The actual disbursement during the first two years (1997-98 & 1998-99) of the Ninth Five Year Plan, has been Rs. 13167.24 crore by the HFCs approved for refinance assistance from the National Housing Bank (NHB), registering a growth of 28.30 % in disbursement during 1998-99 over the year 1997-98. The housing finance allocation for commercial banks, other than Regional Rural Banks (RRBs) increased by 14.33 %, from Rs. 1,295.19 crore during 1997-98 to Rs. 1,480.83 crore in 1998-99. Disbursals during 1998-99 by the scheduled commercial banks stood at Rs. 2347.00 crore as against the corresponding figure of Rs.1284.00 crore in 1997-98, thus registering a growth of 82.79 % during the year. The share of gross fixed capital formation (GFCF) in housing as a proportion of GDP at current prices was 1.95% in 1998-99. The share of income from housing as a %age of National Income at constant prices (Base 1993-94) was 7.1% in 1993-94 which, however, decreased to 6.2% 1n 1998-99.

1.5 Fiscal and monetary incentives are known to have positive bearing on housing sector particularly in developing economies, as they encourage participation of people and institutions at large in their various capacities, viz., savers, investors, lenders and borrowers for housing activities. The Government of India has been according significant priority to the housing sector in recent years. This has been reflected in the Union Budget for the years 1998-99 and 1999-2000 where a number of fiscal and other measures were announced both for the providers and borrowers in the housing finance system. The incentives for the housing sector provided by the Government in the Budget for the year 1999-2000 are as under:

. In order to simplify the existing provisions regarding foreclosure and transfer of property, changes have been proposed to foreclose mortgage of defaulting borrowers’ account through amendments to the National Housing Bank Act 1987.
. The target for financing rural housing under Golden Jubilee Rural Housing Finance Scheme has been enhanced from 1 lakh dwelling units during the year 1998-99 to 1.25 lakhs for the year 1999-2000.
. The income by way of interest on bad & doubtful debts of Housing Finance Companies (HFCs) registered with NHB shall be chargeable to tax in the year in which it is recognised as income by the HFC, or is actually received by the HFC, whichever is earlier.
. The ceiling for deduction from income from self-occupied house property in respect of interest on borrowed capital for acquisition or construction of residential unit has been enhanced from Rs.30,000/- to Rs.75,000/-, provided the loan has been taken for acquiring or constructing a residential unit on or after April 1, 1999 and such acquisition or construction has been completed before April 1, 2001.
. The built-up area of dwelling units of approved housing projects for benefits under Section 80 1A of the Income Tax Act, 1961, has been increased from 1000 sq. ft. to 1500 sq. ft., (except in Mumbai and Delhi where it continues to remain 1000 sq. ft.).
. The depreciation rate on new dwelling units purchased by the corporate sector for its employees, has been increased from 20 % to 40 %.
. A provision has been introduced to accord tax-free status in respect of limited amount of bonds issued by Municipal bodies every year.
. It has been decided to simplify the procedure relating to the eligibility of HFCs for benefits under section 36 (I) (viii) of the Income Tax Act, 1961.

1.6 In order to enhance the flow of credit to the housing sector, the Reserve Bank of India advised the scheduled commercial banks to lend up to 3% of their incremental deposits for housing finance as against 1.5% in the previous year.