1 experiencewith low income housing pro poorhousing finance initiatives mr.vishal

8/12/2019 1 Experiencewith Low Income Housing Pro Poorhousing Finance Initiatives Mr.vishal

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Experience with Low IncomeHousing Pro Poor Housing

Finance Initiatives

Workshop on Housing Finance, Mongolia

June 28, 2011


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Housing: Tool for Social & Financial Inclusion

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Housing not only serves as a place of shelter but a platformthrough which a plethora of essential utilities and servicescould be accessed.

Housing has a direct impact on an individuals employment

and income generating capabilities.

Impact is in terms of improved habitat, living, educational,social and cultural standards leading to human capital

formation and boosting productivity.

Improved productivity leads to enhanced income, saving andrepayment potentials on sustainable lines.


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Housing Deficiency Recent Trends

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Estimated Housing Shortage during

2007-12

Urban Areas 26.53 million units

(24.71 mil l ion u nits in

beginning of 2007)

Rural Areas 47.43 million units

Total (All India) 73.96 million units

In Urban Areas, more than 99% of the totalhousing shortage i.e. 24.71 million units

(beginning of 2007) pertains to EWS/LIGhouseholds. (As per MH&UPA, GOI)

In Rural Areas, more than 90% of the totalhousing shortage i.e. 47.43 million units pertainto BPL Households. (As per Working GroupReport on Rural Housing, MORD, GOI)

Average Per annum Funds Requirementsduring 2007-12 = INR 1,20,00 crores

Buoyant growth of Indiashousing finance sector (CAGR of 21%during 2003-11) has not been inclusive from the perspective of thepoor/weaker sections.

Poor/slum dwellers lack access to institutional sources of finance.Depend on informal sources which are inadequate and expensive.

Growing population and increasing urbanization trends haveexacerbated pressure on available land resources and demand forhousing.

Need to develop a new financial structure as also Policy andRegulatory Framework for the provision of Affordable Housingon sustainable lines to the poor/EWS.


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Fiscal andCreditPolicy

Support

FinancialMarket

HousingMarket

Affordability

Banks

Financial Sector

Capital

Market

Real Sector

PublicAgencies

PrivateDevelopers

MFIs

Housing Finance Market

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HFCs

Land&

Construction

Infrastructure

InformalSector

NHB


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Banks and HFCs Performance Indicators

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Housing Finance Companies

Outstanding housing loans of HFCs at the end of March, 2010, registering a growth of 20.79per cent year-on-year.

Rural lending has increased from 13.87% during 2007-08 to 16.25% during 2009-10.

Housing loans above INR 1 million accounted for 76.66 per cent of the total housing loansdisbursed during 2009-10.

Scheduled Commercial Banks

Outstanding housing loans of Scheduled Commercial Banks growing at approximately 20per cent on a year-on-year basis.

As at end of March, 2009, a majority of bank lending towards housing (around 67 per centin terms of number of a/cs)was in the credit category of Rs. 25,000 to Rs. 5 lakhs.

Share of bank lending towards housing in rural areas has come down from 10.27 per cent inMarch 2005 to 7.13 per cent in March 2009.


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Issues in Low Income Housing

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Rapid growth in housing sector has by-passed Low-Income Households

Demand Identification

Risk Perception

Price Rise, Interest Rates Impact on Low Income

Households

Market/Subsidy based Approach


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Issues in Low Income Financing

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Cannot contract debts on terms of the financial market

Unstable income and cash flows

High risk & high cost-to-service customers

Need for long-term and low cost funds

Role of Government & Financing Institutions in MarketEnvironment

Role of NGOs/MFIs as Intermediaries

Role of Multi lateral Institutions


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Affordability Concerns

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Real Sector Issues

Land supply Cost of land Infrastructure provision Construction & Delivery Construction agencies including Public Agencies

Financial Sector Issues

Trends in financial market Supply of funds

Cost of funds Project finance Individual loans eligibility Lending institutions and role of NGOs/MFIs


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Issues in Pro-Poor Housing Finance

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Supply-side constraints: Inadequate supply ofdwelling units under EWS/LIG schemes of theGovernment. Virtually no supply/initiatives fromprivate developers.

Affordability gap: There is a significant gap betweenborrower repayment capacity vis--vis the price of thedwelling unit.

Limited access of the poor to sources of institutionalfunding.

Apprehension of loan delinquency have madeinstitutional lenders wary of lending to thepoor/weaker sections.


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Government Initiatives

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Initial adoption of a two-pronged approach to pro-poor housing development

comprising of (i) sites and services program and (ii) permanent housingprogram.

Under sites and services program, basic infrastructure facilities like drinkingwater, internal roads, drainage, etc. were provided to develop layouts and alsohelp the beneficiaries by providing construction assistance for building shelters.

Provision of housing and housing finance at subsidized interest rate.

Special schemes for the EWS/LIG segments introduced in each of the five yearplans.

National Housing and Habitat Policy 2007 focus on EWS/LIG segments.

Emphasis on Public Private Partnership focusing on housing for poor/EWS.

Policies and Task forces for Affordable Housing.


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Policies & Measures

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National Urban Housing & Habitat Policy (NUHHP), 2007

Implemented by Ministry of Housing and Urban PovertyAlleviation, it is focused on resolving habitat related issuesthrough a regional planning approach.

AffordableHousing for Allon Sustainable lines.

Facilitating accessibility of land for housing to Poor/EWS/LIGthrough earmarking and subsidization.

Encouraging larger flow of funds for housing topoor/EWS/LIG through fiscal concessions.

Encourage formulation and implementation of UHHPs by theStates focusing on poor/EWS/LIG housing and encourageappropriate amendments in State/Municipal laws.


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Policies & Measures

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Bharat Nirman Programme 5 lakh houses to be built in rural areas per year. Rural infrastructure to be developed.

Indira Awas Yojana Cash subsidy scheme for rural BPL families. Funding by Centre and State in the ratio of 75:25.

Jawaharlal Nehru National Urban Renewal Mission (JNNURM) Integrated housing and slum development programme.

Basic Services to the urban poor. Two Million Housing Programme Finance for 20 lakh additional houses. 13 lakh units to be financed in rural areas and 7 lakh in urban areas per year.

Rajiv Awas Yojana Slum eradication program involving accordance of title rights to slum dwellers.

Centre initiative with support from states.

Interest Subsidy Scheme for housing the Urban Poor The Scheme provides for interest subsidy of five per cent per annum on the loan amount for

the economically weaker section and lower income group in the urban areas foracquisition/construction of houses


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Focus on Affordable Housing

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Realizing the magnitude of housing shortage and the importance of housingin stimulating economic growth, the Govt. and RBI are directing their focustowards affordable housing and financial inclusion aimed at the EWS/LIGsegments.

National Urban Housing and Habitat Policy was announced in the year 2007with the initial corpus from the Government, to serve the underservedsegments.

Launch of the Affordable Housing in Partnership Scheme under theJawaharlal Nehru National Urban Renewal Mission.

To strengthen the recovery mechanism, the SARFAESI Act, 2002 was enactedand Housing Finance Institutions included in the eligible list of institutions.

Foreign Direct Investments (FDIs) allowed up to 100 percent under theautomatic route in townships, built-up infrastructure and constructiondevelopment projects to catalyze investment in a vital infrastructural sector ofthe economy.

Launch of the Interest Subsidy Scheme for Housing the Urban Poor (ISHUP)by the Government of India for the EWS and LIG segments.


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Affordable Housing

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Affordable housing is a combination of the following three elements;

Affordable Land and infrastructure

Affordable building design, technology, materials and labour etc.

Affordable housing finance

Affordability

A relative term

Depends on an individuals income/capacity to afford the aboveelements

In India, however, the term affordable housing is often confusedwith low income housing, which is a different concept. AffordableHousing does not necessarily translate into poor/low qualityhousing.


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Affordable Housing

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The NUHHP, 2007 does not define affordability with respect tohousing. The Government had set up a task force to look into variousaspects of affordable housing.

According to the Report of the Task Force, affordability may bedefined as follows:

Parameter EWS/LIG MIG

Size 300 600 sq ft carpetarea

Not exceeding 1,200 sqft carpet area

Cost Not exceeding 4 times

household gross annualincome

Not exceeding 5 times

household gross annualincome

EMI/Rent Not exceeding 30% ofgross monthly income

Not exceeding 40% ofgross monthly income


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Recommendations of Task Force

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Affordable land

Simplification of land approval procedures for development andconversion.

All Land related information to be put in the public domain.

Affordable Technology

Need to encourage the innovation and implementation of costeffective housing materials/technology through subsidy/incentives.

The concept of core housing needs to be considered in smaller townsas it is cost-effective.

Affordable Housing Finance Allocation of additional budgetary resources. Incentivizing investment flows into the housing sector. Need for creating a resource pool.


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Challenges & Key Issues

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Developing innovative financial instruments for increasing supply ofaffordable housing finance to Economically Weaker Sections (EWS)and Low Income Groups (LIG).

Examining the framework of Regional Planning and MasterPlanning with a view to enhance the supply of developed land andrecommend legislative measures for accelerating the supply ofhousing units to the urban poor.

Formulation of measures for the promotion of low cost buildingtechnologies and materials for bringing down housing costs.

Formulation of policies for increasing the supply of rental housingstock.

Need for an integrated strategy for in-situ slum up-gradation forimproving the quality of habitat with the provision of incomegenerating options.


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ROLE OF NHB

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Initiatives of NHB

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100% refinance support to scheduled commercial banks, HFCs andco-operative sector institutions.

Launch of special scheme for the poor such as the RefinanceScheme for Top-Up Loan to beneficiaries under Indira AwasYojana.

Launch of Productive Housing in Rural Areas (PHIRA).

Announcement of equity support guidelines for setting up HFCs

catering to the LIG/EWS segments. Project finance assistance to public agencies, public-private

partnerships joint ventures, NGOs, MFIs etc.

Special Funds & Schemes Slum Improvement, Rural HousingFund, Golden Jubilee Rural Housing Finance Scheme

Flow of Funds into the Construction Industry (Affordable

Housing): The scheme proposes the Refinance of Construction(project) Finance for Affordable Housing to the Primary LendingInstitutions (PLIs) with special focus on Tier II and Tier III citiesthrough various intermediaries.

Catalyze market based institutional finance for the low andmoderate income households.


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NHBs Strategy for Financial Inclusion

CUSTOMIZED FINANCIAL PRODUCT INTERVENTION: RURAL HOUSING:

Supplementing Government Schemes

Productive Housing in Rural Areas

Financing SHGs - Partnership Approach - NGOs/MFIs/Sec.25

Rural Housing Development Fund

URBAN HOUSING:

Supplementing Govt. Schemes e.g. JNNURM

Financing SHGs Partnership Approach - NGOs/MFIs/Sec.25 Slum Redevelopment and Up-gradation

Integrated Township Development Projects (PPP projects)

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Housing Microfinance : NHBs ROLE

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Focus Low and Moderate Income Housing Micro Finance (HMF)

Integrated Habitat Approach Productive, Income Generating Housing

Savings-induced Housing Incremental Housing Water and Sanitation, Women oriented

Partnership approach MFIs, Community Based InstitutionsFinance, Co-finance,Capacity building,Portfolio Securitization,Equity support to Rural HFCs

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HMF: Risks and Mitigants

Risks:

Affordability of Borrowers Viability of MFIs Limited access to medium and long term funds Insecure land tenure Requirement of high element of savings Difficulty in obtaining Group Guarantee

Mitigants:

Proper selection of clients Seasoned clients

Flexible funding mechanisms

Insistence on Standard Corporate Governance of MFIs Need for co-ordination between formal credit institutions to

mitigate geographical concentration risks

Capacity building Training, Research and Development

Use of information technology & Micro insurance

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NHBs Initiative

NHB has experience in HMF on pan Indiabasis.

Leading Micro Finance institutions across the country arepartnering with NHB for rolling out HMF programmes fortheir members.

Financial support is provided on self sustainable lines.

Composite loan products are being promoted to improve the

viability of the programme by helping in increasing income ofbeneficiary.

SeparateWater and Sanitation component in the housing hasbeen included to improve penetration of sanitation facilities.

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NHBs Partnership with UN Habitat

NHB and UN Habitat have signed Agreement ofCooperation for collaborating in the field of water andsanitation in India.

Delivery of credit to targeted segments at relatively low

interest rates for water and sanitation facilities isenvisaged through the Micro Finance Institutions andUrban local Bodies.

Typical HMF loan under this programme to have two

parts Housing loan for construction / repairs /upgradation / incremental housing (at competitive rates)- with NHB funds

Loan for water and sanitation facilities (at subsidizedrates) - with UN Habitat support

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(Rs. in Cror e) Sanctions Disbursements Houses

Rural 40.35 28.41 13337

Urban 52.37 12.93 10918

Total 92.72 41.34 24255

NHBs FINANCIAL ASSISTANCE TO HMF

Madurai, TN Mumbai, Maha Warangal, AP

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NHBs MARKET DEVELOPMENT ENDEAVOURS TOWARDSCREATION OF APPROPRIATE FINANCIAL ARCHITECTURE

Risk MitigationMortgage Credit Guarantee

Title Indemnity

Credit Guarantee FundSecuritization: Creation of Secondary Mortgage MarketLiquidity and Credit Enhancement

Other MeasuresCapacity building Training, Research and Development

A Specialized HMF CorporationEquity Support

Facilitating Regulations

Market Infrastructure

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NHB - Monitor Group Study on Low Income UrbanHousing

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Housing situation for lower income segment in urban India is

quite poor. Initial data from pilot projects reveals that it may be commercially

viable to build housing for a large number of households ~20million households in the Rs 5,000-Rs 11,000 household incomerange.

The pilot projects were aimed to showcase and test the new idea.Until June 2009, three projects and close to 5,000 units have beenlaunched in Ahmedabad and Mumbai. The units were pricedbetween Rs 3 lakh and 8 lakh in sizes ranging from 231 square feetcarpet area to ~ 400 sq ft carpet area. All three projects launchedwere very well received.

The successful pilots have also spurred the interest of players fromoutside the real estate industry including an entrepreneur with aproven track record of running successful business ventures.

As new players emerge in low income housing segment, the NHBcontinues to play an important role in promoting market based

solution for the low income housing.


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For Governments

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Transparency in identification of beneficiaries under Govt.sponsored Schemes.

Land be provided by Govt. free of cost/at affordable rates .

Complete waiver of stamp duties/registration charges on

plot/house/flats for EWS/LIG sections.

Restriction on resale/transfer of Land/House/Flat allotted toPoor/EWS for at least 10 years.

Customized housing cum Saving linked/insurance linked/income

generating loan products be introduced.


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For Institutions

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Regulators, Apex Housing Banks

Setting up of a Risk Fund to cover housing loans to be given toPoor/EWS

Premium on such risk covers be borne by the Govt.

National Shelter Fund be set up for providing lesser costrefinances to FIs for such loans.

Risk Weight on housing loans to poor/EWS should carry lesserweight.

The time limit for recognizing such loans as NPAs should beincreased.

Fixing of sub-targets within the ceiling of priority sector lendingfor poor/EWS.


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For Institutions

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Public Agencies

Public Agencies should be strengthened and encouraged to acquireland and build houses/flats for Poor/EWS .

Financial Institutions

Income from housing loan financed to poor/EWS be exempt fromincome tax and/or

FIs be allowed to tap funds from multinational agencies Risk Mitigants be introduced to cover smaller loans without any

cost to FIs


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For Institutions

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Public Private Partnerships/Builders Encouraging housing projects with HighVolume Low Margin

concept for poor/EWS.

Conversion/Development charges or any other cess/chargeslevied by Govt. be waived for such projects.

Additional FSI equal to Poor/EWS housing projects be allowed inother housing projects.

No VAT/taxes on the building material used for Poor/EWShousing projects.


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THANK YOU

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1 experiencewith low income housing pro poorhousing finance initiatives mr.vishal

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