Panel 5: The Politics and Economics Panel 5: The Politics and Economics

of Land and Housing (March 24, of Land and Housing (March 24, 2011)2011)

R. V. VermaNational Housing Bank

India

The 21st Century Indian City-Developing an Agenda for Urbanization in

IndiaMarch 23-25, 2011

2

• Steady growth

• Served by specialised HFCs & Commercial Banks - synergies

• Proactive and Risk based Regulation

• Conservative lending practices; Originate to hold

• NPAs well contained

• Shift from high-end market to Affordable housing

• Market segmentation – diversified risk

• Broad based stakeholding – induces stability

Indian Mortgage Indian Mortgage MarketMarket

Fiscal and

Credit Policy

Support

FinancialMarket

HousingMarket

Affordability

Banks

Financial Sector

CapitalMarket

Real Sector

PublicAgencies

PrivateDevelope

rs

MFIs

Housing Finance MarketHousing Finance Market

3

HFCs

Land &

Construction

Infrastructure

Informal Sector

NHB

4

Outstanding Housing Outstanding Housing LoansLoans

5

Trends in Housing Finance Trends in Housing Finance

Disbursals (INR in billion)

• Housing Loans outstanding 7.9% of GDP

• Supportive Regulatory/Fiscal Policies

• Financial Deepening

• Supply Responses: Demand Driven

• Main beneficiaries - salaried class, professionals and tax payers

• Challenge for Low Income Housing – “Accessibility” and “Affordability”

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Trends in Housing Trends in Housing Finance Finance

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• Financial Sector and Capital Markets - Development

• Interest rates deregulation

• Growing Disintermediation

• Shift towards Market Oriented Resource Mobilisaiton

• Level Playing Environment

• Market Determined Cost

Bearing on Affordability Availability Accessibility

Financial Environment Financial Environment

• Rapid growth in housing sector has bypassed Low-Income Households

• Demand Identification

• Risk Perception

• Price Rise, Interest Rates - Impact on Low Income Housing

• Market/Subsidy based Approach8

Issues in Low Income Issues in Low Income Housing Housing

• Limited access to housing credits

• Cannot contract debts on terms of the financial market

• Unstable income and unstable cash flows

• High risk & high cost - to - service customers

• Role of Guarantee/Risk Fund

• Role of Government & Financing Institutions in Market Environment

• Leveraging effect of Subsidy 9

Issues in FinancingIssues in Financing

• Competing Demand on Land and Finance• Land supply is constrained:

Land availability Land use rules

• Efficient use of Land • Title and Tenure • Finance Flow Constrained

Stability Growth Risk Perception

Need for ‘Integrated Approach’ 10

Supply Constraints Supply Constraints

Real Sector • Land Supply

• Cost of Land

• Land market functioning

• Infrastructure provision

• Construction & Delivery

• Role of Public & Private Sector

Role of Incentives Subsidized Housing Credit Subsidized House Prices

Financial Sector

• Project Finance

• Individual Loans

• Supply of Funds

• Cost of Funds

• Whether market based solution?

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Affordability IssuesAffordability Issues

Supply Side• Land Acquisition• Infrastructure Provision• Sale of Land• Housing Construction• Housing Sale• Role of Public Agencies/

Developers • Credit Delivery

Demand Side• Purchase Price• Income Level• Affordability• Loan eligibility• Subsidy component• Risk Mitigation• Role of NGOs/MFIs• Demand Aggregation

Ensuring access to housing with infrastructure at affordable prices

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In Other WordsIn Other Words

• Formal sector accounts for only 25% of the total investments in housing; skewed distribution of credit

• Affordability and security; perceived higher risk

• Financial assistance through informal sector at nascent stage

• Subsidized housing programmes: limitations

• Targeting and sustainability of such programmes13

ChallengesChallenges

• Market’s limitations / Subsidy Limitation

• Private Capital and Public Objective

• Formal & informal sectors compartmentalized

• Demand aggregation, demand registration, intermediation and risk mitigation

• Incentives for Savings

• Policy Reforms14

ChallengesChallenges

• Not enough supply at lower prices. Impact of lowering prices on the stock of housing, the flow of housing and housing finance

• Price – Supply relationship. Profit on Value or Volume Profitability to excite the suppliers/builders. Price/cost structure

• Demand sensitive to price but supply not forthcoming

• Measures to convert the investor’s market into consumer’s market 15

Where is the Disconnect?Where is the Disconnect?

• Partnership Approach : Public/Private/Community

• Innovative instruments for benefit of All

• Incentives for Low Income Housing Credit

• Demand led

• Incentives for Low Income Housing Construction

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Search for Synergies Search for Synergies

Central

Government

State/Local

Governments Financial

Institutions

PUBLIC PRIVATE

Partnership

RealSector

Financial Sector

Formal

Sector

InformalSector

Facilitator

& Enabler

Policy &

Programmes

Policy &

Programmes

Instns &

Products

Affordable Housing for All and Financial Inclusion

–Mutually Consistent Themes17

Sector Profile – Wide Sector Profile – Wide StakeholdingStakeholding

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• Government Support

Liquidity

Pricing

Risk Mitigation

Targeting - Low Income Housing

• Guarantee Fund / Subsidy

Subsidy support to EWS/LIG housing

Leverage institutional finance

Institutional SupportInstitutional Support

GOVERNMENT INTERVENTION

The Government could consider enabling legal and regulatory reforms and create an enabling environment

through efficient functioning of the land market

Streamlining of all approval processes

provision of efficient infrastructure

e-governance viz. introducing electronic record for land and bringing in more transparency in the record of land and houses

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Policy IssuesPolicy Issues

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• Specialized Institutions vs. Universal Institutions

• Augmenting funds for the sector

• Resource Mobilization & Deployment

• Facilitating the growth of Secondary market

• Lending Discipline & Quality of Assets

• Tapping Overseas Market – Lendings & Investments

Growth of Housing Finance Growth of Housing Finance SectorSector

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• Housing Policy at National & Regional level

• Integrated with Financial Sector

• Fiscal & Financial Sector Policy

• Institution-Building & Product Innovation (Supply & Demand Side)

• Deregulation with closer Supervision (Finance & Construction Sector )

• Flow of Funds & Efficient Housing Market

Policy ReformsPolicy Reforms

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• Identify subsidy-based and market-based segments and nature of interventions

• Complementarities

• Ensure adequate and sustained funding for both segments

• Ensure adequate supply of land and housing for both segments

• Market-based approach and state/local level policy interventions

Market SegmentsMarket Segments

• De-risk the segment through suitable risk mitigants both in the financial segment and the real sector segment (demand and supply side)

• Develop a role for the government in low income housing, consistent with the market orientation of the rest of the segments (without conflicting)

• Develop securitisation for funding

• Revisit the fiscal and credit regime to ensure that housing gets its fair share of financing from the system

• Develop policies so that housing is able to compete fairly with other sectors for funds

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Policy PrescriptionsPolicy Prescriptions

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State Govt./ Builders

Banks/ HFCs/ MFIs

Borrowers

Enabling Fiscal and

Credit Policy

Enabling Land Policy

for Construction

Subsidy/Guarantee Fund/

Credit Enhancement

Land TenureFirst / Second Loss Facility

SPV Project

Individual Loans

Construction Finance

Specialized Funding Agency

Institutional Institutional StakeholdersStakeholders

• No Broad-brush Approach

• Need for Segmented Intervention

• Role of State Governments & Public Agencies

• Supportive Fiscal & Credit Policy

• Market/Subsidy based Approach

• Developing innovative products and institutional mechanism

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Summing UpSumming Up

• Identify land for construction

• Liberalize construction finance for low income housing

• Project approach and economies of scale

• Price determination – a critical consideration

• Develop mechanism for Demand Registration

• Tap Savings potential – building borrowers’ equity

• Actively involve supply side agencies, private and public

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Summing UpSumming Up

• Widening stakeholders’ base

• Broadening Institutional infrastructure

• Securitisation through Government support

• Risk Mitigation Vehicle

• Funding Source and Delivery Channels

• Construction and Finance Delivery

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Going ForwardGoing Forward

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• Affordable House Price

• Affordable Credit

• State Govt./Municipal Bodies to provide land and infrastructure

• Public/Private builders to construct

• Pricing & Credit critical

• Credit Risk Mitigation

• Credit Guarantee Fund

INCLUSIVE GROWTH WITH STABILITY

Conclusion Conclusion

Thank YouThank You