1273670, Vivek Saini, F2 , Q46-Housing Finance: Boom or Bust?

Housing Finance: Boom or Bust?

INTRODUCTION-

'Housing finance is defined as the system is to provide the funds which home-buyers need to purchase their homes. This is a simple objective, and the number of ways in which it can be achieved is limited. Notwithstanding this basic simplicity, in a number of countries, largely as a result of government action, very complicated housing finance systems have been developed. However, the essential feature of any system, that is, the ability to channel the funds of investors to those purchasing their homes, must remain. In technical words we can say that housing finance is the Proportion of mortgage loans to total outstanding loans. There are the two types of the Housing Finance

1.      Direct Housing Finance- Direct Housing Finance refers to the finance provided to individuals or groups of individuals including co-operative societies.

2.      Indirect Housing Finance- Indirect housing finance is the finance provided by bank in which banks should ensure that their indirect housing finance is by way of term loans to housing finance institutions, housing boards, other public housing agencies, etc.

Housing finance is required because

1.      It is required to meet the growing housing demand in India.

2.      It is also important to reduce poverty

3.      It is required to prevent slum proliferation.

4.      It supports economic activities i.e. for a family as well as community.

5.      It strengthens the financial system.

6.      Development of the economy.

DISCUSSION

Housing finance is currently growing in India. The main reasons of growth of housing finance in India are

·         There is liquidity in the system.

·         The interest rates are softer.

·          Housing loans has the lowest non-performing assets

·         Fiscal concessions are there in it.

·         Wider network is there in Housing finance like Banks/ Housing Finance companies.

·         Consumer friendly products.

As we know that there is housing shortage in India. More than 1 billion peoples are living in India. And more than 50 million people are living in slums. So there is shortage of housing in both rural and urban areas. So to solve this problem of housing, The National Housing Bank (NHB) was established on 9th July 1988 under an Act of the Parliament viz. the National Housing Bank Act, 1987 to function as a principal agency to promote Housing Finance Institutions and to provide financial and other support to such institutions. 

Its objectives are

1.      To promote a sound, healthy, viable and cost effective housing finance system to cater to all segments of the population and to integrate the housing finance system with the overall financial system.

2.      To promote a network of dedicated housing finance institutions to adequately serve various regions and different income groups.

3.      To augment resources for the sector and canalize them for housing.

4.      To make housing credit more affordable.

5.      To encourage augmentation of supply of buildable land and also building materials for housing and to upgrade the housing stock in the country.

6.      To encourage public agencies to emerge as facilitators and suppliers of serviced land, for housing.

So there is a growth in housing industries in India has raised concerns about its sustainability and implications on the country’s financial and macroeconomic stability. The fact that the surge in demand for mortgage credit has been trailed by an equally strong upturn in prices has led to apprehensions as to whether the boom is sustainable or is merely a financial bubble ready to burst. Further, the surge in housing prices globally has gone hand-in-hand with a much larger jump in household debt than in previous booms.

• Increase in Mortgage credit- Growth of the housing sector measured by the data. Performance of 47 scheduled commercial banks in 2013 in housing finance is 48,35,600 crore rupees. Which was 41,82,000 crore rupees there in 2012. Performance of major 19 PSB’s in FY 2012-13 is 61,675 crore rupees which was 48,590 crore rupees in FY 2011-2012, with 27% growth. Similarly performance of 57 HFC’s in FY 2012-2013 is 57878 cr rupees. Similarly NHB Cumulative Refinance Disbursements crossed Rs. 1 lakh crore. So it shows the pace of housing finance in India.
• Reason of increase- There are the rapid growth in housing loan market has been jointly supported by the growth in middle class population, favourable demographic structure, relatively lower real estate prices, and more importantly, rise in disposable incomes. Furthermore, attractive fiscal incentives for housing loans make them ideal vehicles for tax planning for the salaried class. For banks and housing finance institutions, the regulatory framework facilitated the higher exposure by prescribing risk weights for housing loans and giving it the benefit of compliance with the targets mandated for priority sector lending.

Conclusion

From my point of view Housing finance is in Boom condition of economic or business cycle. Because India being the second fastest economy in the world. And there is the second largest population in India. So point to note is that while the home loan demand in the developed economies is largely for investment purposes (thus having a speculative component), 70% of the demand in India is for habitation purpose (thus making it less risky). Thus housing sector is very important for the growth of economy of a country.

 
      I disagree with the fact that housing is in bust condition because there is continuous growth in the population. So housing is a necessity. During busts an economy will see a fall in production and an increase in unemployement. But due to the increase in population, housing finance as also in high growth.If we see the five year plan, there is also increase in the housing finance. So now we can conclude that           housing finance is a boom not bust.