Housing Finance Market Overview

In India, housing finance can be raised from banks and housing finance companies. The Indian housing market has been dominated by Housing Finance Companies (HFCs), whereof the most have been publicly owned companies with Dewan Housing being the only major private sector company. By the turn of the century, the Indian housing finance industry has grown by leaps and bound with housing finance recording compounded annual growth rates of more than 30 per cent. In the course of this process, banks have gained a considerable market share, equalling more than 80 per cent in the beginning of 2008. In spite of the impressive growth of the housing finance industry in India, financing through the organized sector continues to account only for less than 30 per cent of the total housing investment in India and the mortgage debt to GDP ratio was with 6 per cent in 2008 still low in comparison to other countries.

The Market from the Perspective of the Demand Side

Borrowers can usually raise up to 85 per cent of total cost of the property value including stamp duty and registration charges (though higher LTV ratios – up to 110 per cent – are not uncommon). The home loan interest portion is deductible up to a set maximum. Most loans are fixed interest loans. A further, indirect subsidy for the housing markets consists in the government guarantees the government-owned National Housing Bank (NHB), a housing finance agency, enjoys.

House Price Development

In the five main metropolitan areas, the real estate prices have risen considerably in the last decade with average annual growth rates of 15 to 21 per cent between 2001 and 2007.

Refinancing Instruments

Banks and HFCs can refinance by using own deposits or by turning to the capital market. In addition, they can also avail the refinance facilities offered by the NHB. Since the year 2000, the NHB is authorized to carry out securitization transactions and issue mortgage backed securities (MBS) on behalf of private financial institutions. Its role is that of a financial trustee and credit enhancer for the private MBS. Besides, together with its private sector counterparts it is working to establish a Mortgage Credit Guarantee Company which is intended to offer mortgage insurance services. Despite continued efforts, the Indian MBS market is still not fully developed with only one per cent of housing loans being securitised.