Why Housing Finance
Housing is the one of the basic needs for every human being, with Food, Clothing and Education being the other three. Housing is an important component and a measure of socio–economic status of the people. Housing being the one of the essential needs of mankind, the demand for shelter grows in line with the increase in population and the standard of living, hence the need of financing the purchasing of a House came up. The importance of the housing sector can be judged by the fact that we consider house as the best investment and want to invest our hard earned money or saving in a house. The need for Finance to purchase a house brought out specialized Housing Finance Institutions. The Housing Finance Companies (HFCs) as they are called today, have stepped up their lending over the years contributing to the growth of the housing sector.It is important to choose a good housing finance company which can handhold the customer right through his home buying process. Since a home loan is a long term commitment of 15-20 years, several factors like expertise, quality of service, in-depth domain knowledge and the company’s level of commitment and transparency right through, the loan procedures, the fine print, quality of services offered and safe retrieval of the title deed are critical.
Interest Rates on Housing Loans in India
The interest rates being charged depend a lot on the time,the creditworthiness of the borrower,the housing loan provider etc.However in recent times the home loan interest rate range has been about 8 per cent to 16 per cent with respect to HFCs and 9 per cent to 14 per cent so far as Public Sector Banks are concerned.With interest rates at a high due to high inflation,a number of Indian Real Estate companies have come under pressure to lower rates.There are two kinds of interest rates for housing finance
Fixed rate – As the name implies,the interest rates are generally fixed during the entire term of the loan.Fixed Rates are generally higher than the current Floating Rates as Housing Loan providers prefer Floating Rates.
Floating rate – This type has the interest rates dependent on the current interest rate set by the RBI and generally varies a lot.
Types of Home Loans
- Home Equity Loan: Loan for some other purpose by mortgage of property.
- Home Extension Loan: Loan for extension of existing houses like the addition of rooms
- Home Improvement Loan: Provided mainly for repairs and maintenance of existing houses.
- Home Purchase Loan: Finance provided for the purchase of ready-made houses.
- Land Purchase Loan: Meant for the purchase of land for construction of residential houses.
One can avail tax benefits by showing payments on a housing loan. It is required to obtain an Income tax certificate which is issued once annually. This will contain the total amount of interest and capital repaid during the year. This is a must to claim a tax benefit in respect of self occupied property.
- Section 80C allows deduction upto Rs. 1 lakh on various payments/deposits including principal amount of housing loan., besides savings in eligible tax saving instruments.
- Section 24 of IT Act Deduction on account of interest payment on housing loans is 100 per cent for rented dwelling units and Rs. 1.5 lakh for owner occupied houses.
- Section 54 of IT Act Capital gain from transfer of residential property if invested in acquiring one residential house is exempt from income tax.
- U/s 36(1) (viii) of IT Act allows 20 per cent of profit derived from business of providing long term housing finance is deducted from income provided it is carried to special reserve.
Housing Finance in India
The formal housing finance market of India comprises various segments viz. Housing Finance Companies, Scheduled Commercial Banks, Co-operative Sector etc. These institutions offer a variety of products relating to direct finance, refinance, micro-finance etc, to the borrowers.The share of outstanding housing loan as a percentage of GDP has risen from 3.4 per cent in 2001 to 7.25 per cent in 2007 (estimated). The share of outstanding housing loan as a percentage of GDP has risen from 3.4 per cent in 2001 to 7.25 per cent in 2007 (estimated).
Housing Finance Companies in India
At present, the need for housing finance in India is largely being fulfilled by the more than 40 Housing Finance Companies and 27 Public Sector Commercial Banks.The housing finance companies’ market is dominated by large players such as HDFC, LIC Housing Finance Limited, Can Fin Homes, Dewan Housing Finance Limited, Sundram Home Finance and GRUH Finance Limited (now bought by HDFC)
Government Owned or Related Housing Finance Companies
- HDFC – Housing Development Finance Corporation Ltd. provides loans for purchase fresh or resale house as well as to construct houses. It also provides loaning facilities to NRIs. Wide range of home loan products & services like Home Loans, Home Improvement Loans, Home Extension Loans, Loans to professionals for office or clinic, Home Equity Loans (Loan against Property), Short Term Bridging Loan etc are also offered.Home Improvement Loans are for facilitating internal and external repairs and other structural improvements like painting, waterproofing, plumbing and electric works, tiling and flooring, grills and aluminum windows. Home Extension Loan is for the extension of an existing dwelling unit. There are flexible loan repayment options like Step Up Repayment Facility, Flexible Loan installments Plan, Tranche Based EMI, Accelerated Repayment Scheme.
- LIC Housing Finance Ltd. – The company has shown the best improvement in recent times in terms of growth and profits having strong parentage with LIC being India’s largest insurance company.The company however was recently involved in a bribery scandal in which top officails of other banks were also implicated.The company has seemingly got over the episode.It provides home loan facilities to individuals for purchase, construction, extension, repair & renovation to resident as well as non resident Indians. LIC housing finance ltd has LIC Griha Prakash and Griha Laxmi LIC home loans plan where individuals can get LIC housing loan amounting to 85% of the total property cost provided the total value of the property doesn’t exceed the value of 1 Crore Rupees. This LIC home loan scheme is valid on both purchase and construction of property. LIC housing finance limited offers Griha Sudhar LIC housing loans for individuals looking for an amount of up to 10 lakhs to renovate or make repairs in their properties.
- GIC Housing Finance Ltd. – Like LIC Housing Finance,this company too has a major government insurance company as the parent (GIC in this case).The Company was formed with the objective of entering in the field of direct lending to individuals and other corporates to accelerate the housing activities in India. The primary business of GICHFL is granting housing loans to individuals and to persons/entities engaged in construction of houses/flats for residential purposes.
- PNB Housing Finance – It is a wholly owned subsidiary of Punjab National Bank. It provides housing finance to individuals for construction or for acquisition/ purchase of house/ flat from development authorities such as DDA/HUDA/ PUDA/RHB etc. and also from private builders/groups housing societies. Enhancement in loan amount s also considered in the event of escalations in cost. Minimum loan amount is Rs.50,000.
- Bank of Baroda Housing Finance – Bank of Baroda is the third largest bank in India, after the State Bank of India and the Punjab National Bank. It offers home loans for purchase of new & old dwelling unit, construction of house, purchase of plot of land for construction of a house, repaying a loan already taken from other Housing Finance Company or any Bank, repayment period up to 25 years (floating rate option).
- Can Fin Home Ltd. – It was set up in 1987, by Canara Bank in association with reputed financial institutions, including HDFC and UTI. The first bank sponsored Housing Finance Company in India, Can Fin Homes emerged as one of the leading players in the country’s home loan segment. Canara Bank offers home loans for construction, purchase, repairs, additions, renovations of residential house including the purchase of land and construction thereon, for taking over of the Housing Loan liability with other recognized housing finance companies, housing boards, co-operative banks & societies, commercial banks at the prevailing rate of interest. People entitled to loans can be Salaried individuals, individuals engaged in business/professionals and self-employed persons, NRIs are also eligible to avail loans without specific permission of RBI, individuals above the age of 55 years are also eligible subject to certain stipulations of RBI.
- SBI Home Finance – SBI Home Finance is the housing subsidiary of India’s largest bank State Bank of India.Note SBI has aggressively targeted the housing finance space winning marketshare from the dominat HDFC.SBI till recently used teaser home loans to attract a large number of customers to its home loan products
- Housing & Urban Development Corporation Ltd. (HUDCO)- provides Schemes for shelter and services with a special focus on the economically weaker sections of the society. Apart from financing housing schemes, HUDCO is also contributing to improve the quality of life by augmenting basic community facilities and infrastructure services through its financial assistance for core infrastructure. Projects involving self-help by the beneficiaries are promoted by encouraging sites & services schemes, core housing, shelter upgradation and so forth. In order to provide basic facilities in the existing houses where adequate sanitary disposal system are not available, financial assistance for basic sanitation schemes is also being extended on liberalized items. The Niwas scheme offered is a housing finance instrument for individual families which offers loan assistance to individuals constructing or buying a house or a flat. Similar loan assistance is also extended to extend or improve an existing house or flat.
Private Housing Finance Companies in India
Dewan Housing Finance Ltd. -It stands strong as the third largest housing finance company & the second largest housing finance company in the private sector. DHFL has also a tie – up leading Public Sector Banks such as Punjab & Sind Bank, United Bank of India , Central Bank of India to provide home loans to customers through a Joint Venture. DHFL has also setup up its representative offices at London & Dubai to serve the increasing NRI population in these regions. It has also tied – up with UAE Exchange to offer its home loan products through the various UAE Exchange centers in the GEC countries. It provides Home loans, improvement & extension loans & loans for NRIs. One can avail a Home Loan upto Rs. 500,00,000 but not exceeding 85% of the cost of property/estimate (for improvement/extension). Special scheme like ‘Regressive Payment Scheme’ is also provided for individuals who are due for retirement within the term of the loan & have applied jointly with an eligible younger co-applicant.
Besides Dewan Housing Finance a number of other financial companies provide home loans for example Indiabulls is a big player in this space.Here is a list of companies which have been approved by the government of India to provide housing finance being given a Certificate of Registration (COR) under section 29A of the National Housing Bank Act, 1987
1 GE Money Housing Finance
2 Haware’s Housing Development Finance Corporation Ltd.
3 HBN Housing Finance Ltd
4 Inara Housing Finance Limited.
5 Indiabulls Housing Finance Limited
6 India Home Loans Limited
7 Jahnavi Home Development and Finance Ltd.
8 Kerala Housing Finance Ltd.
9 Maharishi Housing Development Finance Corporation Ltd.
10 Mahindra Rural Housing Finance Ltd
11 MAS Rural Housing and Mortgage Finance Ltd.
12 Micro Housing Finance Corporation Ltd. (MHFCL)
13 Orange City Housing Finance Limited.
14 Rose Valley Housing Development Finance Corporation Limited
15 Sahara Housingfina Corporation Ltd.
16 Satyaprakash Housing Finance India Ltd.
17 SRG Housing Finance Ltd.
18 Swagat Housing Finance Company Ltd.
19 Utkal Housing Finance Ltd.
20 Vastu Housing Finance Corporation Ltd.
21 Reliance Home Finance Pvt. Ltd.
22 India Infoline Housing Finance Limited (IIHFL)
23 TATA CAPITAL HOUSING FINANCE LIMITED (TCHFL)
24 Swarna Pragati Housing Micro Finance Private Limited.
25 Akme Star Housing Finance Limited
26 Panthoibi Housing Finance Company Limited
27 North East Region Housing Finance Company Ltd.
28 Aindri Housing & Finance Private Limited
29 Edelweiss Housing Finance Limited.
30 SRS Housing Finance Limited
31 SUMEL Housing Finance Limited
32 Aptus Value Housing Finance India Limited.
33 Home First Finance Company India Private Limited.
34 Aadhar Housing Finance Private Limited.
National Housing Bank
The National Housing Bank (NHB), a fully-owned subsidiary of the Reserve Bank of India, was set up in 1988 to accelerate housing finance activity in India and to promote the Housing Finance Companies (HFCs) by providing financial support to them. It acts as the apex institution and regulator of the housing finance industry.
The NHB has issued guidelines to the HFCs on prudential norms for income recognition, asset classification, provisioning for bad and doubtful debts, capital adequacy and concentration of credit investment. The NHB also conducts inspection of the HFCs to ensure proper compliance with the prudential norms and prevent the affairs of any of them being conducted in a manner detrimental to the interests of the depositors or their
National Urban Housing and Habitat Policy, 2007
The National Urban Housing & Habitat Policy 2007 (NUHHP-2007) seeks to promote various types of public-private partnerships for realizing the goal of “Affordable Housing for All” with special emphasis on the urban poor while focusing on urban shelters, emphasized on the promotion of larger flow of funds to meet the revenue requirements of urban housing and infrastructure using innovative tools. It recognized that based on historical growth patterns, the urban population of India was likely to grow to 360 million in the year 2010 and to 533 million by the year 2025. With rising incomes, favorable demographic profiles, swelling middle class and rapid urbanization, the demand is projected to rise to 73.96 million units for rural and urban areas during the 11th Plan period (2007-2012).