Housing Finance - Boom or Burst

INTRODUCTION

Home is the most important human need, next only to food, clothing and shelter. Home is an important facet of economic development; it is a basic need of a human being. It is a place where everyone can relax after returning home from day’s tiring work. It is a place where everyone can give time to his/her family and spend beautiful moments with family members. It is a fundamental demand for living and one of the keys to peace and happiness. Every creature yearns for a home. It constitutes a very significant part of the social and physical environment where the individuals grow and mature as good citizens. It also plays an important role in creating employment, maintaining health, social stability and preserving decent human life.

Housing Finance plays a vital role as an engine of equitable economic growth through the reduction of poverty and prevents slum proliferation in economy. The demand for housing has increased rapidly day by day. Therefore, to meet with the growing housing demand is the aim of the government. To achieve this aim it is required to provide the finance for housing to the people. The liberalization of the financial sector of the economy has also become possible by the housing finance. Home Loan is the funds buyer has to borrow usually from a bank or other financial institutions to purchase a property, generally secured, by a registered mortgage to the bank over the property being purchased. A mortgage loan is a debt owed on a home, the mortgage rate is the interest rate charged to the home owner for the use of the loan.

Housing Finance is linked with the provision of infrastructure and utilities because it has a clear relationship with the volume of new stock which will be built. As mentioned earlier, housing finance plays an intermediary role between production consumption economy and housing system. Through change in polices in the capital market can be expanded so that a part of the resources flow into housing. Thus, housing finance is an important link in the potential for transforming the creation of housing and social urban investment into strips of property and benefit for the people including low income groups. How the flow of resource helps the wider range of income groups will depend upon the terms and conditions built into the design of housing credit. Generally, housing requires longer term finance than the one in industry.

MARKET TREND

In India, the government provisions account for a very small portion of housing activities (i.e.) less than 5% of total housing each year. Thus, the private sector seems to be dominant. However, the public polices often ignored the private sector and so it supply cannot match housing demands.

India is considered as the birthplace of the number zero. Home to roughly 1.2 billion people, India is the second most populous country after China and is expected to overtake it by 2030. About one in every sixth person breathing on earth lives in India, and the growth rate of the population is still high. The following table 1.1 gives the information about the share of home mortgage in GDP of different countries:

Table 1.1 Home Mortgage as a Percentage of GDP Country Home Mortgage Percentage of GDP

India 5%	Korea 14%
Thailand 18%	Malaysia 23%
Taiwan 37%	Hong Kong 60%
Germany 52%	Singapore 68%
USA 86%	UK 72%
Demark 90%

Source: www.economywatch.com

It could be seen from the above table that in spite of the merits highlighted in the preceding paragraphs, in house mortgage, as a percentage of GDP, India stands the lowest. Amongst the Asian countries, Hong Kong is the topper, followed by Taiwan, Malaysia, Thailand and Korea.

Housing Finance in India

The Housing finance sector in India has no doubt, experienced unprecedented change in its structure from its formulation stage. Indian Housing Finance has far moved from the stage of being a solely government undertaking provided service during the 1970’s to a very competitive sector with more than 45 housing finance entities providing housing loans worth ` 7,81,000 million to home buyers across India.

GROWTH RATES OF TOTAL HOUSING LOAN ACCOUNTS AND SANCTIONED LIMITS IN INDIA (CONCLUSION)

On examination of the above data, it is found that in the case of housing loan accounts the SBI, Nationalized Banks, Foreign Banks and all Scheduled Commercial Banks had registered increase of 50 to 58% whereas the Regional Rural Banks had growth rate of about 32%, while the private sector banks achieved increase of 65.7%. Thus, the private sector banks have been able to achieve the maximum growth in the number of housing loan accounts. Analyzing the data on total Sanction Limits it is found that the foreign bank had registered the highest growth (169.4%), while for other types of banks the increase was between 124% to 139%. In this case also regional rural banks could achieve only 62% growth.