Housing finance companies have huge potential in the low-income category, says K.A. MARTIN
A study on scaling up finance for housing for the low-income and economically weaker sections by the National Housing Bank and the Department for International Development (DFID) in collaboration with IFMR Capital Finance has found big scope for housing financing companies in the sector.
The report, citing a monitoring group’s study, pegged the potential size of the urban mortgage market for low-income housing segment with a monthly housing income of Rs. 5,000 and Rs. 20,000 at Rs. 8,80,000 crore. The study also suggested that formal credit institutions had the scope to double their existing market share in this category.
Housing shortage in the country is estimated at 18.78 million units in urban areas and 43.67 million units in rural areas. Ninety-five per cent of the housing shortage is attributed to the economically weaker section and low-income group. These households depend largely on the informal sector for their income and housing. Micro finance can play a big role in this category.
The study, which covered the States of Karnataka, Tamil Nadu, Uttarakhand, Odisha, Madhya Pradesh, Bihar, West Bengal, Uttar Pradesh, Rajasthan and Maharashtra, said the case for making funds available in this sector for housing is made stronger by the findings of the National Sample Survey Organisation for 2010-11.
Only nine per cent of the households were backed by formal financial institutions in new house construction. Sixty-six per cent of the construction in the rural areas was carried out by raising funds on their own. Twenty-seven per cent of the funds for rural constructions came from the informal sector such as money-lenders.
The low-income group in the housing sector is hamstrung by major factors related to land and lack of access to formal housing finance, which is regulated by stringent norms.
The absence of documented evidence of their repaying capacity makes long-term lending to them difficult for the financial institutions.
The study found that 30 per cent of the households that were studied had the capacity for repayment with regular income streams. They are capable of paying off the housing loan. The study found that housing improvement loans would be more in demand than new housing loans and the required loan size ranged between Rs. 50,000 and Rs.2 lakh. The ideal monthly instalment was found to be in the range of Rs.1,000.
Housing loans as percentage of GDP has remained about seven per cent of the GDP, “significantly lower than the levels achieved in most of the developed countries”, the study said.
It also said that a study by a committee constituted by the Ministry of Rural Development in 2011 found that though credit flow to the housing sector grew about 30 per cent over a period of five years from 2005, lending to rural areas grew only about 10 per cent.