Thursday, November 24, 2011

>Indian Housing Finance Market Outlook to 2015

Exploring the under-penetrated rural market

After the evolution of the housing finance industry in India, the housing industry has witnessed tremendous growth. The price of the financial products has increased and the increasing number of players has intensified the competition. Various companies are coming up with innovative ideas to market their product differently and effectively. The market has evolved from being dominated by the sellers to now being led by the buyers’ preference. With the constant increase in the personal disposable income of the middle class, buyers now have higher bargaining power with several options available in the housing finance market. Houses in India are available at reasonable prices which fit into the budget of average household. The increasing demand for homes has attracted various construction companies as well as home loan companies.

The economic stability in India reinstated the confidence of foreign players which had a positive bearing on the construction industry in the country. This opportunity gave foreign players opportunity to invest in India in large scale projects. The FDI (Foreign Direct Investment) limit in the country was raised to 100% in housing and construction projects after witnessing a positive response from the foreign players. The increased flow of funds stirred the growth in the sector.

The demand for households has increased over the period. The provision of houses for the poor in order to fulfill the shortages is one of the biggest challenges being faced by the government. Nearly 15% of the population in the urban areas resides in slums. According to the census of India, 35% of the individuals living in urban areas reside in a single room house and in nearly 68% of the cases 4 or more individuals reside in these single room houses. Nearly one fourth of the Indian population is below the poverty line. There is nearly a shortage of 24.71 million units of houses in urban areas out of which 99% belongs to the EWS and LIG. The above stated fact reiterates that there is a shortage of houses for the poor and the situation of housing for all needs to be addressed as quickly as possible.

The real estate sector is one of the major contributors which support the economic development in the country and forms a major component of the financial sector. The growth registered in this sector has a positive effect on other sectors such as generating employment thereby increasing the personal disposable income of people. Undoubtedly, housing investment is one of the stepping stones in the development of the economy.


Emergence of banks has led to a tremendous growth of the housing finance industry. The industry has registered an impressive growth of nearly 30% in the last 5 years

The growth of housing finance in the country is largely because of the growth in the commercial banks as well as Housing Finance Companies (HFC’s). Over the years, there has been a considerable growth witnessed in the number of HFC’s. As on mid of June, 2010, there were nearly 52 HFC’s operating across the country which are listed with the National Housing Bank (NHB).

Scheduled Commercial Banks (SCB’s) also offer home loans and help in mobilizing the savings. Apart from SCB’s and HFC’s, there are Co-operative Institutions and Micro Finance Institutions which operates in both rural and urban areas to serve the needs of various individuals.
Emergence of banks has led to a tremendous growth of the housing finance industry. The industry has registered an impressive growth of nearly 30% in the last 5 years. However, 2008 and 2009 witnessed a slight downturn in the economy because of the economic turmoil across the globe.

Over the years, the structure of the housing finance industry has evolved. Commercial banks have increased their market share whereas the share of HFC’s has registered a downfall. Owing to their enhanced area coverage and their accessibility to low cost deposits, the share of commercial banks has almost doubled from 31% in 2000-2001 to 60% in 2008-2009. The share of HFC’s has decreased from 69% in 2000-2001 to only 38% in 2008-2009. National Housing Banks (NHB’s) monitors the development and challenges which have a bearing on the growth of the housing finance market in the country.

To read the full report: HFM