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HOUSING FINANCE

HOUSING FINANCE

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HOUSING FINANCE

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  1. HOUSING FINANCE

  2. 1/6th of the world’s total population does not have proper housing • Total demand for housing – 2 million units p.a. (National Building Organisation) • Current shortage of 24.7 million units • Total housing shortfall – 26.53 million units by 2012 • HDFC – in Oct. 1977 • Rs.1200 cr. allocated (Union Budget 2008-09) to NHB to enhance its refinance operations in the rural housing sector Ashish shah

  3. ROLE OF HOUING FINANCE ECONOMIC DEVELOPMENT • Top employment generators for the economy • Forward and backward linkages with over 250 industries • Multiplier effects • Most preferred investment avenue in a recession prone economy • Outstanding housing loans as % of GDP – 8.5% by 2008 Ashish shah

  4. BORROWER Liquidity Higher returns Longer repayment periods Tax advantage Flexibility LENDER Mortgage backed loans (safety) Lower NPAs (risk) Rising property prices Flexibility WHY HOUSING FINANCE Ashish shah

  5. BORROWER 1st right of the lender on the property Regular installments Documentation LENDER Long term commitment Interest rate risk PROBLEMS WITH HOUSING FINANCE Ashish shah

  6. TYPES OF HOME LOANS • Home Equity Loans • Land Purchase Loans • Home Construction Loans • Home Purchase Loans • Home Improvement Loans • Home Extension Loans • Home Conversion Loans • Bridge Loans • Home Loans to SHGs / Micro Financing Instiutions Ashish shah

  7. LOANS AMOUNT GENERALLY DEPENDS ON : • Period of Loan • Repayment capacity of the borrower • Estimated value of the property • Clear title deeds of the borrower INTEREST RATE DEPENDS ON : • Tenure of the loan • Loan amount • Purpose of loan • Repayment capacity • Cost of fund of the financier Ashish shah

  8. INTEREST RATE - FIXED Ashish shah

  9. INTEREST RATE - FLOATING Ashish shah

  10. EMI • Equated Monthly Installment is the amount payable to the lending institution every month, till the loan is paid back in full. It consists of a portion of the interest as well as the principal. • How is an EMI calculated? L x r [(1+r)n /(1+r)n-1 ] x 1/12 L = loan amount r = rate of interest n = term of the loan • Loan processing fees • Administrative fees Ashish shah

  11. HOUSING FINANCE COMPANY • A company which mainly carries on the business of housing finance or has  one of its main object clause in the Memorandum of Association of carrying on the business of providing finance for the housing. • A co. registered uuder the Companies Act, 1956 • Certificate of registration from NHB • Minimum net owned fund of Rs. 200 lakhs ( w.e.f. 16.02.2002) Ashish shah

  12. NATIONAL HOUSING BANK (NHB) • National Housing Bank Act, 1987 - apex-level FI for housing sector • Issue directions to housing finance institutions to ensure their growth on sound lines. • Make loans and advances and render any other form of financial assistance to schedule. • Banks and housing finance institutions or to any authority established by or under any Central, State or Provincial Act and engaged in slum improvement and Formulate schemes for the purpose of mobilization of resources and extension of credit for housing. Ashish shah

  13. BUSINESS ACTIVITIES • Promotion and Development of HFIs • Regulation and Supervision of HFCs • Refinancing • Project Lending • Development of a secondary Mortgage Market – launched mortgage credit guarantee scheme Ashish shah

  14. DEPOSIT ACCEPTANCE • Credit rating from approved credit rating agencies not below ‘A’ and complying with all prudential norms requirements can accept deposit <= 5 times of its NOF. • No credit rating - accept deposit only <= 2 times of its NOF or Rs. 10 cr. whichever is lower provided such HFC complies with all prudential norms and also has capital adequacy ratio of >= 15% as per the last audited balance sheet. Ashish shah

  15. PUBLIC DEPOSITS • Interest rate ceiling – 11% with compounding not more than monthly (w.e.f. 27/3/2003) • Duration – 1 year to 7 years • No guarantee by NHB Ashish shah

  16. SECURITISATION PROCESS Ancillary Service Provider OBLIGOR Int. & principal Sale of assets securities Special Purpose Vehicle ORIGINATOR INVESTORS consideration subscription Rating Agency Structurer Ashish shah

  17. TYPES OF SECURITIES • MORTGAGE BACKED SECURITIES The securities are baked by the mortgage loans i.e., loans secured by specified real estate property, wherein the lender has the right to sell the property, if the borrower defaults. • ASSET BACKED SECURITIES Investors rely on the performance of the assets that collateralise the securities Generally in the nature of ‘pay through’ Ashish shah

  18. THANK YOU Ashish shah