In India, many agencies are involved to lend housing finance to homebuyers. The National Housing Bank (NHB) provides funds to housing sector through its refinance scheme for banks, housing finance companies and state level apex co-operative housing finance societies. Apart from the premier institutions like Housing Development Finance Corporation Ltd. And LIC Housing Finance Ltd, there are other like Can-Fin Homes Ltd, GIC Grih Vitta Ltd., SBI Home Finance Ltd., etc. Who extend housing loans. Other entrants to the housing finance sector include Akashaya Awas Nirman Vittan Ltd. ( Bank of Baroda ), GIC Housing Finance Ltd., Dewan Housing Finance Corporation Ltd., Ind, Bank Housing Finance Ltd. PNB Housing Finance Ltd., etc. Dewan Housing Finance Corporation's double protection plan is a safeguard against the unpredictabilities of life and free accident risk cover protects the borrower's family against dispossession of the house. In addition to housing finance institutions and banks, financial assistance is also available for home-buying against NRE/FCNR deposits with banks in India, security of NRI bonds and IDB-1991 issued by State Bank of India. The details about various housing finance institutions and schemes are provided in the following pages.

No that is no distant dream in India now. Indiaproperties.com has become the country’s first site o tie up with ICICI Ltd to offer on-line housing finance. As per the arrangement, sellers will have he option of getting their property pre-approved by ICICI Ltd and buyers will be able to pre-appprove themselves for a housing loan immediately.

A move that has the site flooded with queries already. Says Atul Jog, vice president ICICI Ltd, ``We have already started benefitting from our association. We have been getting queries related to preapproval of properties listed on the site on a daily basis, and this is just the beginning...

(The Economic Times)

Housing Finance: A boom time ahead
Competition is hotting up in the housing finance business with most of the key players revising down their interest rate by 0.5 to 1.00 percentage point across various slabs. This follows the reduction in the prime lending rates (PLRs) by banks following the recent budget proposals announced by the Union finance minister.

Now the Housing and Urban Development Corporation (HUDCO) which has so far been financing only government housing, has entered into the retail housing finance with the launch of its `Hudco Niwas Scheme' in Delhi. Experts believe that HUDCO's entry in the retail finance will certainly have an impact on the existing business.

Says Ashok Kumar, assistant vice president, Brooke International, "HUDCO can pose competition to present players as it has got access to cheaper funds as also refinance from NHB. However, it will take some time for HUDCO to strengthen its retail network." Moreover now with a target of 3 per cent of incremental deposits for housing loans, banks will be more aggressive to meet the target of around Rs 3,500 crore. Even before the PLR cut, the average rates offered by banks have been at least 0.5-1.00 per centage point lower than that offered by HFCs. The difference is now likely to go up to 1.50-2.50 percentage after the PLR cut of 1.00 percentage point. Further, major players such as Corporation Bank, State Bank of India (SBI) and Syndicate Bank are planning to enhance their exposure in the housing finance up to 10 per cent of their total loan portfolio.

Banks are better placed as they have access to low-cost funds and have a distinct edge in terms of high availability of short-term funds. Besides, their wide branch network will provide them with better reach. Says Suresh Rao, president, Andhrabank Housing Finance, "Banks and HFCs will be trying to keep their interest rates in the range of 13-14 per cent for short to medium term loans."

Experts also believe that once the foreclosure norms are in place, the sector is expected to witness more aggressiveness on the part of most of the players. Further, the expected develop ment of the secondary mortgage market will bring in more liquidity in the sector. The tax incentive provided by increasing the interest exemption limit from Rs 30,000 to Rs 75,000 for self-occupied houses as also 40 per cent depreciation benefit as against 20 per cent earlier for corporates to set up employee housing will go a long way in boosting the volume in the sector.

According to market sources, in the present fiscal i.e 1999-2000 the housing finance sector will see a booming growth rate of around 30 per cent as against around 26 per cent in 1998-99 with loan disbursals of around Rs 7,200 crore. From Rs 4,557 crore in 1996-97, the market grew by 24 per cent to Rs 5,727 crore in 1997-98. Even as the volume increases, the market will continue to be dominated by few big players for some more time. There are more than 380 HFCs operating in the market as of today. However, more than 90 per cent of the disbursements are accounted for by only 26 leading HFCs having refinance facility from the National Housing Bank (NHB).

In future, all the players will try their best to increase the volume as well as the value of the loan in order to boost the bottomline in the high-volume low-margin sector. Comments Parth Sejpal, property consultant, "We are entering into an entirely different condition where the borrowers will be calling shots while lenders will be vying hard to increase their market share through value added packages

Housing Finance: Encouraging prospect.
The housing finance industry is booming. According to a study by Hongkong Bank, This industry has showed an average annual growth of over 20 per cent in the last five years and is expected to maintain this growth rate for the next three years.

The housing finance industry is very robust at the moment. This is due to the fact that the housing finance industry is very competitive today; lending rates are at an all-time low and lenders are offering attractive packages to customers. Housing finance companies disbursed loans worth Rs 5,723 crore in 1997-98 as against Rs 4,567 crore during 1996-97. Indications are that the growth rate during the current year would be 25 per cent or more. The number of housing finance companies that act as specialized outlets for housing loans for individuals has also shot up.

There's no doubt that HDFC is synonymous with the term housing finance. Incorporated in 1977, it was promoted by ICICI, with an initial investment by the international Finance Corp and the Aga Khan Foundation. Today, HDFC has emerged as the biggest player in the housing finance industry, with more than half its market share. The reasons are not hard to find. Though its head-quarters are in Mumbai, it boasts of 45 branch offices throughout the country; it also has an international office in Dubai and service assistance in Kuwait, Oman and Qatar.

Another established player is Dewan Housing Finance, with around 15 years of profit-making existence. As a public limited company, it was incorporated in April 1984 under the Companies Act, 1956, with its registered office located in Mumbai.

GIC Housing Finance and LIC Housing Finance also offer competitive loans. The major difference between these two players is that while LIC Housing demands an insurance collateral when sanctioning the loan, GIC Housing does not.

Hudco too has been a major force in the housing finance sector, especially for low-income groups. Hudco finance is invariably project-oriented and the objective is to ensure that the projects are affordable for the target groups and at the same time technically sound, financially viable and legally acceptable. It released funds of Rs 2,149 crore in 1997-98, compared to Rs 270 crore in 1986-87.

Till January 1999, Hudco has enabled the development of 7.9 million housing units in the country, thereby alleviating the housing shortage for all groups in rural and urban areas. It has also helped in the development of urban infrastructure of various kinds. As part of its objective to reach its beneficiaries directly, the company offers financial assistance to individual families to enable them to acquire a home of their own through its Hudco Niwas Scheme. Under the scheme, loan assistance is given to either construct or buy a house/flat or to extend or improve existing houses/flats.

Usually, the loan repayment period is up to 15 years or when the applicant crosses 65 years of age, whichever is earlier. However, under the Hudco Niwas scheme, the repayment period will be fixed to suit the convenience of the applicant. For instance, the repayment period can be extended up to 20 years. However, in such cases, an additional interest of 1 per cent per annum will be charged.

Security for the loan is the first mortgage of the housing unit to be financed normally by way of deposit of title deeds and or such other collateral security as may be necessary. In some cases, interim security may be required. In all cases, the applicant will be required to provide guarantees from two individuals acceptable to Hudco Niwas. In the case of central government employees who have already availed of a house building advance, Hudco Niwas may accept a second mortgage of the housing unit along with assignment of benefits under Central Government Group Insurance Scheme. For other people who have taken a house-building advance from their employers, Hudco Niwas may consider joint mortgage of the housing unit on a pari passu basis.

Hudco will also play a significant role in the government's new programme to provide 2 million additional housing units every year-700,000 in urban areas and 1.3 million units in the rural parts. Of this Hudco will be providing over 300,000 units in urban areas. This would be in addition to Hudco's contribution to extend assistance to part of the 1.3 million additional units in rural areas. What's more, the banks themselves are competing with their housing finance arms. So we see State Bank of India and Bank of Baroda competing with SBI Home Finance and BoB Housing Finance. State Bank of India is planning to disburse Rs 1,000 crore in housing loans during the year 1999-2000 and has designated 500 branches throughout the country as intensive branches for housing finance with focused monitoring.

Vijaya Home Loans, CanFin Homes, Bank of India and State Bank of Patiala are other well-known players. Karur Vysya Bank and Jammu & Kashmir Bank plan to set up housing finance subsidiaries.

Among the foreign banks, ANZ Grindlays Bank, Standard Chartered Bank and Citibank (through Shelters) also offer home loans. HongkongBank has come out two innovative repayment options. The floating interest rate loan, which is linked to the bank's prime lending rate (PLR), and the fixed rate loan. Either way, the customer will have the option of switching repayment methods once a year with no penalty for exercising this option. BNP India, the Indian subsidiary of Banque Nationale de Paris, is also keen on entering housing finance. Scotia Finance, the finance arm of the Canada-based Scotia bank, is also planning to offer housing finance.

The Union Budget gave a boost to the construction and housing finance industry. This will also see the advent of large corporates into the housing business, which will help in giving credibility to the housing industry.

Housing finance companies have also got an impetus from the proposed change in the 1999-2000 Budget in the tax treatment of income earned on non-performing assets and the assessment of tax on interest on loans on an accrual basis rather than on an actual basis. Corporates can avail of 40 per cent depreciation (earlier 20 per cent) on new dwelling units purchased by them for their employees; this will encourage them to invest in housing for their employees.

Tax-free status has been accorded to a limited amount of municipal bonds issued each year in an attempt to kick-start urban infrastructure improvement projects initiated by municipal bodies. And, in the case of housing projects enjoying a tax holiday under section 80 1A of the Income Tax Act, the ceiling on built-up areas for dwelling units in approved projects has been increased from 1,000 sq ft to 1,500 sq ft at all locations except Mumbai and Delhi. Treating housing projects as infrastructure will give a major boost to construction in smaller towns.

The focus in the Budget on housing indicates that the government is serious about its 'Housing for All' agenda which it hopes to accomplish by 2002. However the housing finance sector still has still a long way to go before it can service all sections of the population who are not part of the formal sector, who do not have regular incomes and whose spending power is low. Housing finance is easily available only in the large cities, not in towns and villages where the majority of the population still lives. Besides, the security/collateral and other legal requirements to avail of housing loans prevent large sections of the population from gaining access to institutional funds for housing. If this is the way things are, one can expect the housing finance industry to get the kick-start it deserves.

As far as the individual is concerned, there is no better time than now to invest in real estate. Since 1995, real estate prices have steadily been heading downward and this slump has made investment even more feasible.

During the last few years, the government has announced significant measures to create an enabling environment for the growth of the housing sector. Besides extending fiscal incentives, it has taken policy initiatives such as repeal of the Urban Land Ceiling & Regulation Act (ULCRA). It is now up to the builders and housing finance companies to respond by making housing affordable for the common man and to undertake massive construction activity and in turn spur huge housing finance activity.

The NHB has been doing a yeoman service to the industry by refinancing housing finance banks since 1988. NHB today refinances 29 housing finance companies that have over 450 branches. In 1997-98, NHB refinance amounted to Rs 524.15 crore. During the current year (NHB's accounting year is July-June) the bank may have disbursed as much as Rs 678 crore.

Along with real estate prices, interest rates too have dropped substantially over the past few years. Those who took housing loans in 1993 would probably be servicing it at the rate of 21 per cent, while those who took them last year will be paying around 17 per cent per annum. Hence on a Rs 10 lakh loan for a 15-year repayment tenure, the savings would be Rs 35,040 more each year, taking the total extra savings to a little more than Rs 5 lakh.

The tax benefits announced in the various budgets have been more in favour of the housing finance industry. Last year's budget increased the deduction for interest repayments on housing loans under section 24(I)(VI) to Rs 30,000 from Rs 15,000. The latest budget hiked it to a further Rs 75,000. Of course, this is subject to two conditions; the person taking the loan should do so in the current financial year and should be residing in the home for which the loan is taken.

Here are a few guidelines that one should keep in mind when scouting for housing finance:There is more to the interest rate than meets the eye. If a particular company is offering a loan at 15.5 per cent, it does not mean that it's 'cheaper' than one that carries 16.5 per cent. Check out how the interest rate is computed.

If the 15.5 per cent is calculated on an annual reducing basis, the equated monthly installment (EMI) on a five-year loan of Rs 10 lakh works out to Rs 25,200. If the 16.5 per cent is calculated on a monthly reducing basis, the EMI for an loan of an identical amount will work out to Rs 24,585. The total savings on a five-year loan with an annual interest rate of 16.5 per cent: Rs 36,900. The logic is fairly simple. The EMI is a combination of interest payment and principal. If calculated on a monthly reducing basis, you pay less since the calculation is done on a lower principal than if it was on an annual reducing basis. Some finance companies offer finance for an apartment under construction only if the property is being developed by a builder who features on their approved list. If you book an apartment, which is still under construction, you may get a cheaper deal from the builder. Tread carefully. If he delays completion, you will end up paying much more on your loan.

As mentioned earlier, though the EMI is a combination of interest and principal, it stays constant through the entire period. However the actual payment of the loan (principal and interest) starts only after the final disbursement is made.

Now once the loan is sanctioned, payments are made directly to the builder in approximately four installments, which are construction-linked. So if the builder delays construction, the final disbursement is also delayed. Till then, a pre-EMI flat rate of interest is levied. So if the builder delays construction, the individual will have to keep paying a pre-EMI rate on the disbursed amount. If the housing finance company has disbursed Rs 5 lakh and levies a flat rate of 12 per cent a year, you will have to keep paying Rs 60,000 per annum on this amount. The longer the builder takes, you keep paying. The only one to lose out is the individual. So if the builder is no reputed one, it makes sense to go in for a ready-made apartment where you immediately start repaying in the form of EMIs.

Housing finance companies generally sanction up to 85 per cent of the value of the property, but the limit varies between companies. The balance will have to be put in by the buyer. But every applicant will not get the maximum amount that can be sanctioned. Before determining how much should be sanctioned, a lot of factors are taken into consideration. Age (the younger you are, greater the chances of repaying your loan), number of dependents and loan outstandings (the higher the number, lower the amount sanctioned), double or single income family (if both spouses are working greater the chances of a higher amount disbursed), the health of the company you work for, its industry status, your qualifications, designation and scope to rise.

The most important criteria is income earned. Housing finance companies want the EMI to constitute only about 25-33 per cent of the gross income, which could translate into half the net salary. If both spouses are working, their total income is taken clubbed together.

Some charge a pre-payment facility. So, if you are expecting a windfall or huge bonus and planning on prepaying at least part of you loan, you should check out what the pre-payment penalty is. It could be a percentage of what you repay, like HDFC, or a fixed charge like CanFin Homes. Most players do not charge a pre-payment penalty.

There are processing fees, which are a percentage of the amount applied for, and administration fees, which is a percentage of the amount sanctioned. These could vary between 0.5 per cent and 2 per cent. Some players may say they do not charge any administration fee, just a processing fee. But the latter may be as high as 3% and so works out to be more expensive. So if it is a Rs 10 lakh loan, be prepared to shell out Rs 20,000 if the fee is just 2 per cent.

Some do not have an upper limit on the age of the property to be financed as in the case of HDFC where the company's technical staff will determine the suitability based on the condition of the property. LIC Housing Finance does not finance property more than 30 years old in the case of a house and 15 years in the case of a flat.

(FPJ, Business Journal)

Before buying immovable property
Buying immovable property in India is fraught with difficulties due to a combination of factors. Residents/ Non-Resident Indians are further handicapped by distance and their inability to visit sites for this purpose. A meticulous planning at the investment stage itself could indeed avoid hassles and many sleepless nights later.Though the list provided below is not exhaustive, some of the pre-requisites indicated below would immensely assists property seekers.

• Scrutinize all original documents. The title to the property may be single or joint ownership basis. In the event of any difficulty, a certified copy can always be obtained from the local sub-registrar’s office on payment of a nominal fee.
• Refer the documents to a lawyer who may certify that clear title can be passed on to the buyer.
• Obtain ‘No encumbrance certificate’ for the past 30 years to ensure that no mortgage has been outstanding on the property to be purchased. This will also enable the buyer to ensure that the title belongs to the rightful owner who wants to sell it.
• Obtain required clearance under the Urban Land ( Ceiling and Regulation) Act.
• In the event of sale by a third party viz. Real-estate promoter, check whether he is the absolute owner or holds a registered power of attorney to sell the property. It is better to buy from an established developer with an unblemished record.
• Seek the assistance of reputed consultant to ensure price quoted is the correct market value

• An agreement on the price to be agreed and payment terms. Payment should invariably include a clause on payment of last installment on possession and registration.
• Sale deed or Agreement to sell must be executed by the seller and buyer. This should include full details and origin to the title to the property, proper identification to the property by neighbouring survey numbers, payments terms and payments made so far and cheque/draft references. Also make sure that the buyer-builder agreements are equitable and do not contain clauses that are violative of your rights and interests.
• Buyers should ensure that their right is not negated in the sale deed through undertaking additional construction in violation of the Apartment Ownership Act if the municipal bye-laws permit it at a future date.
• The stamp duty varies from State to State in India. Ensure that the prevailing stamp duty is remitted. It is levied on the land value of the apartment and in some cases it is on the total value of land and building.
• The seller on completion of the project should execute the transfer of title to the buyer by getting it registered with the local sub-registrar of properties under whose jurisdiction the property is located.
• While buyer’s presence is not necessary he can authorize his representative to execute the document, the seller ( this need not be the real estate promoter) must be present and transfer the title by signing the transfer deeds and all appropriate documents.
• The Sale Deed prepared earlier is only an initial contract. Before registration, the Final Sale Deed is prepared on stamp papers of appropriate value which will be the prevailing rate of stamp duty in the respective States. This set of documents should be executed by the seller.
• Note that under Section 230A of the Income-tax Act, 1961 all Sale Deeds in case of immovable property valued at more than 5 lacs should be cleared by the Income-tax Officer. Only then, Registrar will register the property.
• Irrespective of the value shown in the documents, the Sub-Registrar will determine the market value of the property and the stamp duty.
• In case of purchase of apartments,proportionate share of the land on which the apartments are built are registered.
• The price indicated by the promoter should be firm. If the promoter desires for escalation, it should be done in accordance with procedure followed by Government undertakings and this should form part of the Agreement.
• The Agreement should accompany plans, drawings and specification of each item of work.
• The Agreement should specify the completion date and the terms of compensation in the event of delay in delivering possession of the apartment.

Remedy

• In spite of all efforts if a buyer gets duped; a complaint may be lodged under the Consumer Protection Act, 1986, which is a Central Act. Representation can also be made to the Monopolies and Restrictive Trade Practices Commission (MRTPC) for issuing instruction for indulging in unfair trade practices.

• A number of States and Union territories have established consumer protection councils. The redress machinery,which is quasi-judicial, has also been set up in a number of states.