R. V. Verma National Housing Bank India Affordable Housing Development Summit India Low Income Housing R. V. Verma National Housing Bank India

Trends in Housing Finance Housing Loans outstanding 7.9% of GDP Supportive Regulatory/Fiscal Policies Financial Deepening Supply Responses: Demand Driven Main beneficiaries - salaried class, professionals and tax payers Challenge for Low Income Housing – “Accessibility” and “Affordability”

Housing Finance Market Financial Market HFCs Banks MFIs Fiscal and Credit Policy Support Capital Market Financial Sector Informal Sector Affordability Real Sector Housing Market Land & Construction Infrastructure Public Agencies Private Developers 3 3

Housing Loan Outstanding (Rs./billion)

Issues in Low Income Housing Rapid growth in housing sector has bypassed Low- Income Households Demand Identification Risk Perception Price Rise, Interest Rates - Impact on Low Income Housing Market/Subsidy based Approach

Issues in Financing Limited access to housing credits Cannot contract debts on terms of the financial market Unstable income and unstable cash flows High risk & high cost - to - service customers Role of Guarantee/Risk Fund Role of Government & Financing Institutions in Market Environment Leveraging effect of Subsidy

Supply Constraints Competing Demand on Land and Finance Land supply is constrained: Land availability Land use rules Efficient use of Land Title and Tenure Finance Flow Constrained Stability Growth Risk Perception Need for ‘Integrated Approach’

Subsidized Housing Credit Subsidized House Prices Affordability Issues Real Sector Land Supply Cost of Land Land market functioning Infrastructure provision Construction & Delivery Role of Public & Private Sector Financial Sector Project Finance Individual Loans Supply of Funds Cost of Funds Whether market based solution? Role of Subsidies Subsidized Housing Credit Subsidized House Prices

Ensuring access to housing with infrastructure In Other Words Supply Side Land Acquisition Infrastructure Provision Sale of Land Housing Construction Housing Sale Role of Public Agencies/ Developers Credit Delivery Demand Side Purchase Price Income Level Affordability Loan eligibility Subsidy component Risk Mitigation Demand Aggregation Ensuring access to housing with infrastructure at affordable prices

Challenges Market’s limitations / Subsidy Limitation Private Capital and Public Objective Formal & informal sectors compartmentalized Demand aggregation, demand registration, intermediation and risk mitigation Policy Reforms

Where is the Disconnect? Not enough supply at lower prices. Impact of lowering prices on the stock of housing, the flow of housing and housing finance Price – Supply relationship. Profit on Value or Volume. Price/cost structure Demand sensitive to price but supply not forthcoming

Where is the Disconnect? Builders see lower profits and weak market Financiers’ see higher risk in Low Income individual lendings despite high demand Measures to convert the investor’s market into consumer’s market Can this be bridged through fiscal intervention and Risk Mitigation!

India LIH Sector Profile – Wide Stakeholding Real Sector Central Government Financial Sector Policy & Programmes Policy & Programmes PUBLIC PRIVATE Partnership Instns & Products Facilitator & Enabler State/Local Governments Financial Institutions Formal Sector Informal Sector Affordable Housing for All and Financial Inclusion –Mutually Consistent Themes

Summing Up … No Broad-brush Approach Need for Segmented Intervention Role of State Governments & Public Agencies Supportive Fiscal & Credit Policy Market/Subsidy based Approach Developing innovative products and institutional mechanism

… Summing Up Identify land for construction Liberalize construction finance for low income housing Project approach and economies of scale Price determination – a critical consideration Develop mechanism for Demand Registration Tap Savings potential – building borrowers’ equity Actively involve supply side agencies, private and public

Conclusion … De-risk the segment through suitable risk mitigants both in the financial segment and the real sector segment (demand and supply side) Develop a role for the government in low income housing, consistent with the market orientation of the rest of the segments (without conflicting) Develop policies so that housing is able to compete fairly with other sectors for funds

INCLUSIVE GROWTH WITH STABILITY … Conclusion Affordable House Price Affordable Credit State Govt./Municipal Bodies to provide land and infrastructure Public/Private builders to construct Pricing & Credit critical Credit Risk Mitigation Credit Guarantee Fund INCLUSIVE GROWTH WITH STABILITY

Thank You