Housing Finance in India Major Issues

The Constitution of India recognizes the right to live and have a livelihood as a fundamental right. This includes the right to housing policy. The directive principles of state policy make it an obligation on the state to facilitate housing. Housing demand is a universal problem, being one of the there prime necessities of life. Food and clothing which are the other two prime requirements have been met to some extent. However, housing demand still needs to be fulfilled. This is because of the shortage of funds and inadequacy of financial institutions, coupled with an increase in building material, labor, and other costs.

According to rough estimates, the unfulfilled housing in India is currently about 38 million units. The Indian economic planning has, apparently neglected housing right from the beginning. The seven and eighth five year plans have focused on housing. The contribution of housing to economic development is generally measured in terms of Gross Fixed Capital Formation (GFCF) in housing, its share in Gross Domestic Product (GDP) and the share of income from housing. Currently less than 4 dwelling units per 1000 of population per annum get constructed in India. However, the UN recommendation for developing countries is 8 to 10 dwelling units per 1000 population per annum.

Urban Land Ceiling and Regulation Act (ULCRA) of 1976 has been wrongly implemented and is the main culprit of the spiraling real estate prices. Land is not available to housing due to restrictions placed on conversion of agricultural land to non-agricultural land. The land prices in Bombay, Calcutta and Delhi are very high as compared to cities in the west like London and Washington. A boost to housing can rejuvenate the economy since has the maximum propensity to generate income and demand for materials, equipment and services. Moreover, funds allocated to shelter, return in the shape of income and demand to other sectors. To boost growth in the housing sector, there is an imperative need to have greater access to credit for housing in a regulated fashion. This necessitates a good housing finance system. Housing finance companies need to be recognized as being part of the total financial system, and should be given a level playing field.

Amidst liberalization, certain provisions of the Companies Act 1956, such as restrictions on inter-corporate loans and deposits continue to discriminate housing finance companies against other NBFC’s. Also certain tax laws such as deduction of tax at source, and restrictions acceptance of cash as deposits are disadvantages to housing finance companies. RBI has put housing finance on priority as core sector lending. In the developed countries, the flow of housing finance forms a substantial share of the total finance system. In fact, the savings for housing is among the single largest source of funds in their entire financial system.

Thus, it is imperative that India priorities the housing sector in order to enable a varied advantage to the economy in the form of employment, non-inflationary growth and reduced pressure on the balance of payments. The housing sector in India has been put under a lot of strain since Independence. Builders and developers too face varied problems.

Lack of Clear Title:

Another major issue conforming Indian housing is the lack of clear title to property. Around 90 percent of all the land in India does not have clear title. The ownership is unclear and hence, the land is off the market, thereby creating scarcity of land. This problem could be attributed to poor record keeping and complicated processes.

High Stamp Duty:

The cost of transferring land, stamp duty and registration charges payable are prohibitively high. This dissuades people from seeking housing, development and financing. Moreover, the procedure followed is also not transparent.

Inadequate Development and Planning:

The city or state authorities must use professionals to plan and execute all development plans for cities and towns, with future development in mind. This must be done without any political compulsions. The plans must be prepared in advance and executed without any exceptions and all regulations must be strictly enforced. The central and the state governments must lay down specific overall guidelines for the city/town corporations to follow and enforce them strictly. This will allow proper zoning within cities and towns, and green areas and other infrastructure systems to fall into place as the development plans unfold.