Real Estate Economics

INTRODUCTION


In this chapter an attempt is made to examine the various aspects of Real Estate in India, i.e. Real Estate Investment, Grey Gold, industry specific problems, consumer specific problems, history of Mumbai, other problems, past industry scenario, Government of India policies, current industry scenario, housing a fundamental right, Consumer V/s. Building industry, Artificial scarcity of land in Mumbai, housing sector and housing finance – an overview, housing shortage, Housing For All by 2022, history of Land Revenue Codes from the year 1540 A.D. Besides Real Estate statistics, sector specific problems and issues have been presented in this chapter.

1.1 INTRODUCTION

Indian Real Estate actually started in 1970 when HUDCO was established. Housing finance sector has established its existence in the country formally with set up of Housing Development Finance Corporation (HDFC) in 1977. There are several new entrants in the Housing Finance sector, viz.. Industrial Credit and Investment Corporation of India (ICICI) , Tata Home Finance, Birla Home Finance, Sundaram Home Finance, LIC Housing Finance limited. Reportedly1, Industrial Development Bank of India (IDBI), Reliance and General Electric (GE) Capital are in the fray. Mergers and acquisition sprees have also become a part of the housing sector.

Industrial Credit and Investment Corporation of India (ICICI) has acquired Anagram Housing, Housing Development Finance Corporation (HDFC) has acquired Gujarat Rural and Urban Housing (GRUH) and Hometrust, Birla Home has acquired Indian Tobacco Company ( ITC) Classic Housing. In all, there are 58 housing finance companies and 29 out of which are registered with National Housing Bank for refinance purposes2.

The first major turning point in the Indian Real Estate sector came in 1997, when the market conditions began to favour the purchaser.3 Housing became a buyers’ market, augmented by housing finance. Despite the recessional conditions faced by the rest of the economy between 1997 and the year 2000, both the housing as well as housing finance Sector grew by 30% per annum4. Builders, realizing that the markets had turned into a buyer’s market, changed their strategy by going for volumes rather than margins.5 The resultant fall in prices further fueled demand and the need for Housing Finance enhanced. On the new construction side no significant relationship between price and quantity, consistent with perfectly elastic supply.6 Joint families gave way to the nuclear family system, fueling housing demand. Technology also played its part; with the advent of the internet and telecommunications, the City Centre and CBD became less attractive and suburbs and satellite towns became a good place to reside. This prompted new projects, better design and construction features, amenities, ambience and side attractions such as clubs, shopping centers, creches, recreational and educational institutions. With the fall of monopolies, both in housing and housing finance, loan interest rates started falling, first in 1999 continuously till the year 2004. Increased competitions in the Indian Banking industry has driven the interest yields and consequently, the Net Interest Margin (NIM), southward.7 From 2004 onwards, there has been talk of rates inching upwards, particularly in view of uncertainty at the political level, increasing price of petroleum and increased credit usage by the corporate sector, in comparison to the 1997-2000 period.8

Several other papers, which are not usually thought of as “supply elasticity papers,” including Kearl (1979)9, Huang (1973)10, Topel and Rosen (1988)11, and Poterba (1991)12, contain explicit or implicit estimates of such a parameter. Most of these have found or implied low elasticities. Kearl reported an elasticity of 1.6 for new construction, and Huang, 2.0 for starts. Topel and Rosen’s research on starts found a long run elasticity of 3.0 using quarterly data from 1963-1983. Poterba also presented data that seemed to indicate a rising supply price.

Green, Malpezzi and Mayo (2000) present evidence that the responsiveness of the market also varies from place to place, depending among other things on the regulatory environment and geographic constraints.

Over time, Real Estate Developers and housing finance companies have become aggressive, less rigid in their pricing, more customer friendly in documentation. Competition is increasing between housing finance companies. Whereas housing finance companies (such as Housing Development Finance Corporation, HDFC) have the technical expertise and sector knowledge and need not indulge in rate cutting to increase business, the seriousness of banks in the long run is not certain. Housing Development Finance Corporation has, since liberalization commenced in 1991, grown substantially.13 In the years 2001-2005 (when many of the impacts of the earlier phase of liberalization were truly felt) Housing Development Finance Corporation has grown at an average of 30% per annum in terms of housing loans disbursed.14 This was the period where the Real Estate was gearing for its first boom of the century which we have witnessed in 2006-07. Most banks entered into the retail lending sector because of the fear or Non-Performing Assets (NPA) calculations. Predicting Corporate Non Performing Assets are of a large magnitude and could destabilize the finances of a bank. Hence the retail thrust came in fashion.

The housing finance is undoubtedly a technical area and needs specific expertise. It is an indicator for Real Estate trends in the country. Moreover, few banks have long term finances to stabilize their housing finance operations.

The lack of technical expertise of banks and venture capitalist and funds which were started operating in 2007, have been fully exploited by scamsters who availed of multiple loans against the same property through forged papers.15 Banks like Citi Bank , Standard Chartered and ABN Amro target the creamy layer of society16, but the Direct Sale Agent (DSA) model also has provided illustrations of large-scale unhealthy practices. Thus, Housing Development Finance Corporation, HDFC, continues to be the market leader, with the other prominent specialist being Life Insurance Corporation Housing Finance Limited (LICHFL).

Certain organizations like GRUH Finance Limited lend to the lower strata of society and few Scheduled Co-operative Banks too. These loans are viewed as inviable by the larger banks and housing finance companies. GRUH Finance Limited competes in the same market as credit societies and other informal sources of lending. Thus, unless there is a harsh recovery mechanism or the ‘group lending model’ adopted by micro finance organizations, the risks in this market segment were real and could translate into bad loans.17 Parshwanath Housing and many others who offered small loans, with all noble intentions, had to close operations because of the inherent risks in this market segment. Risk is inherent in any commercial activity and banking is no exception to this rule. Rising global competition, increasing deregulation, introduction of innovative products and delivery channels have pushed risk management to the forefront of today’s financial system.18 The importance of the Real Estate and housing sector in India can be judged by the estimate that for every rupee invested in the construction of houses, 78 paise is added to the Gross Domestic Product of the country and the Real Estate Ssector is subservient to the development of a number of other industries. The real estate sector is also the second largest employment generator in the country.19

The National Housing and Habitat Policy, 1998, was the first comprehensive policy of legislation in the housing sector. It also paved the way for the abolition of the Urban Land Ceiling Act (ULCA) and the Delhi Rent Control Act.20 Housing programs and policies have the potential to affect the entire housing market, or significant portions of it.21 Maharashtra continues to be the only state that has maintained these law till 2007. . The Rent Control Act is probably the single most important cause for the existence of metropolitan slums, as building rental housing for low and middle income groups amounts to gifting ones assets. States should repeal the Rent Control Act for all new tenancies and phase it out for existing tenancies. Our urban and municipal laws and regulations date back to half a century if not more.22 The housing sector has not disappointed the policy makers. Affordable housing has today become a reality for most urban Indians.23 In this context, the release of the National Urban Housing & Habitat Policy 2007 is a welcome development that ushers Next Generation Reforms in the sector.

As India marches ahead, the housing and housing finance sector will gain from a reflection over the past and consolidating on the gains from reforms and a gradual professionalism. National Housing & Habitat Policy was formulated to address the issues of sustainable development, infrastructure and for strong public private partnership for shelter delivery.24 The objectives of the policy are to create surpluses in housing stock and facilitate construction of 2 million additional dwelling units each year in pursuance of National Agenda for Governance. It also seeks to ensure that housing along with supporting services is treated as priority sector at par with infrastructure. The Central theme of the policy is strong public private partnerships for tackling housing and infrastructure problems. The Government would provide fiscal concessions, carry out legal and regulatory reforms and create an enabling environment.

The problem of housing shortage compounded with the population explosion has also been addressed by this policy. Later, “Housing For All in 2022” was mooted by the Narendra Modi Government. This document clearly identifies the respective roles of the Central Government, the State Government, local authorities, financial institutions, research standardization and technical institutions. However, since housing is a state subject, State Governments have to play primary role in formulating specific action plans and programs suited to local needs and conditions in consultation with local bodies and citizen groups. The research is based on the assumption that since the need for such policy existed, in every five year plans, hence problem do persists in housing and in housing finance sector.

Not all banks may remain in the housing finance sector. There are two reasons. Housing finance is a long term business. When the demand for industrial short term credit rises, banks will move funds to that sector where they are more comfortable.25 Moreover, many banks have burnt their fingers due to lack of knowledge on technical, market and legal aspects. At the moment, there is an element of cross-subsidization in the pricing of loans by banks.

Builders have a focus on volumes, rather than margins. With whole new townships emerging, there is no dearth of business. Gurgram is a good example. Undercutting is not required, and one can pick and choose. A satisfied customer is the best advertisement.

Similarly, housing finance can also go for volumes through tie-ups with builders and RERA registered projects and tie-ups for group loans to employees of reputed companies. This enhances the credit and also considerably reduces marketing and administrative costs. It also reduces the documentation in housing finance process. Housing finance is a part of the service sector. Good service and a good customer base provide an ideal platform for building any brand. In today’s scenario, when metro homes are costing more than a crore, taking housing finance have become as must to afford them. Almost 85% of the purchase consideration comes from housing finance. Tie ups with Direct Sale Agents (DSA) have resulted into enhancing frauds as both on the sales as well as the recovery side. Maharashtra has achieved remarkable improvement in its socioeconomic indicators during the last one-and-half decades. It has experienced rapid growth, large-scale industrialization, significant inflow of domestic and foreign investment, steady increase in per capita income, and considerable poverty reduction. The state economy has however significantly slowed down since the mid-1990s and its revival is crucial, if the state intends to successfully address its fiscal problems.26 Aftermath of Corona, the recession is eminent but government stimulations and policies have some what reduced the severity. The housing sector was unorganized in our country, not any more after RERA. However, with increasing professionalism and corporate governance, this sector is likely to take on the best practice from other industries, especially when regulator is established in form of RERA in every state and an Act is in place to regulate real estate development and transaction process in the country. There are positive indications from Tata Housing, Alacrity, Piramal, Hiranandani, Godrej, Sunteck etc. in this regard. Over time, even construction workers and construction companies will be rated. The presence of Credit Information Bureau of India Limited (CIBIL) also provides market intelligence on individual borrowers. While Mumbai faces many problems, it effects directly or indirectly on the housing finance market. Apart from procedural and administrative problems, we call it internal problems, it is necessary to study the environment in which housing finance companies get into it. Other than housing finance companies, individuals also faces many procedural and income proof problems. The informal sector run pillar to post to get his dream home financed.27 The increasing numbers of housing finance companies and commercial bank jumping on the bandwagon, housing loans are easily available to large number of home seekers but only in formal sector. The competition in this segment is benefiting the loan seeker, but still a large number of people needing the loan are virtually out of its ambit as they are in informal sector.28

For the purposes of a good understanding this study bifurcate its scope in three arenas i.e.. Industry specific statistics, consumer behavior and problems and socioeconomic environment with direct and indirect effects on real estate in Mumbai and India in general. The study will also look and correlation housing problem with national program and policies and with housing problems specifically in Mumbai, its suburbs and extended suburbs.

1.2 Industry specific statistics

Housing and Housing finance are capital intensive major business. With growing needs of housing estimated the urban housing shortage at 8.89 million dwelling units in 2002. Further, the total number of houses that would be required cumulatively during the Tenth Plan period was estimated at 22.44 million dwelling units. And now, by 2022, we need about 28 million of residential housing. Need for housing finance persist but affordability is major problem.29 Housing Finance Institutions have perpetual problem of raising funds for deployment into their business.30

While National Housing Bank provide refinance facility to the registered companies at a very high rate of interest i.e.. it is at 11.75 % when the housing loans are available at 7 to 7.5 % in 2004 onwards till 2011 and then almost touching 14% in 2017, with major players like Industrial Credit & Investment Corporation of India (ICICI), Housing Development Finance Corporation (HDFC), State Bank of India (SBI) and nationalised banks. Raising funds from deposits is the safest. Problems with deposits are that they are for 3 to 5 years. At the same time housing finance normally takes its toll for 15 to 30 years. Hence it is difficult to keep up the promise to return the deposits and regenerate it during the cycle time of a long home loan portfolios. Hence a bad practice identified by Financial sector like borrowing for short term and investment in long term loans or assets, persisted in housing finance practices. There exit different norms in sanctioning of loans, and Equated Monthly Installments (EMI) calculations with different housing finance companies and banks. Many big Housing Finance Companies calculate Equated Monthly Installments (EMI’s) for the repayment of loans on yearly rest basis, while the others calculate Equated Monthly Installments on monthly rest basis. In fact, there is no uniform code for Equated Monthly Installment calculations has been established . The Equated Monthly Installment calculations on daily reducing balance basis used by many banks is most desirable.31 This will encourage the loanees to repay loans much faster. The Housing Finance Companies should open their door to the informal sector may be in planned way. The rate of default on repayment of loans is negligible, though industry standard has set it up upto 2%, even without the foreclosure laws, which proves that the flat purchasers value their property and repayment loans is on their priority list. But there is a need for a comprehensive law to protect housing finance companies interest as well as borrowers.32 One of the main bottlenecks facing the housing finance sector is the non-availability of long-term capital for investment.33

At the same time, fund starved real estate industry and its players do not get easy institutional finance. Hence private equity funds and venture capitalist entered into the trade with specific goal to enhance IRR, some times beyond IRRs. Builders got huge funding for constructions till 2006. RBI warned in 2006 to all banks and NBFCs that funding the real estate is a sensitive exposure hence banks stopped construction finance to private builders. In 2008, RBI again said that only those are eligible who are listed on brousers. Hence we have seen 82 Public Offering IPOs from builders between 2008 and 2012. Big names like Omax, HDIL, Akruti, Ansals and Unitech came in capital market for funds.

The regime of processing charges must go now, to provide relief to the customers. In fact the builders now must be given liberty to guarantee his customers for taking loans. Subvention schemes were nothing but diluting the risk from builder to consumer. In the event of failure of builder to pre pay the pre EMI, onus again comes to customer who have taken loan and stand guaranteed. All subvention schemes were ban by RBI in 2017. In fact the housing finance industry now needs broad based reforms, which are applicable to all the housing finance companies. While disbursing the loans, housing finance companies mortgages the flat or the property for which they are giving the loan. This in itself is security enough so there is no need or the justification for asking guarantor/s additionally. The scope for housing finance companies is unlimited because of the huge housing shortage in the country, considering the fact that majority of the flat purchasers can not do so, without loan. In Pradhan Mantri Awas Yojana (PMAY), the subsidy given for affordable housing segment was a right move and great help to reduce the demand and supply gap in affordable segment of housing. The interest and principle subsidy were given up to Rs2.32 lakhs to help lower strata of society and economical weaker section of society. The reduced rate of interest on housing loans is broadening the customer base of the housing finance companies and at the same time giving much needed relief to the loan seekers. In the same spirit the housing finance companies must bring other reliefs and uniform practices. National Housing Bank can play a vital role in this regard and hence must prepare liberal lending norms for housing finance companies. NHB was given nodel agency status in almost all housing related shames. In the COVID-19 stimulation package announced by the government, NHB was given pilot role to play and funds were allocated to bail out the housing finance sector. In concurrence with financial sector reforms, the amendments to the National Housing Bank Act, 1987 are expected to encourage healthy competition among various players of the housing sector, to result in easier availability of better quality products at affordable prices to the borrower.34

Problems of proper documentation for getting clear mortgage is the major problem. Because of no proper land record in place and lack of positive support by office bearers of cooperative housing society, documentation some time get delayed by even months. In RERA regim, the problem of mortgage was not solved at the regulator do not give any protection to housing finance companies. In fact in many cases it had treated it as investors and not financiers. Frauds conspiracy even by professionals like Chartered Accountants were reported in newspapers.35 Reserve Bank of India (RBI) have time and again given the warning to banks by keeping a vigil eye on the lending and portfolios, hence banks have started raising interest rates.

Besides fund raising and documentation, housing finance companies are facing stiff competition within the sector hence keeping the interest rates low is major management exercise. Distribution of financial products are also needs a major credit policy decision. Whereas Builders were finding it difficult to sell off their stock in trade as the market was slow because of economic slowdown in 2019. The pressure of cost of fund was that it was eating away all their profits and they were merely working for fund houses who wanted to take over their projects for failure to replay the installments in time. Keeping the legal documents for a long time and decentralisation of sanctioning power are major problem identified by this study for housing finance besides keeping cost of funds low when markets are not favorable for seller is big management exercise. A high manpower turnover ratio is also one of the major problem within the sector. Training and keep the employees motivated is very costly in the sector. Marketing staff who sit on front desk have been reported to have cheated their employers by hand in glove with few brokers to siphoned off brokerage and margins. Many times and often they ask the clients to give un accounted cash in the transactions without the knowledge of the builder also goofed up the industry. Such corrupt practices were reported all over the country where even housing finance branches were also involved. Especially in subvention schemes where the builder took entire sanctioned loan in spite of sanctioned for stagewise constructions.

1.3 Consumer specific behavior

A large number of housing finance seekers in the country are facing many problems to have a clear home loan. Despite significant progress, poverty in Maharashtra continues to be relatively high, and there is evidence that in many sectors the benefits of public spending are not reaching the poor due to inadequate targeting and/or governance problems.36

The uniformity of problem persists with all the consumer segments. Rigid documentation, high processing fees and administrative fees with legal charges and mortgage fees is killing the housing finance market. Loan to Value is also major problem. At present all the housing finance companies are giving loan up to 85 % of the agreement value of the property transaction.37 With cash cheque ratio of the transaction it is sometimes unaffordable for the consumer to pay 15 % margin of the agreement and pay black portion of the transaction in cash to the seller. Hence the actual Loan to Value become just 65% of the agreement amount.

Besides affordability and documentation, so called informal sector which cannot prove their income on paper, suffers a lot. They are not preferred by the housing finance companies either. In fact many housing finance companies are having negative list of customer to whom they are not financing. In the list toppers are advocates, police, journalist and politicians. Community based and informal housing finance is the only source for them.38

Customers also suffers with confused terms of interest rates and pay interest for the first eight years of the loan period in their equated monthly installments. Big population of India is migratory because of employment and studies. Metros are always looking a higher price for property which is also main hindrances in purchasing real estate. Community living is also a biggest behavior science. Pockets within the city are divided into caste and creeds. Real Estate is local business and preference for a locality is main aspect while deciding to purchase a real estate.

1.4 Socio- Economic Problems

1.4.1 History of Mumbai

Formerly known as Bombay, is the capital of the state of Maharashtra, the most populous city of India, and by some measures the most populous city in the world with an estimated population of about 13 million (as of 2006).39 Mumbai is housing millions. From decades, the city is informally known as financial capital of India. It gives employment and well updated infrastructure. Historic evidence tells us that early resident of Mumbai caught his quota of fish and shared it with his fellow citizen who was a farmer. Mumbai is located on Salsette Island, off the west coast of Maharashtra. Along with its neighboring suburbs, it forms the world’s sixth most populous metropolitan area with a population of about 25 million. The metro population ranking is projected to rise to 4th in the world by 2015 due to an annual growth rate of 2.2%.40

Mumbai was once a congregation of seven tiny islands mostly lived in by fishermen and farmers.41 In the year 1400 it was conquered by the King of Thane (a throne now unheard of) soon to have passed in the hands of another ruler. The Mahim Fort, of which few traces are left now, was the ruling seat of these rulers. Considerations of these rulers like their countrymen were different so were their concepts of exploitation. Mumbai therefore continued to grow at snail’s pace the way any under developed island would grow. Vasco-da-gama, the Portuguese traveler set his foot at Kalikat in 1453 in a bid to discover New Land. Portuguese rulers slowly explored India and came to acquire a foothold in Mumbai by 1600.

Their fellow invaders, the British by that time had started settling in Calcutta and Surat. The way rulers married in those days. Prince Charles of Britain married Princess Chatherine of Portugal in 1661. Mumbai was given to Prince Charles as a marriage gift and he became the new owner of Mumbai. Mumbai however continued to exist the way it did. Fishermen caught their daily quota of fish and farmers tilled in their not so fertile land. The city has a deep natural harbour and the port handles over half of India’s passenger traffic and a significant amount of cargo.42 The name Mumbai is an eponym, etymologically derived from Mumba or Maha-Amba— the name of the Hindu goddess Mumbadevi, and Aai — mother in Marathi.43 The former name Bombay had its origins in the 16th century when the Portuguese arrived in the area and called the place with various names, which would finally take on the written form Bombaim, still common in current Portuguese use. After the British gained possession in the 17th century, it was anglicised to Bombay, although it was known as Mumbai or Mambai to Marathi and Gujarati-speakers, and as Bambai in Hindi, Urdu, and Persian.44 The name was officially changed to Mumbai in 1995, but the former name is still widely used by the city’s inhabitants and a number of its famous institutions. A widespread explanation of the origin of the traditional English name Bombay holds that it would be derived from a Portuguese name meaning good bay.45

Other sources have a different origin for the Portuguese toponym Bombaim. José Pedro Machado’s Dicionário Onomástico Etimológico da Língua Portuguesa (“Portuguese Dictionary of Onomastics and Etymology”) mentions what is probably the first Portuguese reference to the place, dated from 1516, as Benamajambu or Tena-Maiambu,46 pointing out that “maiambu”’ seems to refer to Mumba-Devi, the Hindu goddess after which the place is named in Marathi (Mumbai). In that same century the spelling seems to have evolved to Mombayn (1525)47 and then Mombaim (1563).48 The final form Bombaim appears later in the 16th century, as recorded by Gaspar Correia in his Lendas da Índia (“Legends of India”).49 J.P. Machado seems to reject the “Bom Bahia” hypothesis, asserting that Portuguese records mentioning the presence of a bay at the place led the English to assume that the noun (bahia, “bay”) was an integral part of the Portuguese toponym, hence the English version Bombay, adapted from Portuguese.50

However, Mumbai’s dynamic development occurred as recently as the second half of the nineteenth century. Over the years the seven islands were linked by causeway and the city began to take shape. Meanwhile the network of railways had been established connecting Mumbai to the rest of the country. This was providential.

The American Civil War had led to a slump in American cotton supplies and Mumbai was suddenly propelled into becoming a major “cottonopollis” a vast clearing house for India cotton. Mills were set up and business flourished. At about the same time, the Suez Canal was opened and the city officially became India’s gateway to the West. However it is the Gateway of India that can claim to be Mumbai’s signature monuments.

This triple-arched gateway at Apollo Bunder marks the spot where new arrivals came ashore. In 1911, when George V and Queen Mary, made their state visits to India., the first reigning monarchs to do so, a plaster arch was erected here, through which they entered. After their departure, the arch was dismantled and in 1927, the Gateway of India was built to commemorate that visit and also to be a venue for such other ceremonial receptions. The Gateway of India still retains its majestic aura, overlooking the Arabian Sea, surrounded by gardens, where the equestrian statue of Shivaji, the great Maratha warrior was erected in 1961.

The opening of the Suez Canal in 1869 transformed Bombay into one of the largest seaports on the Arabian Sea.51

In 2006, Mumbai was also the site of a major terrorist incident in which over two hundred people were killed when several bombs exploded almost simultaneously on the Mumbai Suburban Railway.52

Mumbai is located on Salsette Island, which lies at the mouth of Ulhas River off the western coast of India, in the coastal region known as the Konkan. Much of Mumbai is at sea level, and the average elevation ranges from 10 to 15 meters. The northern part of Mumbai is hilly, and the highest point of the city is at 450 meters (1,450 feet).53

Soil cover in the city region is predominantly sandy due to its proximity to the sea. In the suburbs, the soil cover is largely alluvial and loamy. The underlying rock of the region is composed of black Deccan basalt flows, and their acid and basic variants dating back to the late Cretaceous and early Eocene eras. Mumbai sits on a seismically active zone54 owing to the presence of three fault lines in the vicinity. Mumbai is classified as a metropolis of India, under the jurisdiction of the Brihan Mumbai Municipal Corporation. It consists of two distinct regions — the city and the suburbs, which also form two separate districts of Maharashtra. The city region is also commonly referred to as the Island City.55

The climate of the city, being in the tropical zone, and near the Arabian Sea, may be broadly classified into two main seasons — the humid season, and the dry season. The humid season, between March and October, is characterised by high humidity and temperatures of over 30 °C (86 °F). The monsoon rains lash the city between June to September, and supply most of the city’s annual rainfall of 2,200 mm (85 inches). The maximum annual rainfall ever recorded was 3,452 mm (135.89 inches) in 1954.56 The highest rainfall recorded in a single day was 944 mm (37.16 inches) on 2005-07-26.57

Mumbai contributes 10% of all factory employment, 40% of all income tax collections, 60% of all customs duty collections, 20% of all central excise tax collections, 40% of India’s foreign trade and Rupees 40 billion (US$ 9 billion) in corporate taxes.58 With Rs3.52 lakh cr, Mumbai contributed highest in GST, according to The Hindu Business Line reported on 3rd April 2019. The city is administered by the Brihan Mumbai Municipal Corporation (BMC) (formerly the Bombay Municipal Corporation), established in 1888, with executive power vested in the Municipal Commissioner, who is an Indian Administrative Service (IAS) officer appointed by the state government. The Corporation comprises 227 directly elected Councillors representing the twenty four municipal wards, five nominated Councillors, and a titular Mayor.59

With its unique topography, Mumbai has one of the best natural harbours in the world, handling 50% of the country’s passenger traffic, and much of India’s cargo. It is also an important base for the Indian Navy.60

The Brihan Mumbai Municipal Corporation supplies potable water to the city, most of which come from the Tulsi and Vihar lakes, as well as a few lakes further north. The water is filtered at Bhandup, which is also Asia’s largest water filtration plant. The BMC is also responsible for the road maintenance and garbage collection in the city. Almost all of Mumbai’s daily refuse of 7,800 metric tones is transported to dumping grounds in Gorai in the northwest, Mulund in the northeast, and Deonar in the east.61 Sewage treatment is carried out in Worli and Bandra. The population of Mumbai is about 18 million, with a density of about 29,000 persons per square kilometer. There are 811 females to every 1,000 males – which is lower than the national average, because many working males come from rural areas, where they leave behind their families. The overall literacy rate of the city is above 86%, which is higher than the national average.62 The religions represented in Mumbai include Hindus (68% of the population), Muslims (17% of the population), and Christians and Jains (4% each). The remainder are Parsis, Buddhists, Sikhs, Jews and atheists.63

East India Company; the older version of today’s multinational companies, with designs akin to today’s World Trade Organisation, was first to notice the hidden potentials Mumbai had in the form of a natural harbor. The Company obtained a lease of Mumbai from the British King in 1668 and soon became their gateway to prosperity. Their trade became more efficient. It also started development of Mumbai as a naval base. A port was established and a fort was constructed. Trade incentive and security attracted people from the mainland. By 1720, the population of Mumbai rose to 16000. By the beginning of 19th Century, the English became a major political power. This gave boost to trade an influx of population. A new town i.e. (B&C Wards) came up beyond Bazaar Gate. Fort area was provided with broad roads and beautiful buildings. There was rapid construction of houses, warehouses, shops and markets The Sion Cause way was constructed in 1803.

In 1853, the Railway started train service from Mumbai to Thane. Noting that Mumbai’s climate was suited for textile mills, the first cotton mill was established in 1854, which marked the beginning of an industrial era in the history of Mumbai. In 1860, the Bhor Ghat was opened to traffic. The Suez Canal was opened for navigation in 1869. This completely revolutionised the trade activity as it reduced the distance of Mumbai from England by almost half. British rules give full freedom for uninterrupted trade between Mumbai and the mainland. This resulted into rapid growth of commerce and industrialisation. By the end of the 19th Century, many civic services were provided. This included water supply from Vihar Lake (1860), Tulsi (1881), Tansa (1892) complete drainage system for A to E Wards, reclamation of tidal flats, health services, cemeteries, educational institutions, street lights, markets etc. The mill industry expanded to 83 mills.

The Bombay Municipal Corporation Act was enacted in 1888 giving rise to Local Self Government. This was the first attempt to regulate the functioning of the City in a planned manner. After ‘the plague of 1896’, quarter of the population deserted Mumbai. The city faced commercial extinction. In order to improve hygienic conditions Brihan Mumbai Corporation was compelled to provide proper drainage, clean water and planned reclamation.

Towards this Mumbai City Improvement Trust was established in 1898. This was the first attempt to undo the evils of unplanned development in the City. From the beginning of the 20th Century, the City saw many measures to fight the ills of unchecked migration and allow development in a planned manner.64 Factors such as age, education level, wealth, land owned, productivity and job opportunities influence the participation of individuals and households in migration, but so do social attitudes and supporting social networks.65

  1. i) The Mumbai Town Planning Act was enacted in 1915. Under the obligatory provisions of this Act, various Town Planning schemes were framed by the Bombay Municipal Council for the city and local Municipal Councils from Bandra to Borivali and Ghatkopar.

  1. ii) The Mumbai Development Department was established in 1920.

iii) The Bombay Development Department (BDD) undertook massive housing schemes in the City what is now known as Bombay Development Department Chawls and also reclamation at Backbay.

  1. iv) After independence there was heavy influx to the city. The network of roads and other infrastructure facilities considerably helped the growth of industries, business and trade. The Mumbai Housing Board was established in 1949 mainly to provide cheap housing to industrial workers.

  1. v) First major effort of urban planning was the Modak Meyor Master Plan of 1948. Mumbai’s overall growth was the ultimate aim.

  1. vi) As the city became too congested, the limits of the city were first extended in 1950 to cover the area of suburbs i.e. H & K Wards in Western Suburbs and L, M, N Wards in the Eastern Suburbs. Later on in 1957 the extended suburbs consisting of P&R Wards in the West and T Ward in the East added.

vii) In 1954, a compulsory legislation was passed empowering Municipal Council of Greater Bombay to undertake slum clearance in Bombay.

viii) The Bombay Town Planning Act of 1954 replaced the earlier Act of 1915. The New Act made it obligatory for local authorities to prepare the Development Plans for the areas administered by them within the stipulated period in addition to the preparation of the Town Planning Schemes.

  1. ix) The Bombay Town Planning Act, 1954 was replaced by a modified Act named Maharashtra Regional & Town Planning Act, 1966, which covered the enactment’s keeping in view the regional aspects of its development.

  2. x) This paved way to the First Development Plan of 1964.

One of the most visible problems of Mumbai is the squatter settlements. This is on account of persistent gap in the annual housing needs and supply-particularly the formal supply. In addition, a significant proportion of housing is old, dilapidated and inadequately serviced.

It was the Regional Plan for Brihan Mumbai Region (BMR) (1971-90), that for the first time, the housing situation in Region as a whole was assessed.66

The principal recommendations of the Regional Plan were,

  1. a) The Region over a decade 1971-81 would require 7,57,000 units of which 88% would require some kind of financial assistance.

  1. b) Recognising the crucial importance of land in housing, the Plan recommended social control on urban land values; and as an interim measure proposed bulk land acquisition of large areas by public authority.

  1. c) Decentralisation of economic activities was recommended for opening up of new-less expensive –lands for housing.

  1. d) Rejecting the idea of diluting the minimum areas standard for permanent tenements, the Plan expressed no objection to such dilution to some extent only for semipermanent structures.

  1. e) Continuous research for lowering cost of construction, including prefabrication and mass production of housing components.

  1. f) Public housing programs should shift from construction of pucca housing to provision of environmental hygiene where houses are built by self-help or aided self-help as a transitional measure.

  1. g) Exemption from rent control for new buildings constructed after a certain date on the lines of Vidarbha legislation.

  1. h) Tax incentives in Income Tax Act on income earned through rentals and expenditure on repairs. Measures to mobiles unaccounted money for housing.

  1. i) Conversion of rental units to ownership units of Housing Board particularly those under Subsidised Industrial Housing and Slum Clearance Housing schemes.

  1. j) In-situ improvement to be preferred to eradication of slums. However, for achieving high density through ground storeyed structures a rigid layout pattern has to be imposed and for that all the huts have to be demolished and re-erected.

  1. k) A new legislation enabling compulsory land acquisition for slum improvement may be enacted.

  1. l) Construction of night shelters.

Although the Regional Plan was sanctioned in 1973, these recommendations were not translated in any concrete investment program. Some actions and projects of later period appear to be follow-up of these recommendations, but their origins are not necessarily in the Regional Plan. This raises some general institutional problems regarding implementation of Regional Plan.

Shelter need is determined by the rate of new household formation, aging of old buildings requiring reconstruction and the need for redevelopment or improvement of environmental conditions in both existing and new slums.67

Region’s population in 1991 was 144.14 lakhs which would increase to 264.96 lakhs in 2021 with an annual compound growth rate of 2.05%.

Greater Bombay population of 99.07 lakhs (1991) is expected to reach 144.13 lakhs (2021). However its growth rate of 1.25% per annum would be substantially lower than that expected for rest of Brihan Mumbai Region (BMR) i.e.3.34%.68

1.4.2 History of Land Revenue Codes From the Year 1540 A.D69

Clear title and vacant possession is very essential for taking home loans. Land records are not clear and corruption at all level has made a mess in giving clear mortgage to the lender. We go back to land revenue code and its history to understand its impact on the mortgage of property for housing finance purposes.

Even in contemporary times land exerts immense influence in our country where 70% of the population which is settled in country side depends on agriculture. Therefore the system of land revenue and land tenure is significant. In a feudal country like India, during ‘the pre-British days, the political, economic and social aspects could be judged by the land and revenue systems. The administration of Empire was totally dependent on revenue collection and revenue system. The-administration of the Empire with its corresponding prosperity was adversely dependent. On the proceeds extracted from the peasantry in the form of revenue collection. This necessitates a well-defined revenue code. In peace time old kingdoms kept scales of revenue at low level i.e. usually 1/6 th of the gross produce. But the revenue was raised freely during invasion or war or other critical situation. Although cultivators had proprietary rights over the land, the kind always regarded himself as the sole owner of the land and the cultivators were cultivating it on his behalf. Therefore the land revenue was an unquestionable royal prerogative. On the introduction of currency system, attempts were made to recover equivalent money value of crop-share.

This system was first initiated by Sher Shah (1540-1545 A.D). The first recorded pioneer survey of lands began in 1571 A.D. by Todarmal and completed in Akar’s regime by 1582 A.D. The then yard-rod was 33 inches long and was known as Ilahi Gaz. Such 60 square -liahi Gaz contributed one Bigha. (Refer Land System of British India, Vol.I; page 274 by B.H. Beden Fowell, London 1892). In Deccan with some modifications the above system was followed by Malik Ambar (1605 to 1626 A.D) He acknowledged ownership rights of the farmers and attempted to give them secured tenure. But the assessment varied with the crop and were not constant like the Mughal Settlements. Emperor Aurangzeb drastically changed the revenue system and increased the land revenue by 50% in conqured Deccan territories. After his death, Maratha Empire tried to initiate same system in the conqured areas of Northern and Central Indian by imposing “chowth’.

During Shivalile period the system of ‘JAHAGARDARI’ was abolished- and land revenue was collected directly from the villages. In 1637 A.D. Shah Jahan in Deccan fixed lumpsum Village assessment. When this method failed he allowed farm-lease method; where by “KHOTS” or revenue farmers grew into proprietors. In subsequent Maratha period in 1784-8S A.D. The above system was abolished and land revenue was based on classification of soils. Thereafter Maratha Revenue System was know as Miras Tenure and Upri Tenure (refer the Bombay Survey and Settlement Manual, 1934 Edn; Vol.1; pade 6) The assessment of land revenue was annual. This system prevailed upto Nana Phadnavis -period. But under Bajirao Peshwa due to war expenses revenue system wad drastically changed for the worst and ‘Farming System’ was incorporated. Under the Farming System in open auction the highest bidder used to get the authority to collect revenue at his will and methods. It was atrocious and unbearable for the farmers. To some extent this systems was even followed after British conqured Peshwa Territory. It resulted in many revolts of the peasants. Mr.Pringle (1827) in Pune district first surveyed land by chain and cross staff with the introduction of English Acre in the Western region. When Mr. Pringle’s Survey Tenure proved to be a failure due to adoption of the principles of average gross produce minus expenses of cultivation a committee of three persons was appointed in 1847. Their report known as “JOINT REPORT of 1847′ laid down the basic principles of land revenue system. The unit of assessment was field, classification of soil and giving survey number for fields. Thus soil was classified into various types, depth and its natural fautis for the purpose of valuation. The original surveys and settlements were conducted according to the principles laid down in the joint Report of 1547. The first Revision Settlement of Indsput Taluka (Pune District) became due in 1547. The original Revision survey were concluded and the survey department was abolished in 1901. Further Land Records department was created to maintain the survey records upto date. There is therefore no large scale survey now except the pot Hissa survey after the introduction of Record of Rights in 1913.

The following is the History of Land Revenue Legislations:

  1. Survey and Settlement Act, 1865.

  2. Survey and Settlement (Amending) ACT, 1868.

  3. The Bombay Land Revenue Code (1879).

  4. The Bombay Land Revenue (Amended) 1913.

  5. Bombay Land Revenue (Amended) 1939.

As the Legislature was not in session, the Bombay Land Revenue Code, (Extension to Saurashtra Area) Ordinance, 1959 (II of 1959) wag promulgated to extend the Bombay Land Revenue Code 1879, the Saurashtra area of the Bombay state. There was also another enactment on the subject namely the Bombay Revenue Tribunal Act 1957, which was applicable to the whole state.

To unify and consolidate different acts on the subject of ‘Land and Land Revenue’ into single enactment for application to whole state culminated into our present ‘THE Maharashtra Land Revenue Code, 1966. In the process of unification it transpired that the Land Revenue laws in force in the state excluding the city of Bombay had a good deal in common and their basic principles were practically the same. The above narrated brief history of about last 500 years doesn’t necessarily imply that there was no Land Revenue Code in ancient India. The ruins of buried cities found in Mohan-je-daro. and Harappa reveals the knowledge of Town planning prevailing in those days. The Land and Construction are integral components of Architecture. In ancient India 1500 years prior to Todarmal our country was rich in Buddhist Architecture. Mighty Emperors like Chandragupta Maurya and Ashoka were great builder.

Therefore it is unrealistic to construe that first recorded survey of land was executed by Todarmal in 1540-1545 A.D The art of measuring land and establishing qualities of soil and its productivity was known in ancient Indian beyond doubt. Indian History written by Britisheres is intentionally distorted and malafied. The value of rich heritage and culture of India was purposely underestimated by them. The time will soon come when we will have to exert ourselves to rectify and revise our history to understand our ancient civilization better in a proper perspective.

Current growth trends for MMR indicate that there is a decline in the growth rate for the region. It appears that there is sufficient land within the current urban areas of MMR to address the space demands of additional population projected up to 2036 at the gross level. However, this may not be the case at individual city level such as Mira-Bhayandar. The additional population will therefore have the choice to live in denser conditions in existing cities in MMR or live in peripheries of existing cities at lower densities or in a combination of both, which is the most likely scenario. The current gross and net densities of cities in MMR were analysed to understand the extent to which they can absorb future growth.

1.4.3 Mumbai Population Analysis

Further distribution of Greater Mumbai population into broader zones shows that there would be a steady decline in the Island City population at an annual compound rate of –0.40% during 1991-2021 and is expected to stabiles thereafter. Most of the population growth in Greater Mumbai would occur in the suburbs at a growth rate of 1.83% during 1991-2021. In the Rest of Brihan Mumbai Region , the absolute population growth would mainly occur in the north-Eastern Sub-Region at a rate of 2.82%. Navi Mumbai population would grow at a high rate of 6.49% followed by Western Sub-Region at 6.20% where most of the growth would occur in Mira-Bhyander, Nalasopara and Virar.70 The rural population in Brihan Mumbai Region would decline at a rate of 0.82% during 1991-21.

According to Draft Regional Plan 2016-36 prepared by MMRDA, the geographical area of Mumbai Metropolitan Region (MMR) is currently 4312 sq km (based on the GIS data base) as against the Census area which is 4419 sq.km. The Census area considers Greater Mumbai district’s area as 603 sq.km. For the purpose of Regional Planning, it is considered as 437.71 sq.km. as per the Development Plan of Greater Mumbai. With this modification, the Census area of MMR comes to 4253 sq.km. The original boundary of MMR has undergone a few revisions since it was first defined in 1967 vide Government notification UDPH&HD no. RPB 1067/M dated 8th June 1967. The area subsequently increased from 3965 sq. km. in 1967 to 4355 sq km with the inclusion of two part tehsils of Alibag and Pen of Raigad district in the South and also the deletion of 9.04 sq km from Vasai tehsil so that the boundary was co-terminus with the Tansa river.

Source: Draft Regional Plan 2016-36 by MMRDA page 11.

Population within the MMR is mostly concentrated in the dense Municipal Corporation areas. The average gross population density within MMR has increased substantially from 3,421 persons/sq km

in 1991 to 5,361 persons/sq km in 2011.

Source: Draft Regional Plan 2016-36 by MMRDA page 13.

Annual need for new housing for incremental households in Brihan Mumbai Region has grown from 46,000 units during the 60s to about 60,000 in the 70s and 66,000 during 1981-91.71 The Multi purpose Household Survey carried out by Mumbai Metropolitan Regional Development Authority ( Then Bombay Metropolitan Regional Development Authority BMRDA) in 1989 provides information on household size in various zones of Brihan Mumbai Region. Applying these household sizes, households in the entire Region are estimated to increase by 3.80 lakhs during 1991-96. The five yearly increase in number of households would gradually increase to 4.68 lakhs by 2016-21. While carrying out these estimations, however, a 7% decrease over each 5 year period is assumed in the size of households in view of the probable increase in the proportion of nuclear families and reduction in family size.

Although actual accretion of households is estimated by applying the household sizes for yearly population increase, simple averages for 5 yearly periods are also estimated of incremental households worked out for Greater Mumbai and Rest of Brihan Mumbai Region.

According to the plan, the annual average of incremental households recorded in 1991-96 was 76,000 for the Brihan Mumbai Region. This would gradually increase to 93,000 during 2016-2021. The geographical distribution of incremental households would change considerably during this period. During 1991-96 39% of growth, or 30,000 households per year, was to take place in Greater Mumbai. During 2016-21, however, Greater Mumbai would still account for about 31,000 households forming only 33% of total growth. This dispersal of population growth is indicative of substantial investment requirements in land and infrastructure in areas outside Greater Mumbai.72

Estimation of shelter needs would have to be translated into effective demand. This depends upon household incomes and savings, ability and willingness to pay for shelter, tenure and locational preference, and availability of housing finance. Commonly used methodology defines affordability as a function of household income.73 The Multipurpose Household Survey by Mumbai Metropolitan Regional Development Authority (MMRDA) gives the 1989 income distribution. It is observed that with the increase in per capita income, the income distribution is becoming more equitable. By making suitable assumptions it is estimated that the proportion of household having income less than Rs.1290 per month would reduce from 27% in 1989 to 6% in 2011. The household income distribute presented earlier is translated into Affordable Housing Budget Profiles by estimating credit raising capacity of households of different income groups based on the monthly loan repayment ability and credit terms; and the ability to pay the down payment, which depends upon household savings. Apart from the incremental households, the need for new shelter consists of households staying in old tenements, which require replacement. In 1969, about 20,000 old buildings were identified in the Island City, which required urgent repairs/ reconstruction. 16,000 of these buildings were constructed prior to 1940. The total units in all these buildings could be around 4 lakhs, housing 20 lakhs population. In the last two decades, many other old buildings are likely to have come up for replacements. The Multipurpose Household Survey by Mumbai Metropolitan Regional Development Authority (MMRDA) shows that about 4.67 lakhs (27%) tenements were constructed prior to 1950.

1.4.3. Demand Assessment for homes

Assuming that these tenements would require replacement by 2021, the annual average requirement is estimated to be around 15,500 tenements. As against the annual need for 46,000 units in the 60s and 60,000 in the 70s, most of which was in Greater Mumbai, the supply of formal housing by public and private sector together has been a meager 17,600 and 20,600 respectively. Remaining 30 to 40 thousand households sought shelter for themselves in slums or through overcrowding every year.

It is clear that the growth within MMR is now occurring outside Greater Mumbai. The Municipal Councils are growing at faster rates than the Municipal Corporations. Areas outside the municipal areas are also growing rapidly. Growth in Gaothan Extension areas is also noticed. Areas around major transportation corridors are growing, especially in and around Panvel and Bhiwandi. The area surrounding Bhiwandi is being utilised more for economic activities such as godowns and logistics.

From the urban sprawl analysis and the development permissions data, it appears that there is significant growth around several existing municipal areas especially around Bhiwandi, Kalyan- Dombivli, Navi Mumbai, Panvel and Alibag. Recognizing this trend, in these urban areas, there is a case for extension of municipal limits so as to be able to provide municipal services and infrastructure to peripheral areas that are growing haphazardly. This would also increase the tax base and help the urban local bodies provide necessary services.

It is observed in the Draft plan (1991-2001) of Mumbai Metropolitan Regional Development Authority (MMRDA) that during 1984-91, the supply of formal housing has increased to about 57,400 units per annum mainly on account of increased private sector activity and provision of low-cost affordable serviced sites in bulk by public agencies . The supply mainly depended on availability of public land. In the absence of such land, sustained supply at that rate beyond the project period of 1993 appears difficult. The current total formal sector supply is about 50,000 units per annum which is only about 66% of total need for new housing units. Thus an annual deficit 26,000 units persists. It has been very difficult to obtain information on the extent and nature of shelter supply by the private as well as public sector in the absence of any information system built and maintained by the concerned agencies. The shelter supply figures given above are consolidated and are based on whatever scanty data was available from various sources. Private sector supply in the areas for which data is not available is estimated in order to present a more complete picture of the shelter supply situation in the Region.74 About 88% of the total shelter needs are satisfied by the private formal and informal sector together.

On account of the density, Floor Space Index (FSI) and construction standards prescribed in the development control regulations and building byelaws operating in most parts of Brihan Mumbai Region during 1964 to 1991 (The Development Control Regulations for Greater Mumbai have been substantially modified in March 1991), the private sector supply has been mostly in the form of units with an average area of about 40 sq.mtrs. each built in multistory apartments. These were not affordable to over 60% of the households. In the 1991, regulations the maximum permissible density has been substantially increased allowing dwelling units of a size of 22.2 sq.m. Thus legal obstruction against construction of smaller units has been removed.

Furthermore, the new regulations stipulate minimum permissible density of 325 units/net hectare implying a maximum average size of about 30 sq.m. This would allow for a good mix of small and large units for a given layout or subdivision. The former is only and enabling regulation, its impact is yet to be seen.

The current annual private supply in Brihan Mumbai Region is 41,000 units.75 The market rates of built residential premises vary from about Rs.3,000/- sq.ft. in far away places like Virar and Titwala to as high as Rs.60,000 at Nariman Point in South Mumbai. The cost of a 40 sq.m. unit therefore varies from Rs. 2,28,000 to Rs. 4,40,000. Rs. 492 crore annually and Rs. 2,460 crores for a 5- year period is made in the construction of formal housing by the private sector. Such supply is however affordable to only top 6.28% (monthly income more than Rs. 32,000 at 2007 prices) of Brihan Mumbai Region households. This would mean that supply of such high-cost housing is more than the number of incremental households who can afford such housing. This could probably explained in terms of mobility of households who sell their units (even the rental units) and invest the capital gains for buying ownership housing in apartments.76

Buy or rent always depend on EMI and Rent alignment. When rent is more than EMI, which never be in last two decades, it is always desirable to purchase instead of rent.

The private housing market essentially leaves out the poor. The public sector supply is very limited. As a result, the shelter needs of 34% of the poorer or 26,000 households are satisfied in the informal market every year. This supply is in the form of further densification of existing slums and growth of new slums. At an average cost of Rs.10,000/- hut the total annual and 5 yearly investment in this sector is estimated to be Rs. 26 and 130 crores respectively.

Shortage of formal housing supply and insufficient housing finance to informal sector reflects in the increased slum population. The Greater Mumbai slum population increased from about 6 lakhs in 1968 to 31 lakhs in 1976. In Brihan Mumbai Region, the slum households increased from an estimated 8 lakhs in 1982 to about 11 lakhs in 1991 most of them having little or no access to basic services. This relationship between formal supply and growth of slums can be seen by way of three scenarios. While the population of India doubled between 1961 and 1981, the slum population in Mumbai increased ten folds from 7 lakh to over four million.77 Four million population had further increased to 5.6 million in 1988.78 And today, according to Mumbai Metropolitan Development Authority, the slum population of Mumbai is estimated at 66% of the total population. Against an annual need of 46000 units in 1960s and 60000 units in 1970s, the supply of formal housing during this period has been only about 17000 to 20000 units annually.79 The metropolitan city has reached 17 million (17,702,761) mark in according to 2001 Census Data. Increasing the supply however does not mean increase in the input requirements. Higher supply levels could be achieved by changing the composition of outputs. For example, the density stipulations in the Development Control Regulations (DCR), 1991 are expected to promote smaller sized tenements by the private sector. However, the policies like slum redevelopment through higher Floor Space Index can contribute substantially in solving the hosing problems only if slum populations is reduced by increasing the supply. With the growing population and urban migration, housing shortage is the biggest problem today. The demographic profile of India and the problem of urban agglomeration are factors that accentuate the housing shortage. The magnitude of the problem, in terms of numbers is a housing shortage of 40 million units.80

It is a common wisdom that the housing shortage hits the poorest first, indicating that lack of shelter is first of all a problem of finance. Ecological, social, legal, aesthetic and physical planning concerns follow only much later.81

A study by National Construction Academy and Education Research (NCAER),82 in 1996 revealed that 70% of the housing finance requirements are funded by the informal financing system. Each of the foregoing statements reveal opportunities in housing finance. Since the NCAER study stated that Housing Development Finance Corporation and LIC Housing Finance Limited account for over 85% of the business and now ICICI Bank being in the first place, it may fairly be said that 56 housing finance companies covered represent the entire Hosing Finance Sector.83

LIC Housing Finance makes a 23% return on capital but is valued at a P/E of 4. Interestingly, so few companies figure along the perfect zone of correlation, i.e. Diagonally.84

1.5 Other Problems

According to Annual Report 2018-19 by Ministry of Housing and Urban Affairs on page 47, Cities in India generate two-thirds of national GDP, 90% of tax revenues and the majority of jobs, with just a third of country’s population. India’s urban population is projected to increase from 370 million in 2015 to 590 million in 2030, an unprecedented expansion that will change the economic, social and political landscape of India. Despite being the epicenter of opportunities, urban India poses a host of environmental and humanitarian challenges, from pollution to lack of civic amenities like drinking water, sewage, housing and electricity and marginalization of the poor. However, if managed well, urbanization may also mean big opportunity for businesses ultimately leading to increased investments and higher economic growth.

Hence the smart cities mission started by the government to generate employment and enhancing revenue. Housing and urban affairs remained state business. There was no budgetary allocations from centre and state governments could not align the concept with Center Government policies.

Housing finance appears to be extremely important in influencing effective demand for housing.85 The continued success of Housing Development Finance Corporation (HDFC), the entry of Housing & Urban Development Corporation (HUDCO) and Industrial Credit & Investment Corporation of India (ICICI) into the retail housing finance sector, as also the new forays by Tata Home finance, Sundaram Home and Birla Home underscore this observation.

Others reportedly86 in the fray are Industrial Development Bank of India (IDBI), GE Capital and Reliance, and nationalised banks such as Union Bank of India, State Bank of India, Dena Bank and others. The Monthly Commentary on Indian Economic Conditions cited that the housing finance sector has been identified as a potential growth-area, apart from the Insurance.87

Housing finance companies looked the developing areas as less attractive areas to finance because the ticket size was less and admin cost to maintain such portfolios for a longer periods were not viable. Smart Cities concept is yet to see a day light in Indian cities as movers and shakers were not in a mood to take risk and go in retail housing loans.

Holding the opportunities in housing finance to be constant, it is interesting to observe the fund raising pattern of Housing Finance Companies also. Housing Finance Companies need to gear up to compete for funds in the capital markets in this era of financial sector reforms. Competitions and market capitalisation is one of the common problem in housing finance sector.

The need based industry has many problems like affordability, age old Acts and government administered price for building materials. Housing Finance also has its limitations. Informal sector, till today, do not get housing finance. Fore Closure law and its limitations under National Housing Bank Act was introduced. But Housing Finance companies are still struggling to get complete protection for their loans. Though now Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 SARFESI Act in place, but execution under the Act is very lengthy process. More than 200 industries are dependent on real estate and housing. The economic revival industry is most important industry with the total work force of 16 % employed within.88

Difficult procedure for registration and heavy stamp duty along with Urban Land Ceiling Act and other age old Act have made increasingly difficult to afford house not only in urban areas but rural areas as well.89

Taxation is also being one of the biggest problem in affordability. State governments asking from 6% in Maharashtra to 14% in Bihar as stamp duty and registration charges. Besides this, now, GST have become major component as tax in purchase consideration. In the absence of Input Credit, builders are now charging 12% GST. In affordable housing segment where the 1% GST introduced, could not attract the affordability. Taxation of capital gain tax too, highest in the would.

Housing Finance Institutions outside India have responded in an innovative manner through a combination of Mortgage Backed Securities (MBS), Credit Enhancement Techniques like Guarantees and some other Off-Balance Sheet Instruments. This implies the management of risk-retention and risk-transfer by ‘devising’ securitization transactions and structures (Special Purpose Vehicles or SPVs), packaging of cash flows by creating financial instruments.90

Securitization may be said to have originated in Denmark. Loans were granted when bonds of an equal amount and tenor were sold. This is a form of asset – liability matching, resource management and even the interest margins are protected.91

Apart from the stated advantages, securitization also results in enhancing the Capital Reserve Adequacy Ratio (CRAR) and reduces the overall cost of capital due to a transfer or risk off its balance sheet.92 Securitization is a difficult instrument and lack of clarity on some legal and taxation issues, absence of foreclosure norms and high stamp duties were some of the impediments and reasons for the delay in introducing these instruments.93

Based on the experience in other countries like the U.K., Thailand, Korea etc. of putting in places institutional mechanism for restructuring of corporate debt and need for a similar mechanism in India, a Corporate Debt Restructuring System was evolved, and detailed guidelines were issued vide circular DBOD No. BP. BC. 15/21.04.11 4/2000-01 dated August 23, 2001 for implementation by banks.94

Much literature on Mortgage Backed Securities is available since their inception in the 1960s, the United State Government support for the movement through Fannie Mae, Freddie Mac and Ginnie Mae type of funding and guaranteeing organisations, and other credit insurance organizations. An article by Hill95 (1998) categorically states that successful securitization helps in isolating known risks form unknown risks and reduces the Weighted Average Cost of Capital (WACC) through dynamics of factors that the propositions assume away.

The International Union for Housing Finance (IUHF), Chicago publishes a good amount of literature on the experiences in the US and elsewhere through the works of Loic Chiquier, Adrian Coles, David Glenn, Michael Lea, Alex Pollock and Andrew Sheng, among others. The classic works of Boleat and Buckley laid the foundations in this derivatives, even plain-vanilla Mortgage Backed Security transactions have barely taken off in India, which focused on linking housing finance with the capital markets and the informal savings system respectively.96

But all the studies needs to be customised according to Indian environment of Housing and Housing Finance, more specifically in Mumbai. Mumbai being one of the fastest growing cities in India and its geographies are expanding fast in its extended suburbs, region has become state itself. The financial instruments such as Mortgage Backed Securities were practically impossible since law of land restricts the securitization and mutual agreement between borrowers and lenders. Sub-prime rates of United States have created a havoc and became instrumental in economy slow down. The sub-prime rates being the higher interest rates being charged on unsafe housing loans. In return, Securities issued on such loans to the investors could not again the confidence. Hence a severe fall in the real estate market was witnessed. In India, sub-prime rate do not exists. In fact, informal sector do not get hosing finance at all.

We need in next 5 years, 40 million incremental housing i.e., more precisely 6.6 million per year as against availability of 3 million houses at present.97

With successful reforms, very successful improvement in infrastructure, with so many other right things happening rightly, there will certainly be few more million added to the above 40 millions.98 It will at least give us an idea about the sheer enormous volume of the problem.

The state of housing in any country is a direct measure of its level of social and economic development.99 At the political level, the Common Minimum Programme was very vocal about housing and it did not like to leave this topic outside the programme. At the planning level, the monetary dimension of the requirement is 115 lac crores of rupees and one third of it is available from the formal sector and the planning sources. The economy has to find out ways and means to organize the balance resources to succeed in its reform process, according to the Eleventh Five Year programme.

The cost of land as a proportion to the total cost of a house in Mumbai is, compared to international standards, disproportionately high. Recent (2008) deals in Mill sale and land auctioned at Bandra Kurla Complex, as reported, were witnessing almost Rs.51,000/- a sq.ft.

Policies have to be framed which help in increasing the supply of land for housing. Enhancing FSI and introduction of TDR in 84 cities in India may not help. A comprehensive decentralization policy must be mooted by the town planners. When Mumbai is witnessing foot fall of almost ten lakhs people per day in south Mumbai for government work in Mantralaya, it is time when all administrative government offices be shifted to Panvel or elsewhere in the state to decongest the traffic chaos in the city. A person living on Pedder Road is happy to have his home valued at Rs1,00,000/- per sq ft but what a mess it is when he cannot drive out his car on road and wait for half an hour to submerge in running traffic.

A framework is needed which not only makes the supply curve more elastic but also regulates the land use in tune with the city’s economic evolution. One of the biggest hindrances to increasing the supply of adequate housing in the major cities of the country is the severe mismatch between the demand and supply of land.100 Land acquisition act is one which is time consuming and it takes years, even for the state government, to acquire lands.

Urban lands (Ceilings and Regulations) Act has outlived its objectives.101 Its main purpose was to increase supply of land through redistribution and by preventing speculation on land. This has generated more evil than it has done any good to the society, so it was repealed. But there is still few permissions and reservation required to built under the various scrapped provisions of the Act in 2020.

The national press for some time is stimulating us with information that the government is actively considering a complete overhaul of this law. While other states opted to repeal the Act, Government of Maharashtra is seriously thinking to place it with new practical law. Which it did in January 2008. Law is that which binds wrong and creates leeway for the right and we are schooled to abide by the law. In the housing finance sector, sometimes we need to reshuffle our ideas with our experiences and define the right things again. The stamp duty and registration charges for the conveyance in most of the state is quite exorbitant.102 It ranges between 5 and 15 percent. Similarly, the Municipal Taxes and other taxes are also substantial and all these factors dissuade an investor in housing sector. The basic issue, therefore, is that of rationalisation of stamp duty and registration charges.

Another area where investors are afraid of putting money due to the provisions of Rent Control Act. No one seems to be interested in this section of housing as the investors knows about likely chances of dispossessing the property in the hands of tenants.

Hence, National Housing Policy, 2005, suggested that to have amendments to the Rent Control Legislations in India. We shall soon see the Model Rent Control Act coming again to regulate rental markets in India. It is important to work out recommendations for fiscal and other related requirements for developing a healthy housing market in the country. It is known that compared to many other countries, fiscal incentives available in India are most limited. Some of these incentives which earlier were available have now been withdrawn. These are expected to have an adverse impact on the housing sector.

The day to day challenge is the liability management. The normal scenario of composition of the liability side of a housing finance institution is public deposit, institutional debts, refinance form the regular and its own capital base. That the capital base has generally remained weak is amply demonstrated by the fact that most institutions are struggling with its capital adequacy ratio.103

The capital adquecy and fund management goes to toss when situation like CORONA Virus comes in and entire economy is at a stand still. Builders and Developers having apprehensions on sales get stuck in market conditions like this. The burden of interest and cost of fund always hang on their heads and even though RBI gave a mortarium period to repay, the interest accrual is never waived. The similar situation is for slow down.

We have to remember that the fodder for the Housing Finance Companies (HFC) is long term funds. The deployments by its very nature are long term generally for 10 to 20 years where as the real estate absorb the funds for a limited period, may be for 3 to 5 years.

The best part of real estate is that this is the only industry where customers gives advances and delivery is with the builder till he gets his last pie of purchase consideration and all CAM charges.

There is hardly any market for such a long liability. So, by compulsion the Housing Finance Companies borrows short for meeting its long term needs are thereby unwittingly gets into the mismatch trap. Organisation development is a situational or contingency approach to improving enterprise.104

Anytime when the situation like Lockdown arises in the economy, by compulsion, when government allowed the mortarium period for repayment of EMI, housing finance companies feel the pinch as neither they can refuse to their depositors and investors nor they deny such government policies.

Although the flow of credit in the housing finance sector continued to show steady growth. The disbursements towards housing finance by the Commercial Banks and Housing Finance Companies registered a growth of 29.25% with total disbursements of Rs.53, 678.62 crore during 2003-04 as compared to Rs.41, 385.38 crore during 2002-03.105

The challenge of financing urbanization will have to be addressed through a combination of increased investment, strengthening the framework for governance and finance and a comprehensive capacity building programme at all levels of Government. High Powered Expert Committee (2011) has estimated investment requirement of Rs. 39.2 lakh crore at 2009-10 prices for urban infrastructure (O&M Expenditure) over the 20-year period (2012-31).

A state-of-the-art India Urban Observatory has been operationalized on 9th March 2019 in the Ministry of Housing and Urban Affairs. As cities begin to implement ‘smart’ solutions, data is becoming a significant asset and an enabler for data-driven governance, leading to urban transformation. The Observatory will plug into various sources of data from cities both from real-time and archival sources for generating insights through analytics for cities, academia, industry and governments. This will greatly contribute towards evidence-based decision-making and policy-making.

Matching of the maturities is dream of any financing institutions. Only hurdle is that it is just not possible. Then what one attempts to do is to do near matching. Today, in competitive market of interest rates, lot of loan buying happening in the housing finance market. Borrowers are not only interested in reducing their interest rates burdens by way shifting their lenders, but also negotiating with Housing Finance Companies on rate of interest.

The public deposits are generally for a period of three to five years although the laws permit it for seven years. The period of deposit for which the public would like to place its fund is its interest rate expectations. Even in a falling interest quoted for a longer maturity is higher which should have been reserve. But we are brought up with this culture.

In order to overcome such a situation, Mortgage Backed Securities (MBS) are being sold in secondary markets abroad, specially in the west. In India, however, Mortgage Backed Securities is still to see the light of the day due to substantial stamp duty on re-mortgage, absence of foreclosure laws and other legal impediments. The National Housing Bank also formulated an Residential Mortgage Backed Securitisation Policy, so as to ensure minimum level of standards and unambiguity in the Residential Mortgage Backed Securitisation Policy (RMBS) issues brought out by it.

The Policy details the entire gamut of activities to be taken up by National Housing Bank (NHB) and also sets forth guidelines for the same.106 National Housing Bank is still struggling with a pilot project of this nature for the last few years. But these schemes are in their preliminary stage and need professional expertise besides regulatory norms.

One of the major constraints for the housing finance companies is the high cost of funds. Public deposits cost, bank funding and also National Housing Bank refinance rates are substantially high. Housing sector can not absorb this high cost without passing it onto borrowers and also have a reasonable spread to survive.

This has put a constraint on the increased volume of operations of Housing Finance Companies. In order to provide housing credit at affordable terms, the needy population, innovate need based saving instruments along with fiscal incentives have to be identified for mobilization of cost efficient sources of savings. The major monetary policy measures during the year were reduction in Cash Reserve Ratio (CRR) and bank rate thus infusing additional liquidity in the system. One of the significant announcements was enhancement of limit of direct housing loans for construction of houses by individuals as part of priority sector lending from Rs.5 lakhs to Rs 10 lakhs even for semi-urban and rural areas.107

The household’s saving which still do not adequately flow into the organized sector and particularly the housing sector, mainly comprising of informal sector households and the rural and urban poor has to be trapped effectively and efficaciously. Real Estate Mutual fund also has very vital importance. The fund has its limitations and needs more in-depth study to have a successful venture to fund Housing Finance Companies.

In promoting housing development in the country, the policy in its endeavor to reduce homelessness and to provide minimum basic housing activities, envisages a major shift in the Government’s role towards being a facilitator rather than a provider.108 The policy framework also includes technological, financial, and institutional aspect. The policy, apart from recommending several schemes for the unprivileged masses, aims to provide stimulus and support for housing on an expanded scale though enhanced flow of credit from institutional agencies.

It would be interesting to have a quick glance into the housing finance industry in western world. In the United States, the savings and loan associations suffered severe shocks in late 1980’s an early 1990’s as a result of being ill prepared for the advent of a more open, competitive and less controlled financial system.

A regime of fixed mortgage interest rates, designed to work in more stable times, proved to be devastating method as inflationary and more volatile market. In fact, there had to be a major restructuring of the housing finance industry. The housing finance industry in the United Kingdom, on the other hand, experienced an unprecedented boom in the late 1980s followed by an equally devastating slump in the early nineties as well as in 2007-08. They had the advantage of variable mortgage interest rates. In the changed economic scenario, the distinction between classes of financial institutions is disappearing. Institute will have to transform themselves according to strategic visions. The rise in housing prices derives from a combination of factors like low interest rates, the excessive number of real estate speculators, and insufficient supply of housing.109

Indian economy is in transformation. The undergoing reforms are likely to put India in a competitive fiscal and monetary stand in Asia with the next few years. Existing financial institutions and banks are likely to realign themselves to market oriented money and capital markets making it difficult for managers to hide behind prescribed rules and procedures and begin to make decisions which have their risk/return trade-offs.110

We aim to provide an environment in the land and housing markets such that the affordability ratio for housing defined as the average house price divided by an average urban income is brought down.

This in effect means that the average household would be able to buy a home, which is commensurate with his/her income with the help of housing finance whose availability hopefully will continue to expand in the country. This is possible so long as we are open to more sensible land and regulatory policies, which reflect ground realities being unleashed by the reform process.

Good incentive have been provided by the Government by way of concession in the Income Tax provisions in as much as interest paid on housing loan in a financial year is totally exempt from tax to the extent of the Rs.1.5 lacs and rebate of 20 % is further allowed on the payment towards principal loan amount to the extent of Rs. 20,000/- under Section 88 of Income Tax Act.

Earlier Income Tax Clearance Certificate U/S.230-A was required at the time of registration of Agreement for sale, Transfer Deed etc, where the quite cumbersome and the Government has done away with this requirement in the Union Budget w.e.f… 1st June 2001. Looking at a glance, the past and present scenario of housing finance, it is easy to compare the growing housing finance market.

According to Annual Report 2018-19 by Ministry of Housing, Pradhan Mantri Awas Yojana (Urban) for ensuring housing for all in urban areas was launched on 25th June, 2015 for implementation during 2015-2022. The Mission provides central assistance to implementing agencies through States/Union Territories (UTs) and Central Nodal Agencies (CNAs) for providing houses to all eligible families/ beneficiaries. Size of house for Economically Weaker Section (EWS) is 30 sq. mt. in carpet area but States have flexibility to enhance the size of houses in consultation with the Ministry. EWS family has been defined as family with annual income up to Rs.3 lakh and LIG as family with annual income between Rs.3- 6 Lakh.

“In-situ” Slum Redevelopment (ISSR): Slum redevelopment grant of Rs.1 lakh per house is admissible for all houses built for eligible slum dwellers under the component of In-situ Slum Redevelopment (ISSR) using land as Resource with participation of private developers. This slum rehabilitation grants can be utilised by States/UTs for any of the slum redevelopment projects. After redevelopment, de-notification of slums by State/UT Government is recommended under the guidelines.

Credit Linked Subsidy Scheme (CLSS): Beneficiaries of Economically Weaker Section (EWS)/Low Income Group (LIG), Middle Income Group (MIG)-I and Middle Income Group (MIG)-II seeking housing loans from Banks, Housing Finance Companies and other such institutions for acquiring/constructing houses are eligible for an interest subsidy of 6.5%, 4% and 3% on loan amount up to Rs. 6 lakh, Rs. 9 lakh and Rs. 12 lakh respectively. Ministry has nominated Housing and Urban Development Corporation (HUDCO) and National Housing Bank (NHB) as Central Nodal Agencies (CNAs) to channelize this subsidy to the lending institutions and for monitoring the progress of this component. The scheme for MIG category was up to 31st March, 2019 which has been now extended up to 31st March, 2020 recently.

Affordable Housing in Partnership (AHP): Central Assistance of Rs.1.5 Lakh per EWS house is provided by Government of India in projects where atleast 35% of the houses in the projects are for EWS category and a single project has atleast 250 houses.

Beneficiary-led individual house construction/enhancements (BLC): Under this component, central assistance of Rs.1.5 lakh is available to individual eligible families belonging to EWS categories.

States/UTs, ULBs & Implementing agencies may add financial incentives over and above the central assistance under ISSR, AHP and BLC components of the mission. States/UTs would also need to fulfil mandatory conditions such as obviating the need for separate Non Agricultural (NA) Permission for residential zones, earmarking land for Affordable Housing, Single-window time bound clearances, deemed building permission and layout approvals for EWS/LIG housing, amendments in existing rental laws and Additional FAR/FSI/TDR and relaxed density norms for slum redevelopment and low cost housing.

The Credit Linked Subsidy Scheme (CLSS) is being implemented as Central Sector Scheme (CS) wherein central assistance is being released to Central Nodal Agencies for crediting the interest subsidy directly into home loan account of beneficiaries through Primary Lending Institutions (PLIs).As of 31.03.2019, a total of 5,67,950 beneficiaries entailing a total subsidy of Rs. 12,717.08 crore have availed benefits under CLSS. A breakup of beneficiaries and subsidy released under CLSS during the period from 1.1.2018 to 31.03.2019 along with cumulative progress as on 31.03.2019.

1.6 Past Industry Scenario111

  • Property Market has witnessed high degree of price volatility

  • Dramatic fall in property values over the last 3 years

i.e.. 1998-2001.(upto 40-45% in some cases)

  • Preceded by 50-75% increase in the prior 2-3 years

  • Lack of transparency

  • India ranked at the bottom of a table of transparency

in international property markets by Knight Frank

  • India placed in the ‘opaque’ tier-5, along with

Eastern European countries, Greece, Portugal and Vietnam by Jones LaSalle, an international property services agency.

  • High proportion of each dealings.

1.7 Government of India policies

  • Indian laws do not permit foreign investors to purchase real estate in India except for their own

legitimate use.

  • Direct investment in real estate permitted through a joint venture with Indian partners

  • Infrastructure development high on government

priority list.

  • Foreign investment in real estate through Infrastructure route.

  • Hotel and tourism industry.

1.8 Current industry scenario

  • National Housing and Habitat Policy, 1998.

  • National Urban Housing & Habitat Policy 2007.

  • Creation of surplus in housing stock.

  • Removal of legal, financial and administrative

barriers to access land, finance and technology.

  • Union Budget Financial Year 2008.

  • Tax deduction on interest on housing loans raised to Rs.150,000 per annum.

  • Foreclosure and transfer of property laws to be amended.

  • Commercial banks to invest 3% (1.5% previously)

of incremental deposits in housing.

  • Companies allowed 40% depreciation (20%

previously) on new housing stock for employees.

  • Urban Land (Ceiling & Regulation) Act.

  • Repealed in Jan 1999 except Maharashtra which have repealed it in January 2007.

  • Application in Punjab, Haryana and Union

Territories.

  • Other states to pass necessary resolutions.

  • Expected to free 0.2 million hectares in 64 cities.

  • Land prices expected to ease 10-15% over next three years.

  • Further policy initiatives expected.

  • 100% Foreign Direct Investment in housing sector.

A significant feature of the housing requirement estimation is that, of the total requirement of 16.76 million units to be built/upgraded during the 9th Plan period, about 70 per cent of the units cater to the urban poor/weaker sections of the society while about 20 per cent is for low income groups. About 10 percent of the urban requirement is to address the needs of the middle and higher income group segments.

This would mean that for urban housing alone, the total requirement of investment would be Rs. 1,21,371 Crores during the next five years to eradicate the housing shortage of 7.57 million, upgradation of 0.32 million semi-pucca units and the additional construction of 8.67 million units. In combination with the fund requirement for rural housing too, the total requirement has been estimated to be order of Rs. 1,50,000 Crores.112

The actual likely availability could be gauged from that against the estimated flow of funds of Rs.250 billion (US$ 5.7 billion) in housing sector from formal source during the 8th Plan period, the actual availability was only about Rs.60 billion (US$1.36 billion).

Assuming the full availability of the estimated Rs. 520 billion (US$11.81 billion) during the 9th Plan period, the flow of funds falls short by nearly 3 times the requirement. While looking at the various aspects of housing finance, an important speech given by then the Urban Development Secretary, it is clear that the mega crore industry needs to be formalise. India is a part of the global trend towards the increasing urbanization in which more than half of world’s population live in cities and towns. 27.8% of India’s population live in urban areas, which is expected to increase to 41% by 2021. Similarly the number of million plus cities has also increased from 23 in (1991) to 35 in 2001.113 The total number of urban local bodies as of now stand at 3682, out of 96 are municipal corporation, 1494 are municipalities and 2092 are Nagar Panchayats. It is important to note that the contribution of urban sector to Gross Domestic Product is currently at 60% and accounts for more than 90% of government revenues. In this context enhancing productivity of urban areas is now central to the policy pronouncement of the Ministry of Urban Development & Poverty Alleviation, Mumbai hold tremendous potential of economic and social development, creating jobs and generating ideas through economies of scale. They need to be sustained and augmented through the high urban productivity for country’s economic growth. For fulfilling the need of 2 million houses per year huge funds are required, if the government is to succeed in achieving this target.114

Graph 1.1

Housing Finance System in India

Source : Report on Trend & Progress 2005, National Housing Bank, p15

To reduce the cost of construction of houses the tax structure on cement, steel and other important building construction materials be rationalised. In Union Budget, the limit for banks to invest in housing sector was increased form 1.5% to 3%. The need now is to raise it up to 5 per cent to accelerate the speed for housing construction. For rural housing and sanitation development, incentives can be considered for the investment in this segment. The Housing Finance Companies receiving financial assistance from National Housing Bank accounted for a little more than 99% of the outstanding housing loans.

The outstanding housing loans with these Housing Finance Companies which was Rs.41678.43 crore as on 31st March, 2002 increased to Rs.48788.89 crore as on 31st March, 2003. 115 Total outstanding recorded by National Housing Bank standing to the tune of 76,819.00 crores in 2004-2005 with a record growth of 41.47%.

Housing construction require huge investment and it is important to generate dedicated funds for this purpose.116 The constitution of India includes the right to live and have a livelihood as a fundamental right.117 It also includes the right to housing policy. The directive principles of the state policy make it an obligation on the state to facilitate housing. Housing demand is an universal problem. Housing is one of the three prime necessities of life. Food and clothing the other two prime requirements have been met to some extent. 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, labour and land costs.

The Indian economic planning has, apparently, neglected housing right form the beginning. The seven and eight five year plans have put focus on housing.118

The Eight five year plan envisages housing as the generator of employment, both direct and indirect in the economy. The plan data states that a 10% increase in investment in housing would lead to 10% increase in employment in the housing sector giving an employment elasticity of unity.

For the entire economy the employment elasticity is less than half. In India, housing data such as “housing starts” and “housing completions” are not available. The contribution of housing to economic development is generally measured in terms of Gross Fixed Capital Formation (GFCF) in housing, it share in Gross Domestic Product (GDP) and the share of income from housing. The Gross Fixed Capital Formation at constant prices, grew at an annual rate of 3.6% in 1980’s. However, the Gross Fixed Capital Formation as proportion of Gross Domestic Product reduced from 3.2 % in 1980-81 to 2.6% in 1990-91. The share of income from housing in Gross Domestic Product declined from 5.9% in 1980-81 to 4.7% in 1990-91.119

It is estimated that removing land market barriers can contribute an additional 1 per cent to India’s GDP growth rate.120 The share of investment in housing in the Gross Domestic Product has fallen from 5% in 1960’s to 3% in 1980’s.

The total plan outlay for housing has fallen from 34% in the 1st five year plan to 9% in the 7th five year plan. The plan outlay for housing is proposed to be 12.2% in the 8th plan. This fall in investment in housing has resulted in demand – supply imbalances resulting in overcrowding, decline in per capita space, increase in slum settlements in urban areas, poor housing conditions, very sparse access to loans for housing and economic development.

Currently less than 4 dwelling units per 1000 of population per annum get constructed in India.121 However the United Nations (UN) recommendation for developing countries is of 8 to 10 dwelling units per 1000 per annum in the next 20-30 years to arrest the detoriation of housing situation.

Access to land at reasonable prices for housing is impossible. This has led to acute housing shortages.122 The Urban land ceiling and regulation act (ULCRA) of 1976 appears to have been wrongly implemented and is the main factor for the spiraling real estate prices.

Land is not available to housing due to restrictions placed on conversion of agricultural land to nonagricultural land. The land prices in Mumbai, Kolkata and Delhi are more than those in the western cities like London and Washington D.C. In fact, in the prevailing market rates for housing in Mumbai, at Rs. 900 per square feet to Rs. 20,000 per square feet, 97% constitutes the cost of land and 3% the cost of construction.123

Boost to housing can rejuvenate the economy. Housing has maximum propensity to generate income and demand for materials, equipment and services.124 Funds allocated to shelter return in the shape of income and demand to other sectors. To boost the housing sector there is a need to regulate and have a greater access of credit for housing. Thus a good housing finance system is imperative. Housing Finance Companies (HFC) need to be recognised as a part of total financial system and should be given a level playing field. Even after RERA, the regulatory reforms were not available for investors, as such, many financiers having share in the projects became the promoter by virtue of the Act and now not interested in liabilities the promoter face under the Act.

Amidst liberalization certain provisions of the Company’s Act 1956 and 2013, such as, restrictions on intercorporate loans and deposits continue to discriminate Housing Finance Companies against other non-banking financial companies. Also certain tax laws, such as deduction of tax at sources, restrictions on acceptance of cash as deposits are disadvantages to Housing Finance Companies. The Reserve Bank of India has put housing finance on priority core sector lendings.125

Urbanisation is an international phenomenon.126 In the developed countries, the flow of housing finance a substantial share of total financial system. In fact, the savings for housing is among the single largest source of funds in their entire financial system. Hence the developed countries invest about 5% of Gross Domestic Product in housing compared to a negligible amount in India. Promotion of ownership of houses as on economic and political objective has been backed by the necessary policies to stimulate household savings and investment for housing. The direct and indirect taxation always aligned with housing development.

One striking feature of financial crises associated with business cycle downturns is that the most seriously affected economies often first experience a collapse in property prices and a consequent weakening of banking systems before going on to experience an exchange rate crisis, a financial crisis, and a business cycle bust.127 On the other hand, in India, adequate liquidity in the banking system continued and with resurgence of growth, supported a credit pick up in 2003-04 and in 2006-07 respectively..128

Although this sequence does not necessarily imply a causal link, the collapse in land prices is clearly of central importance to recent Asian financial crises, especially in Japan, Indonesia, and Thailand.129 But the regulatory environment is shown to be another fundamental determinant of supply conditions, and results can be used to analyze the impacts of regulatory frameworks of housing markets. Housing is an asset that yields a flow of services over time.130

A visitor to Mumbai would find it difficult to believe that this bustling, very modern metropolis, was once a cluster of seven islands, surrounded by swamps and marshes, and inhabited by a fishing community, the Kolis.131 Today, those seven islands exists as the areas of Colaba, Dongri, Mazgaon, Girgaum, Worli and Pare-Sion, whereas the Kollis outnumbered by a burgeoning population, have been relegated to pockets along the sea. Housing finance beyond city limit is riding a risk factor for housing finance companies. One can find out that interest rates offered by housing finance companies in extended suburbs are much higher than the finance in city limits.

1.9 Housing a fundamental right

The fundamental right of the citizens is to get any service which is assured to him, without greasing the palms of politicians, bureaucrats, government servants and all others in authority.132

The constitution Review Committee which is looking into the Fundamental Rights chapter may add in Chapter that transparent service should be a fundamental right of every citizen in the country.133 Indian Banks needs better coordination between the bank top management and businessmen.134 In real estate sector, transparency is need of the hour.135

If we sincerely want foreign direct investment in real estate sector, we have to resolutely have transparent deals with corporate governance.136

1.10 Transfer of Development Rights ( TDR )

There is lot of development in Mumbai Suburbs using Transfer of Development Rights (TDR) on existing properties, mostly society in buildings.137 Now it is posing parking problems in all these areas under development. The Thinking in municipal circle is that the development permissions using Transfer of Development Rights (TDR) should be linked to the road space and parking areas available for the additional flats purchasers.

The bottleneck for parking area is getting worst by the day and the civic authorities will have to find a solutions to this problem. The infrastructure in suburbs, specifically in far flung areas badly needs upgradation.138 In these areas the roads, and parking areas are much less than required, even for the existing buildings.

Top of its, encroachments of by slum dweller and illegal constructions, are posing further problems for these areas. Sewage and rain water drains need to be revamped to serve the fast growing areas. Development using Transfer of Development Rights clearly means to increase Floor Space Index in that area. Architects and town planners feel that indiscriminate development through Transfer of Development Rights route must be monitored and availability of infrastructure in the area must be able to cope up with resultant increased population.

Today there are 84 cities and planning areas in India which have the concept of TDR.

1.11 Consumer V/s. Building industry

Consumer Protection Act of 1986 is proving to be a milestone in protecting the flat or house purchasers in the country. As per clause (o) of sub-section (1) of Section 2 of the Act housing construction is included in the ambit of the act. The house purchasers are now regularly getting redressals from the consumer courts.

Unfortunately the housing construction industry in general and builders in particular are still not taking the Consumer Protection Act seriously. But the law is now catching them. This fact must open their eyes and make them understand the present day situation. More transparency is needed in their dealings. The Act covers allotment of plots, flats, houses, cancellations of allotments, refund of deposits, delay in delivery, accurate measurements of carpet areas (in case of houses). In housing the law also covers defects, deficiency in service pricing and delay in delivery of giving possession. There is clear cut provision to give interest on refund of deposits if the possession is not given as per the agreement.

The Real Estate (Regulation and Development) Act 2016 is first mile stone Act in the history of real estate legal frame work. The Act not only established the regulator for the industry but also started giving dispute resolution between consumer and builders/ promoters. In all till May 2020 there were 50,000 odd projects were registered in 23 states and union territories. In Maharashtra alone 25000 projects were registered and almost 5000 projects are been completed by the promoters with OC.

1.12 Artificial scarcity of Land in Mumbai

Mumbai is having 437.71sq.kms. of land. Total land available or occupied is 68.71 sq. kms. in city, 210.34 sq. kms. in suburbs and 158.66 sq.kms.. for extended suburbs.139 With density of population just above 45000 per sq.kms, the mega city has vast area of land to reduce the density. At present more than 12 crore sq.ft. of projects going in full swing in Mumbai and its suburbs.140

The total area of the region is 4311.75 sq.km as per the computerized maps prepared using the Geographical Information System (GIS). There is a mismatch in the area thus calculated and area of the region arrived at based on census 2011base map (4253 Sq. km.) and the ELU survey exercise (4359.64 sq.km.) carried out by the Science and Technology Park, Pune for MMRDA . This is on account of the corrections that were required to be carried out in order to correct the anomalies with respect to the coastal boundaries of MMR as well as the village maps drawn by the Settlement Commissioner. For all the matters connected with the Draft Regional Plan 2016-36, area of the Region is considered as 4311.75 sq,km.

Plenty of land is be available after Urban land ceiling Act is repealed.141 Mill lands will cater space and will be required to construct yet another 12 million sq.ft. Coastal Regulation Zone (CRZ) is becoming laughing stock abroad. When Dubai can have Palm Island in the sea why can’t Mumbai they say. Maharashtra Housing and Area Development Authority (MHADA), after years of urging and presentation got permission to construct individual dwelling units to its allottees of plot at Gorai. Salt pan land, having no use what so ever, will give immense space of congested slums. We have invited people to occupy land belongs to authorities, No Development Zones and to the collectors.

Nobody is interested in vacating the land for its natural and planed use. The land records and property records are very dismal in the city. For example, in the case of textile mills, the year of construction was shown between 1940 and 1960. Almost all the textile mills in the city have been constructed before 1940. Similarly in some cases, the taxes under the new system came to be zero. Out of 1.78 lakh cases examined on the computer, errors were noticed in 12,057 cases.142

Not that we do not know about today situation. Way back in 1965, a committee, under the Chairmanship of Professor N.V. Gadgil was formed. The committee initially identified the Greater Bombay Metropolitan region in 1965, was of the view that Bombay’s population was already of an ‘oppressive size’.

Ever since the passing of the Bombay Improvement Trust Act in 1925 (the Act was superseded by the Bombay Housing Board Act of 1948 and the activities of the Trust were absorbed in the Brihan Mumbai Municipal Corporation), it has been an axiom of public policy that public sponsorship of land development projects have an important role to play.

The approach was legally buttressed by a Supreme Court verdict in the fifties, holding that compulsory land acquisition for the implementation of town planning projects was for a public purpose within the meaning of the Central Land Acquisition Act, 1894 (L.A Act). In Greater Mumbai, over 600 hectares of land, mostly in the suburbs, were placed under compulsory acquisition in the sixties for the execution of schemes by the then Housing Board and its successor body.

In 1975 estimates of potentially available vacant land under the Urban Land Ceiling Act indicated 8000 hectares in Greater Mumbai, rising to as much as 20,000 hectares if marshy land in the No Development Zone was included.143

The National Urbanisation Commission has concluded in its interim report in 1986 that, because of the manner in which it has been drafted and implemented, the Urban Land Ceiling and Regulation Act has not achieved any of the objectives for which it was enacted. According to an article in the Times of India dated 27th April 1984, a mere 27 landowners, or 3% of the total, on fully 70% of all exploitable vacant land in Greater Mumbai, and about 20 builder monopolies over two-thirds of all that actually taken over under the Urban Land Ceiling and Regulation Act and used for housing and other public purposes is negligible.

All 45457 statements were scrutinized from all over the state, and the vacant land after scrutiny was 34213 hectares, However, the land acquired and vested with the state government is only 4494 hectares, of which again 877 hectares have been actually taken in possession.

The Maharashtra Regional and Town Planning Act of 1966, employs the Term Development Plan and indicates a variety of things, but a mere land-use plan. It also contains the Development Control Rules (DC Rules). Which regulate the Character of buildings and density of population allowed in a specified area. The City’s godfathers who approved the Draft plan perhaps sincerely believed that the Plan would improve the quality of life but some of the prescriptions of the Plan have had the opposite.

The prescribed density ceiling for ordinary housing was 200 tenements per net hectare. The Floor Space Index concept was based on the land price level and the population potential as assessed by the planners in pursuit of the decongestion concept. The high prevailing FSI in the Island city was reduced in the late seventies to 1.33, while it was fixed at 1 for the suburbs, and 0.75 and 0.5 for certain areas in the M, N, P (North) and R wards. Now since the situation is changed the plan and provisions must the reviewed.

On a different plane, artificial assumptions about the future population size and the direction of growth have led to exclusion of vast lands for development, and to plan adequately for the provisions of infrastructure for the realistic levels of population in different parts of the city.

There is much meaning in the claim that the city’s housing problem is not so much due to physical shortage of land, as unhelpful building regulations and an that constrained the supply of available land in the market and precluded the construction of affordable housing.

The state government of Maharashtra owns about 8088 acres of open land (about 5886 acres in the western tip of Borivali, 156 acres in the western suburb of Andheri, and 2046 acres in the eastern Kurla)144, of which 6400 acres are marshy land, and 1272 acres are hilly, and most of the land has been placed in the no-development zone owing to the difficulty of development. About 3000 acres of land belonging to the government and public bodies are reported to be under encroachment, and about 5000 acres of land are in the ownership of private individuals, but can technically be acquired.

About 7000 acres of land are lying vacant, mainly in the suburbs, having been placed in the industrial zone, and some of this can be developed for housing the industrial workers. The initial estimate of vacant land under the Urban Ceiling Act was around 20,000 acres, though it must be lesser area now after all the exemptions and scrutiny of returns.

In additional to this, the Central government agencies are in possession of vast areas of land in both the Island city and suburbs.

These include:

  1. i) The Bombay Port Trust, with some 2000 acres or a third of the Central Bombay area;

  2. ii) The Defence Department with over 1000 acres of prime land in South Bombay, and smaller areas in the suburbs, all held apparently for security reasons;

iii) The Western and the Central Railways, holding land in the suburbs, usually near the railway tracks;

  1. iv) The Internal Airport Authority holding a lot of land in its jurisdiction in Western suburbs; and

  2. v) The Salt Department with over 200 hectares of land under slat pans, much of which can be converted to residential purpose. Their development would, of course call for the recasting of the development plan and for planning the extension of infrastructure of water supply, sewerage, electricity, roads, and social facilities to additional vacant lands in the suburbs.

Private housing finance sector is also doing very well in catering the need for housing finance and playing very vital role in housing finance sector.145

1.13 Valuation of properties

Real estate prices are by their nature prone to cycles.146 In discussion of property as at investment you will frequently come across the term Prime Yield. This is impossible define precisely because the term tends to be used in different ways in different context. But, the general sense is the yield at which the very highest quality property in any of the categories would be valued the property which is expected to show the optimum combination of high growth, low risk, easy marketability and so on.

Land being the raw material for housing and real estate often have crossed 80% of project cost. Housing demand parameters are remarkably stable and predictable across countries and places; supply parameters vary much more.147

These are the very lowest yields that investors are prepared to accept for the class of the property. They may be useful as a yardstick. But since only a fairly small proportion of investment quality property in any of the categories would qualify as prime, most buildings held as investments by the big builders and investors of share market would be valued on higher yields. Average yields for investment grade property do not always follow the same trend as prime yields, so the latter need to be used with some caution.

As a result there is too much money chasing too few investments, and the value of the investments will therefore tend to rise. This means that the yield come down. The institutions may be piling into the market because returns on property look attractive compared with those obtainable on other forms of investment like government stocks. Perhaps yield on government stock have come down. In theory, returns on different forms of investment should bear some relationship to each other and a movement in one is likely to trigger a movement in another. In practice, yield on property are rather slow to respond to yield available elsewhere. 148

The yield on a property by and large reflects the expectations of growth. As a general rule the lower the yield the higher the growth expectations. When rents rise, all else being equal the capital value of the building rises. When yield fall, all else being equal the capital value of a building rises, when yield rise, all else being equal the capital value falls. In a greatly simplified form, these are the basic mechanisms of the property investment market.

1.14 Housing Shortage and Population

Between 1961 and 1991 about 73 per cent of the households in Mumbai living in one room units. The share of households living in both two-roomed and three-roomed tenements has increase. But on an average a household had 1.4 rooms a place both in 1961 and 1991. Distribution of scheduled caste and scheduled tribe households by number of rooms in 1991 reflect their cover crowded housing conditions. Nearly 85 per cent of the households of both the groups had just one room to themselves. Each household in groups had barely 1.2 rooms at its disposal.149

Proportion of Households by Size of Tenements, Bombay, 1961, 1991 and of Scheduled Caste and Scheduled Tribe Households, 1991.150

Average number of persons per household and per room derived from the housing table of population census are given in following table. It shows that Irrespective of the number of rooms reported by the household on an average each household enjoyed greater privacy in 1991 than it did in 1961. The average number of persons living in units of all sizes decline during the three decades. This average number of persons living in units of all sizes declined during the three decades. This conclusion funds support from the average number of persons per room derived from different sized units which shows a decline over the period.151

Development of the secondary mortgage market and securitisation of loan assets will increase the liquidity position of the housing finance companies and make available funds at low cost.152

Conclusion :

To sum up, the entire analysis in this chapter it is observed that the Housing Development Finance Corporation Limited started its operations in 1977, there was no player. The concept of housing finance was new to the country. Banks were financing term loan on property mortgage for housing. In 1997, after ICICI entered the market of housing finance, the sector got vibrant and a new market was opened for sectoral players. Housing finance is a major business. With growing needs of housing and the Tenth Five Year Plan estimated the urban housing shortage at 8.89 million dwelling units in 2002. Further, the total number of houses that would be required cumulatively during the Tenth Plan period is estimated at 22.44 million dwelling units.

Need for housing finance persist but affordability is major problem. Housing Finance Institutions have perpetual problem of raising funds for deployment into their business. Nationalised bank treated housing finance as priority sector and started financing homes aggressively. Scheduled Cooperative Banks, Private sector housing finance companies and Non Banking Financial institutions started funding the housing need.

Housing and Urban Development Corporation, (HUDCO) , also started financing the individual needs for housing. Innovative schemes and discount offerings along with nationwide presence through branches were established. Customers were treated in a very high esteemed and door services were offered. Direct Selling Agent (DSA) concept also first introduced by ICICI bank and than followed by various foreign banks and private sector players.

Income Tax exemptions were also given for paying the interest and principle aggregating upto Rs.1,50,000/- in a financial year. The second home concept was developed since the housing finance became the tool for tax savings. Almost 73 % growth recorded by National Housing Bank in housing finance sector for the financial year 2002-2003. Growth continued till the end of 2005-2006 throughout India while real estate prices started rising to historically highest level. The industry has its own problem. Main problem is to match Assets and Liabilities for the funding business. Long term funding with short term borrowing, higher cost of fund raising avenues and competing with falling interest rates for individual housing finance.

Besides this the industry was suffering from high cost of fund, limited scope to tap formal salaried borrower’s market. Housing finance is a part of the service sector. Good service and a good customer base provide an ideal platform for building any brand. Tie ups with DSAs have resulted into enhancing frauds as both on the sales as well as the recovery side. Problems with deposits are that they are for 3 to 5 years. At the same time housing finance normally takes is toll for 15 to 30 years. Hence it is difficult to keep up the promise to return the deposits and regenerate it during the cycle time of a long home loan portfolios.

Not all banks may remain in the housing finance sector. There are two reasons. Housing finance is a long term business. When the demand for industrial credit (essentially short term in nature) rises, banks will move funds to that sector where they are more comfortable. Moreover, many banks have burnt their fingers due to lack of knowledge on technical, market and legal aspects. At the moment, there is an element of cross-subsidization in the pricing of loans by banks. While Mumbai faces many problems, it effects directly or indirectly on the housing finance market. Apart from procedural and administrative problems, we call it internal problems, it is necessary to study the environment in which housing finance companies get into it. Besides fund raising and documentation, housing finance companies are facing stiff competition within the sector hence keeping the interest rates low is major management exercise. Distribution of financial products are also needs a major credit policy decision. Other than housing finance companies, individuals also faces many procedural and income proof problems.

The informal sector run pillar to post to get his dream home financed. The increasing numbers of housing finance companies and commercial bank jumping on the bandwagon, housing loans are easily available to large number of home seekers. The competition in this segment is benefiting the loan seeker, but still a large number of people needing the loan are virtually out of its ambit as they are in informal sector. With growing needs of housing and the Tenth Five Year Plan estimated the urban housing shortage at 8.89 million dwelling units in 2002. Further, the total number of houses that would be required cumulatively during the Tenth Plan period is estimated at 22.44 million dwelling units. Need for housing finance persist but affordability is major problem. Housing Finance Institutions have perpetual problem of raising funds for deployment into their business. The regime of processing charges must go now, to provide relief to the customers. In fact the housing finance industry now needs broad based reforms, which are applicable to all the Housing Finance Companies. While disbursing the loans, Housing Finance Companies mortgages the flat or the property for which they are giving the loan. This in itself is security enough so there is no need or the justification for asking guarantor/s additionally. The scope for Housing Finance Companies is unlimited because of the huge housing shortage in the country, considering the fact that majority of the flat purchasers can not do so, without loan. The reduced rate of interest on housing loans is broadening the customer base the Housing Finance Companies and at the same time giving much needed relief to the loan seekers. In the same spirit the Housing Finance Companies must bring other reliefs and uniform practices.

The uniformity of problem persists with all the consumer segments. Rigid documentation, high processing fees and administrative fees with legal charges and mortgage fees is killing the housing finance market. Loan to Value is also major problem. At present all the housing finance companies are giving loan up to 85 % of the agreement value of the property transaction. With cash cheque ratio of the transaction it is some times unaffordable for the consumer to pay 15 % margin of the agreement ad pay black portion of the transaction in cash to the seller. Hence the actual Loan to Value become just 65% of the agreement amount. Mumbai is housing millions. From decades, Mumbai is financial capital of India.

It gives employment and well updated infrastructure. Historic evidence tells us that early resident of Mumbai caught his quota of fish and shared it with his fellow citizen who was a farmer. Region’s population in 1991 is 144.14 lakhs which would increase to 264.96 lakhs in 2021 with an annual compound growth rate of 2.05%. Greater Bombay population of 99.07 lakhs (1991) is expected to reach 144.13 lakhs (2021). However its growth rate of 1.25% per annum would be substantially lower than that expected for rest of BMR i.e.3.34%.

Annual need for new housing for incremental households in BMR has grown from 46,000 units during the 60s to about 60,000 in the 70s and 66,000 during 1981-91. The Multi purpose Household Survey carried out by Mumbai Metropolitan Regional Development Authority in 1989 provides information on household size in various zones of Brihan Mumbai Region. Applying these household sizes, households in the entire Region are estimated to increase by 3.80 lakhs during 1991-96. The five yearly increase in number of households would gradually increase to 4.68 lakhs by 2016-21. While carrying out these estimations, however, a 7% decrease over each 5 year period is assumed in the size of households in view of the probable increase in the proportion of nuclear families and reduction in family size. Although actual accretion of households is estimated by applying the household sizes for yearly population increase, simple averages for 5 yearly periods are also estimated of incremental households worked out for Greater Mumbai and Rest of Brihan Mumbai Region. The need based industry has many problems like affordability, age old Acts and government administered price for building materials. Housing Finance also has its limitations. Informal sector, still today, do not get housing finance. Fore Closure law and its limitations under National Housing Bank Act was introduced. But Housing Finance companies are still struggling to get complete protection for their loans. History of Mumbai reveals that the natural port gave employment and good infrastructure for trade and commerce besides opportunities for corporate to make it finance capital of India. The development along with good environment for textile manufacturing gave birth to the problem of housing millions. Authorities and state government of Maharashtra started planning Mumbai skyline in as early as 1935. Regional plans and many committee appointed by government gave future estimation of population explosion and urgent need for a good housing policy to accommodate its population.

Since 1977, when Housing Development and Finance Corporation (HDFC) started financing homes, housing finance came into existences in the country. Previously there was no systematic system for financing housing. Founder Chairman of Housing Development Finance Corporation, Mr. H T Parikh was pioneer to bring the concept of housing finance in India. Earlier, Housing and Urban Development Corporation started housing finance division in 1970, but it was never got publicity. There is a major problem in titles and land records. History of Land Revenue Code and its implementation since British Empire is major hinderance for clear mortgage, which is essential for housing finance. We are having an economy in transition in India.

The undergoing reforms are likely to put India in a competitive fiscal and monetary stand in Asia with the next few years. Existing financial institutions and banks are likely to realign themselves to market oriented money and capital markets making it difficult for managers to hide behind prescribed rules and procedures and begin to make decisions which have their risk/return trade-offs.

India is a part of the global trend towards the increasing urbanization in which more than half of world’s population live in cities and towns. 27.8% of India’s population live in urban areas, which is expected to increase to 41% by 2021.

Similarly the number of million plus cities has also increased from 23 in (1991) to 35 in 2001. The constitution of India includes the right to live and have a livelihood as a fundamental right. It also includes the right to housing policy. The directive principles of the state policy make it an obligation on the state to facilitate housing. Housing demand is an universal problem. Housing is one of the three prime necessities of life. Food and clothing the other two prime requirements have been met to some extent. 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, labour and land costs.

The wide spread financial misconduct for the common man as well as the businessman in practically every government office may be observed. Over 31 per cent of food grains and 36 per cent of sugar in the public distribution system (ration shops) which is to provide foods security to poor, gets diverted to the black market through corrupt shop keepers and government officials. In real estate sector, corruption has taken gigantic proportions.

Plenty of land will be available if Urban land ceiling Act is repealed. Mill lands will cater space and will be required to construct yet another 12 million sq.ft. Coastal Regulation Zone (CRZ) is becoming laughing stock abroad. When Dubai can have Palm Island in the sea why can’t Mumbai they say. Maharashtra Housing and Area Development Authority (MHADA), after years of urging and presentation got permission to construct individual dwelling units to its allottees of plot at Gorai. Salt pan land, having no use what so ever, will give immense space of congested slums.

We have invited people to occupy land belongs to authorities, No Development Zones and to the collectors. No body, Simply no body is interested in vacating the land for its natural and planed use. There is much meaning in the claim that the city’s housing problem is not so much due to physical shortage of land, as unhelpful building regulations and an unresponsive urban government, that constrained the supply of available land in the market and precluded the construction of affordable housing.

In 1999 Industrial Credit and Investment Corporation of India (ICICI) entered the housing finance market and Industrial Development Bank of India (IDBI) Bank have changed total equations in the housing finance market. With personalised housing finance loans to suit every need been offered by Industrial Credit and Investment Corporation of India (ICICI). Industrial Development Bank of India (IDBI) Bank has first experimented on in house customers, and now in big leap with other corporate in the league. Industrial Credit and Investment Corporation of India (ICICI) , With most professional team, the institution has achieved and created new horizon in the housing finance market.

The retail outlays of the institutions are giving services, which home seekers often complains with traditions housing finance companies. One has to take leaves and leaves to do documentation for housing loans. Interest rates were also made by the institution a major issue to think before deciding on housing loans. Real estate prices are by their nature prone to cycles. In discussion of property as at investment you will frequently come across the term Prime Yield. This is impossible define precisely because the term tends to be used in different ways in different context. But, the general sense is the yield at which the very highest quality property in any of the categories would be valued the property which is expected to show the optimum combination of high growth, low risk, easy marketability and so on.

Between 1961 and 1991 about 73 per cent of the households in Mumbai living in one room units. The share of households living in both two-roomed and three-roomed tenements has increase. But on an average a household had 1.4 rooms a place both in 1961 and 1991. Distribution of scheduled caste and scheduled tribe households by number of rooms in 1991 reflect their cover crowded housing conditions. Nearly 85 per cent of the households of both the groups had just one room to themselves.

Each household in groups had barely 1.2 rooms at its disposal. Boost to housing can rejuvenate the economy. Housing has maximum propensity to generate income and demand for materials, equipment and services. Funds allocated to shelter return in the shape of income and demand to other sectors. Housing finance is a major business. With growing needs of housing and the Tenth Five Year Plan estimated the urban housing shortage at 8.89 million dwelling units in 2002. Further, the total number of houses that would be required cumulatively during the Tenth Plan period is estimated at 22.44 million dwelling units. Need for housing finance persist but affordability is major problem. Housing Finance Institutions have perpetual problem of raising funds for deployment into their business. Urban taxes such as property tax, stamp duty on sale of land and buildings and entertainment tax need to be rationalised. Creation of Real Estate Mutual Funds/Real Estate Investment Trusts should be permitted. There are industry specific problems, customer related problems and other socioeconomic problems. The uniformity of problem persists with all the consumer segments. Rigid documentation, high processing fees and administrative fees with legal charges and mortgage fees is killing the housing finance market. Loan to Value is also major problem.

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