HOUSING FINANCE IN INDIA

Transcription

1 HOUSING FINANCE IN INDIA VINAY D. LALL SEPTEMBER 1984 m n t ^ T I) NATIONAL INSTITUTE OF PUBLIC FINANCE AND POLICY 18/2 SAD SANG VIHiffi MARG, SPECIAL INSTITUTIONAL AREA NEW DELHI NIPFP Library LI5H H4

2 P R E F A C E The National Institute of Public Finance and Policy is an autonomous, non-profit organisation whose major functions are to carry out research, do consultancy work and undertake training in the area o f public finance and policy. In addition to carrying out, on its own, research studies on subjects that, are considered to be important from the national point o f view in terms o f polity formulation, the Institute also undertakes research projects on subjects o f public interest, sponsored by member governments and other institutions. The present study was undertaken at the request of the Ministry o f Works and Housing, Government o f India, which wanted an independent assessment o f the problems o f mobilising resources for financing housing activities at the level o f the home-owner and suggestions for measures which would strengthen institutional financing o f housing in the country. The study was conducted by Vinay D. Lall who also drafted the report. A.K. Gupta was associated with the housing finance surveys in Delhi and Lucknow and S.B.L. Sherry with those in Delhi, Ambala, Cuttack and Ouilon. Sherry also provided research support to the project. K.K. Atri and A.K. Halen processed the data for the renort on the NIPFP computer. The editing of the report was done by C. Cecil. The Governing Body o f the Institute does not take responsibility for any o f the views expressed in the report. The responsibility for the conclusions arrived at and the views expressed belong to the sta ff o f the Institute and more particularly to the author o f the report. 13 September 1984 Bimal Jalan Honarary Director

3 ACKNOWLEDGEMENTS An in ten sive study based on com pilation o f primary data from d iffe r e n t sources could be undertaken fo r th is p ro ject only because of the spontaneous support received from o f f i c i a l s o f the Government o f In d ia, the State Governments, fin a n c ia l in s titu tio n s and in d ivid u al home-owners who responded to the housing finance survey. The M inistry of Works and Housing, Government o f In d ia, at whose request the study was undertaken, has been most h elp fu l throughout the duration o f the p ro ject and but fo r th e ir cooperation and support the p r o je c t could not have been su ccessfu lly completed. In the M inistry o f Works and Housing, I would lik e to s p ecia lly mention the support and in sig h t in to housing problems provided by Ramesh Chandra, Louis M. Menezes, Inder Choudhury, S.T, Veeraraghavan, M ihir K, M oitra, G.C, Mathur, Edgar R ib eiro, Naresh Narad and P.S*A* Sundaram, some o f whom sharing with me th e ir valuable experience o f housing sector problems even a fte r they l e f t the M in istry. A.M, Khusro o f Planning Commission always took a keen in te re s t in the study and the several discussions I had with him were p ro fessio n a lly stim u latin g and rewarding. At the State le v e l, I would lik e to thank, in p a rtic u la r, K. Thomas Poulose, R.M. Senapathy, P,V, Bhatt, C. Ramachandran, A. Ravin dr an, S*S, T in a ik a r, Kalyan Biswas and H.M. Singh. Several other Government o f f i c i a l s to whom we are indebted are mentioned in Aonexure I I o f the Report. Among o f f ic ia ls o f fin a n c ia l in s titu tio n s and housing finance in s titu tio n s, I am p a rtic u la rly g ra te fu l to H#T«Parekh and Deepak Parekh o f the HDPC, H*U* B ijla n i o f the HUDCO, C. Rangarajan o f Reserve Bank of In d ia, S,G. Subrahmaniam o f the LIC, M.J* Pherwani o f the GIC and G.S. P a te l o f the DTI. ( i i i )

4 A number o f in tern a tio n a l agencies extended support and cooperation and I wish to p a rtic u la rly mention the World Bonk and the USAID, the former fo r also deputing one o f th e ir senior o f f ic ia ls to New Delhi fo r discussions with me and the la t t e r fo r also providing me an opportunity to meet several housing sector experts in Washington, Bertrand Renaud o f the World Bank was kind enough to v i s i t New Delhi fo r discussions and to go through the d ra fts o f Chapters IV and V and o ffe r several u sefu l suggestions on these as w e ll as other chapters in the Report, Discussions with Stephen Mayo, James W right, Rakesh Mohan, Promodh Malhotra o f the World Bank/IFC, Washington, Sean Walsh, P h ilip Gary, Vivivagnn Pettersson of the US AID, W illi Osterbrauck o f the In tern a tio n a l Union o f Building S o cieties and Savings Association, Jim Ho Kim o f Korea Housing Bank were inform ative and enlightening, A number o f my colleagues on the Planning Commission*s Working Group on Housing fo r the Seventh Plan made suggestions from time to tim e, Among my colleagues at the NIPPP, I wish to esp e cia lly thank Raja J, C helliah who not only gave u sefu l suggestions on d iffe r e n t aspects o f the research work but also c a refu lly went through variou s d ra fts o f the Report, In the NIPFP, S.B.L* Sherry was associated with the research p ro ject throughout i t s tenure and he undertook the r e s p o n s ib ility o f conducting the f i e ld surveys in D elhi, Quilon, Cuttack and Ambala and A.K. Gupta did so in Lucknow, Several in v estig a to rs worked in the f ie ld surveys in d iffe r e n t parts o f the c o u n t r y K. K, A tri and A.K. Halen took over the arduous re s p o n s ib ility o f processing the data obtained in the housing fin an ce surveys, Christopher C e c ils e d ito r ia l suggestions have improved the presentation o f the Report and valuable s e c re ta ria l assistance was provided by N, Natarajan and R, Periannan and the the typ in g was done by K.R.Subronainan and R.S, T y a g i. S e p t e m b e r 1 0 * VINAY D. LALL ( i v )

5 Table o f Contents Page No, Preface Acknowledgement i i i i i I, Housing and the Resources issue 1 I I, O b jectives and survey methodology 11 I I I, IV, The resources m obilisation e ffo r ts o f new home owners 29 Housing finance market and fin a n c ia l in term ed iation 97 V. Reforms in the system o f housing finan ce in term ediation 131 V I, P o te n tia l fo r addition al resource m obilisation in housing 176 V II, Conclusions 191 Annexure Annexure S t a tis tic a l Tables 219 (v )

6 I. HOUSING AND THE RESOURCES ISSUE 1. Housing and the Development Process The housing sector has an important r o le to play in the development process. In the f i r s t p lace, in vestment in the housing sector stim ulates the rest o f the economy, including the building m aterials industry, the engineering industry and the transport, communications and in frastru ctu re sectors. In several economies, including some o f the most developed ones, the housing sector has been and continues to be a major engine o f growth a c t iv it ie s. Secondly, home ownership o ffe r s the jfc;&t?t in cen tive to save and accumulate, and at the household le v e l i t is given the highest p r io r ity in asset form ation. Therefore, home-linked savings can provide the much-needed impetus to the n a tio n a l resource m o b ilisation e ffo r t. F in a lly, fo r achieving a major socioeconomic o b je c tiv e o f development, namely, an improvement in the qu a lity o f human l i f e, a decent, clean and h abitable home with minimum f a c i l i t i e s lik e potable water and hygienic sanitation is a basic requirement. In fa c t, housing provides the appropriate environment fo r attainment o f the cru cia l goals o f n ation al p o lic ie s r e la tin g to h ea lth, fam ily planning and education. The nation al plan programmes in India have focussed a tte n tio n on the removal o f p overty by attempting to reduce the proportion of population who liv e below s p e c ifie d 1p o v e rty -lin e *, through employment-generating a c t iv it ie s. P a rtly fo r th is reason, the flow of funds in to the s o c ia l consumption sectors has n ot been to the

7 extent that may have "been d esirable. The to t a l in v e s t ment in housing, fo r example, during the f i r s t six fiv e year plans adds up to Rs 11,400 crore, or 14.3 per cent o f the to t a l plan investment. In fa c t, as a proportion o f to ta l investment in each successive plan., the in v e s t ment in housing has been fa llin g ; 34.2 per cent in the F ir s t Plan, 9.8 per cent in the F ift h Plan and 7.5 per cent in the Sixth Plan (Table 1,1 ), As a proportion o f the gross domestic product (GDP) in the country, the annual budgetary a llo ca tion s fo r housing by the Central and State governments (in clu din g Union T e r r ito r ie s ) during to ranged between 0,19 per cent and 0,23 per cent. The estimated annual investment in housing (inclu din g commercial p ro p erties) is le s s than 3 per cent o f the GDP (a id in housing in p a rtic u la r, i t may be le s s than 1,5 per c e n t), fa llin g short o f the United Nations ta rg et o f 5 per cent. 2, Present Status o f Indian Housing a * The scenari.o. The national housing stock, as per the 1981 Census, stands at m illio n u n its, th ree-fou rth in the ru ral areas (90,9 m illio n u n its) and one-fourth in the urban areas ( 28,9 m illio n 'u n its). There is some imbalance in the d istrib u tio n o f the n ation al population, households and housing stock as between urban and ru ra l areas. As can be seen from Table 1.2, the proportion o f n ation al population is s lig h tly lower than the proportions of n ation al households and housing stock in the urban areat>,. Hhevc lias been some improvement in the urban housing situ ation over the la s t decade mainly because the housing stock has grown su b stan tially fa s te r than the population.

8 - 3 - TABLE 1.1 Ijavesfrm in Housing, During the, Five, Year, Plans Plan period T o ta l in v e s t- nont in the economy (Rs crore) Invest-* vaent in housing (Rs crore) Investment in housing as percentage of to ta l in vestment in the economy Investment in housing in public and p rivate sectors as percentage o f total, investment in housing F irs t Plan T o ta l P u b lic P riv a t e Second Plan T o ta l Pu blic P riv a t e Third Plan T o ta l Pu blic P riv a te Fourth Plan T o ta l Pu blic P riv a te F ift h Plan T o ta l Pu bli c P riv a te Sixth Plan T o ta l P u b lic P riv a te Source! National B uildin0 O r ig in a tio n (1980), Handbook, o f Housing S ta tis tic s.

9 TABLE 1.2 Growth of Population, Householdsand Housing Stock T IT w Decennial growth rate ($) ( ) (Milli jn numb er s ) Decennj al growth rate )( ) (1961- i) Decennial growth rate ($) ( ) Population Urban Rural Total Households Urban Rural Total Stock Urban Rural Total b Sources For 1951 to 1971, Data have been taken from NBO (1980) and for 1981 from Census ( 1981).

10 5 Thus, during the period 1971 to 19&1, the. annual average rate of growth o f housing stock was 5.3 per cent and that o f population was 4.5 per cent in the urban areas, whereas the corresponding rates o f growth fo r the country as a whole were 2,5 per cent and 2.2 per cent, r e s p e c tiv e ly. The average s ize of a household continues to remain sm aller than the average number o f resid en ts in a r e s i d en tial u n it, in d icatin g that more than one household shares a re s id e n tia l u n it. The situ ation has somewhat improved in the la s t decade, 1971 to 1981, esp ecia lly in the urban areas. The foregoin g analysis shows that governments p o lic ie s have had some impact on the urban housing scene, both in terms of the housing stock and population rela tion ' ship and occupancy r a tio s. A vailable data in the decennial censuses upto 1971, and from the N ational Sample Surveys, also reveal that during the la s t three decades, there has been a noticeable improvement in the qu ality o f housing units in both the urban and the ru ral areas. These improvements are r e fle c te d in the b e tte r qu ality o f construction m aterialc used fo r building w alls and ro o fs, superior v e n tila tio n f a c i l i t i e s, and the improved systems o f drinking water supply, lig h t in g and san itation.- l/ The analysis is based on comparable data from the national censuses on population and housing stock- th e-reports o f the N ational Sample Surveys: 7th Round (1958; and 28th Round (1977) and the resu lts of a survey conducted in Surat and Villupuram A "fo r d e ta ils, 3ee L a l l. (19S2)_7

11 I t is lik e ly that the 1981 census data, when published, may provide fu rther and more recent evidence on the q u a lita tiv e aspect 01" n ation al housing stock. b. Changing economic scene and housing statu s. The improvements in the qu a lity of Indian housing stock and the changes in the proportionate shares o f the housing stock of the urban and ru ral sectors r e fle c t the changing socio-economic scene, the d irect resu lt o f development programmes undertaken by the government and the i n i t i a tiv e s of the p rivate sector, which accounts fo r about f o u r - fift h of the a c t iv it ie s in housing. The impact o f in d u s tria lis a tio n, urbanisation and improvements in the economic conditions in the ru ral sector have brought about changes in the preferences o f the home owners and in th e ir income-earning and investment c a p a b ilitie s. However, the magnitude of the problem s t i l l remains la rge and, as has been c o r r e c tly stated in the S ixth Plan, a sustained programme o f investment in construction has to be undertaken over the next 20 years (Page 390), i f the housing requirements o f the country are to be met. c. Spme,jfelfleASAOftA.^ arable/-,. 1 Sub-Group appointed by the Working Group of the Planning Commission on Housing fo r the Seventh F ive Year Plan ( ) has estimated the housing stock in 1985 at m illio n units (95.2 m illio n ru ra l units and 29.7 m illio n urban u n its) and the housing shortage at 24.2 m illio n u n its. The Sub-Group has fu rth er estimated that between 1985 and 2000 AD, an addition al housing stock o f 90.8 p illio n units w i l l be required to meet the needs of the increasing p opu lation, the obsolescence in e x is tin g stock and the

12 7 destruction o f a part of the existin g stock due to natural calam ities. As such, the to t a l housing stock.requirement in 2000 AD is estimated at m illio n units and the net addition al housing stock at 105 m illio n units,^/ The magnitude of the housing problem can be attrib u ted to several fa c to rs. The growth' of house construction has not kept pace with the growing demand fo r housing due to constraints of land, bu ildin g m aterials and finances. This situ ation has arisen, in the f i r s t place, due to the poverty o f the general population. Secondly, very l i t t l e of the savings generated in the economy are channelised in to -che housing sector, as the nation al economic strategy has given a low p r io r ity to housing possibly due to a misconception that i t is a resourceabsorbing a c tiv itjr and not a resource-generating a c t iv it y. This v i. v overlooks the m u ltip lie r and g ro w th -in itia tin g e ffe c ts o f investment in the housing sector on the rest o f the economy. T h ird ly, from the point o f view o f resource a llo c a tio n, housing is not treated as an organised industry, even though many other a c t iv it ie s including 2/ These estim ates are based on the fo llo w in g assumptions: ( i ) Every household, urban or ru ra l, should have a housing unit.to i t s e l f ; ( i i ) In urban areas, a housing unit may eith er be pucca or semi-pucca; and ( i i i ) In ru ral areas, the housing unit may be pucca, semi-pucca or s e rv ic e a b le kutcha, Further, the annual ra te o f increase in housing requirement due to increase in population has bee '> assumed to be 1.5 per cent, the re.te o f ''bsolcycono h been r-ssurusd to be 1-5 por cent end ollow on cj h been e0.ao fo r destru ction o f housing stock by natural calam iti os.

13 those in the nature o f services have been given such a status. Fourthly, often the employment p o te n tia l o f house construction is underestimated. F in a lly, under the Indian C onstitution, housing is a "S ta te subject and so the Central government is not responsible fo r i t s development, The main re s p o n s ib ility fo r the housing sector lie s with the State governments, which consider a c t iv it ie s in other sectors more important from economic and p o lit ic a l con sideration s. There exists no systematic n ation al p o lic y which may ou tlin e the growth and operational strategy fo r the housing sector as e x is ts, fo r example, in several other sectors, lik e industry, agricu ltu re, banking, trade, e tc. The Central government draws out a broad plan perspective f o r investment in the housing sector and arranges to, provide fo r flow of some funds v ia the LIC, the GIC and the HUDCO, P ra c tic a lly no monitoring or follow -up work o f investment schemes is undertaken by the Central and State governments. The p rivate sector has come to play a major ro le in the housing sector and, under the present strategy, as enunciated in the Sixth Plan, i t would have to continue to play the dominant r o le. But no serious attempt has been made, or is being made, to provide fo r the inputs that might ensure that the p riv a te sector plays i t s developmental ro le e ffe c t iv e ly. 3 * The Resources Issue The lack o f fin a n c ia l xetiources has been ident i f i e d as a cru cia l constraint on housing a c tiv ity in the country. The Working Group on P r iv a te Housing

14 - 9 - (Mukharjee Group, 1981), Government o f In d ia, had th erefore emphasised the need to strengthen the organised housing finance system in the country. From the point o f view o f the in d ivid u al home 'buyer, the major constraint, in fa c t, is the n o n -a v a ila b ility of adequate finances. However, other constraints, lik e the lim ited a v a ila b ility o f land and bu ilding m aterials, are not d ire c tly faced by a home owner, esp ecia lly i f he acquires a house in a cooperative so c ie ty or from a p u b lic or p riv a te sector builder/agency. The Sub-Group of the Working Group on Housing fo r the Seventh F ive Year Plan has estimated that during the Seventh Plan, , an investment o f Rs 33,800 crore would be required and that during the period AD, a to ta l investment of Rs 1,31,650 crore would have to be made to am eliorate the housing situ a tion. The proposed plan envisages, in lin e with the planning strategy, that th ree-fou rth of the estimated investment would be made in the p riv a te sector. However, s u ffic ie n t e ffo r t is not being made at present to ensure the req u is ite flow o f resources fo r th is purpose. The resources problem, w ill thus, be a cru cial issue fo r the housing sector in the years to corne.^ I t is not ju st the lack of fin a n c ia l resources that is the re a l problem but the absence o f any gra ss-roots- le v e l in s titu tio n a l system that would m obilise the e x is tin g household savings in the economy f o r investment in housing, 3/ I f the resources flow is suddenly increased, shortages o f r e a l resources would immediately be f e l t. This study, however, is concercod only with the pivblem o f finances.

15 10 ~ stim ulate a s h ift from consumption to savings fo r in v e s t- ment in housing, provide in s titu tio n a l fin a n c ia l in te r mediation on a mass b asis, and encourage in d ivid u als to invest in housing at an early stage in th e ir earning l i f e. I t is s ig n ific a n t to note that a few years ago there hardly existed any semblance of an organised housing finance system in the country and, even today, i t is f e l t that the in s titu tio n a lly -m o b ilis e d fin a n c ia l fxows in to housing make only a token contribution. The basic thrust in the Seventh Plan approach to the housing s e cto r would, th erefo re, have to be directed towards the development o f an appropriate housing finance system fo r the la rge scale m obilisation o f fin a n c ia l resources fo r housing.

16 I I. OBJECTIVES AND SURVEY METHODOLOGY 1 O b jectives o f the Study The Mukharjee Group (1981) had recommended several measures to promote housing a c t iv it y in the country, in c lu ding the grant of f is c a l in cen tives to m obilise savings fo r investment in housing and the strengthening and/or creation o f new in s titu tio n s. Subsequently, the Central Council o f State M inisters fo r Housing urged the Central Government to adopt the major recommendations o f the Mukharjee Group, but fo r a considerable period o f tim e, no progress was made in th is d ire c tio n. In pursuance of these recommendations, "the M inistry (Works and Housing) has entrusted a study of housing finance to the N ational In s titu te of Public Finance and P o lic y 5 (M inistry o f Works and Housing, Annual Report page 5-6 ). The present Report has been prepared on the basis o f the assignment given by the M in is try o f Works and Housing (MWH). fo r the study. The MWH have s p e c ifie d the follo w in g o b jectives ( i ) Examination o f the lacunae in the existin g system o f fin an cin g housing; ( i i ) Analysis o f the exis tin g c a p ita l market in housing; ( i i i ) Recommendation o f methods fo r improving the flow o f resources in to the housing sector; ( i v ) Examination o f the m odalities fo r s e ttin g up a sp ecia lised fin a n c ia l in s titu tio n ; (v ) Study o f the scope fo r s e ttin g up decentr a lis e d fin a n c ia l in term ediaries, such as savings and loans association s, to promote addition al savings; and

17 - 12 ( v i ) Examination o f the p o s s ib ility of introducing mortgage insurance in the hpusing sector. The study, as per the discussions between the o f f ic ia ls o f the MWH and the NIPFP, is r e s tr ic te d to the urban housing sector. I t was f e l t that the fin a n c ia l needs o f the ru ral sector, the methods of assessment fo r fin an c ia l assistance, and o f disbursement and monitoring mechanism fo r ru ral housing finance would be d iffe r e n t from those fo r urban housing and could not be d ealt with in th is study, given the con strain ts o f time and resou rces, 2, The Approach O bjectives ( i ) and ( i i ) s p e c ifie d by the MWH suggest an ex-post analysis o f the present system o f housing finance w ith a view to id e n tify in g the weaknesses, gaps and inadequacies in the e x is tin g system o f housing fin a n ce. At the le v e l o f the home owner, the study has to focus atten tion on his resource m obilisation e ffo r t s, id e n tify the source o f finances tapped by him and examine the d iffic u lt ie s encountered by him in ra is in g the req u is ite resources. At the in s titu tio n a l le v e l, i t intends to examine the a llo ca tio n o f funds among b e n e fic ia rie s, including an assessment o f lending p o lic ie s and cred it appraisal methods, and then assess the operational constraints on making in s titu tio n a l housing finance a wide-based a c t iv it y, The study r e la tin g to ob jectives ( i ) and ( i i ) i s based on primary and secondary data. The primary data at the home owner le v e l have been obtained through a house-to-house survey o f a sample o f s e le c te d owners o f

18 recently-con stru cted houses in d iffe ren t, parts o f the country, and at the in s titu tio n a l le v e l they have been obtained through discussions with senior o f f ic ia ls o f major fin a n c ia l in s titu tio n s, Central and State governments, and in d ivid u al experts in the f ie ld. Secondary data have been obtained from published documents and a vailab le research studies. O bjectives ( i i i ) ato ( v i ) re la te to p ossib le ways o f m itiga tin g, i f not wholly elim in atin g, the observed weaknesses and inadequacies in the e x is tin g system o f housing finan ce. The study re la tin g to the stimulants to encourage the flow o f fin a n c ia l resources in to housing has to examine the a lte rn a tiv e in cen tives that may be developed at the in d ivid u al and in s titu tio n a l le v e ls, The proposed stimulants may lead to some re-a llo c a tio n o f the existin g volume of household and in s titu tio n a l savings in the economy in favour o f the housing sector, but they must also be designed to bring about a net increment in the proportion o f n ation al savings to the n ation al income, and to channelise a growing proportion of savings in to the housing sector. This part o f the study is based on an analysis o f secondary data and inform ation on experiences in In d ia and in some selected countries. The analysis o f the measures that may be considered to strengthen the housing finance system is based on discussions with o f f i c i a l from nation al and in tern a tion a l in s titu tio n s and in d ivid u al experts and a study o f lite r a tu r e on experiences o f countries having a developed housing finan ce system.

19 ~ 1 4 _ 3 O bjectives and Methodology of Housing Finance Survey a * O b jectives. The ob jectives o f the housing finance surveys in the s e le c te d towns aret ( i ) to id e n tify the pattern of resource m obilisation by in d ivid u a l home owners; ( i i ) to evaluate the ro le that in s titu tio n a l financing is now playing; ( i i i ) to assess the importance o f the inform al housing finance s e c to r; ( i v ) to examine whether the r e la tiv e s ize o f a town (as represented by the s ize o f the population and some o f the major s o c io economic ch a ra cteristics o f each'town (economic status and income pattern o f the home owner, the le v e l o f in d u s tria lis a tio n and urbanisation, the le v e l o f lite r a c y, the state o f the -o-operative movement in housing, e t c.) had a bearing on the resource m obilisation e ffo r t o f the home owners; and (v ) to id e n tify the problems encountered by home owners in m o b ilisin g resources* b. S election o f towns. In view o f the s p e c ific o b je c tives fo r which the f i e ld surveys were to be conducted, i t was considered necessary, within the time schedule fo r the p ro je c t, to adopt a simple method fo r s electio n o f the sample towns. The id e a l way to s e le c t rep resen tative towns would have been to l i s t major socio-economic ch a ra cte ristics o f a l l sm all, medium-size and la rge towns in the country and then g iv e weightage to these ch a ra cteristics in s e lectin g the sample. In th is study, the o b je c tiv e is not to do a comprehensive and rep resen tative housing finan ce survey f o r the country but only to make case

20 studies in selected towns in order to obtain some qu antitative and q u a lita tiv e evidence on issues o f relevance to the study. The evidence that was to be c o lle c te d was to be then compared with data and analyses a va ila b le from e a r lie r studies of other towns in the country. Hence,, a simple method o f s e le c tio n o f the towns was adopted, From a p ro visio n a l l i s t o f 20 tcwns, fiv e towns were fin a lly selected, a fte r discussions with o f f ic ia ls in the MWH, the Planning Commission and State governments and with in d ivid u al experts. These towns represent d iffe r e n t socio-economic conditions in the country, and also r e fle c t in d u s tria l, ru ral and urban c h a ra cte ristics. The s e le c te d towns are D elh i, Lucknow, Cuttack, Ambala and Quilon. The sample, thus, includes two m etropolises, one town having a population o f around 3 lakh and two towns having a population o f around 1 to 2 lakh. The m etropolises were selected as represen tative o f the problems in la rge c it ie s. The two la rg e s t metros, namely, Calcutta and Bombay, were excluded as they are not represen tative of the lik e ly situ ation that may a rise the la r g e r and growing towns in the country. I f approp ria te p o lic ie s are formulated and implemented, the Calcutta-Bombay s itu a tio n may not recur in oth er towns. Delhi was selected not only because i t is the n ation al c a p ita l, but also because la rg e -s c a le in d u strialis a tio n and a g ricu ltu ra l development w ithin Delhi and in the p eripheral areas has added to growing congestion and an acute housing shortage. Delhi experienced a very high

21 - 16 rate o f growth o f population during The annual rate of growth o f population at 4.6 per cent was lower than only th at ;o f Bangalore and Jaipur, among the 12 m etropolises in the country. The density c f population is also high as compared to other towns and there is la r g e - s ca le in-m igration o f people from a l l over the country. A contributory fa c to r to D elh i1s sh elter problem which may become important in other growing urban complexes is t o t a l government control over the supply o f urban land. This p o lic y is not only gen erally b elieved to have raised urban land p rices to abnormally high le v e ls, but i t has also placed physical constraints on p rivate sector housing a c t iv it ie s. Besides, Delhi has a la rge service population, including government employees and p rivate sector employees and a substantial m igratory population. Unauthorised housing in clu sive- o f slums and squatter settlem ents as w e ll as i l l e g a l la rg e permanent structures, has become a sp ecia l c h a ra c te ristic o f the m etropolis. Another reason fo r including Delhi is that public sector housing programmes through the e ffo r ts o f the Delhi Development Authority, are known fo r many o f th e ir innovative featu res, including s e lf-fin a n c in g schemes, which have become popular and are being in creasin gly adopted in other towns. Lucknow is included among the sample towns as i t represents important ch a ra cteristics o f an urban centre, which have a close bearin g on the housing s itu a tio n. These c h a ra c te ristics are seen in several la rge and medium-sized towns in the cotmtry, Lucknow is also the c a p ita l o f the most populous Indian S tate and to a la r g e

22 17 - extent, i t s growth has been due to p o litic a l~ c o n s l deration s. Further? while Lucknow cannot be c la s s ifie d as an indust r i a l, commercial or agro-based town, it s close proxim ity to a major in d u stria l town, namely, Kanpur, exposes i t to the f a l l out e ffe c ts of growth th erein. In the process, the housing problems a ris in g due to in d u s tria lis a tio n in Kanpur are p a rtly s h ifte d to Lucknow. Also, la rg e -s c a le ru ral m igration in to Lucknow aggrevates the housing problems in the town. Lucknow is also an excellen t example o f unplanned development, The p ra ctice in the past has been to develop ^ o h a lla * by tm ohalla*, according to the wishes o f the people and/or the whims o f past r u le r s. Housing, as p er a master plan, i s s t i l l a new concept, and examples o f such planning are seen only in a few areas lik e Mahanagar and ITirala Nagar, A sp ecial featu re o f the Lucknow housing scene is that almost one-third of the population liv e s in squalid conditions, in 457 slums scattered a l l over the town The medium-sized and small towns are included in the sample as an e a r lie r study (L a ll, 1932) had shown that in s titu tio n a l financing f a c i l i t i e s were r e s tr ic te d mainly to the major m etropolises, and very l i t t l e o f in s titu tio n a l financing percolated to the smaller towns. I t was shown in that study that the inform al housing finance market, comprising indigenous bankers, r e la tiv e s and frien d s, is the main source fo r housing finance and the dependence upon the inform al housing finance market is in versely re la te d to the le v e l o f the income o f the home owner and is p o s itiv e ly rela te d to the distance o f the

23 lo catio n from the major centres o f in s titu tio n a l c re d it. 3s/ Cuttack, Ambala and Quilon are, th erefo re, rep resen tative o f the pattern o f resource m obilisation e ffo r ts o f home owners in medium-sized and small towns. Cuttack is not only a medium-sized town in terms o f population and area, but i t is also on excellen t example of an economically underdeveloped reg io n a low le v e l o f urbanisation and a high density o f population. More im portantly, the resource m obilisation capacity o f in d iv i duals in th is town is not only low, but i t is fu rther constrained by the p e rio d ic a l occurrance o f natural calam ities. The type of housing and the extent of housing finance that the people o f Cuttack may requ ire are, th ere fo re, d iffe re n t from what may be observed and expected in a more developed and r e la t iv e ly a fflu en t s q c ie ty. I t is hoped that the pattern and problems of housing finance that may emerge from a study o f the savings and resource m ob ilisation e ffo r ts o f home owners in Cuttack would be in d ic a tiv e o f the problems that are encountered by the vast m ajority o f people liv in g in r e la t iv e ly small and low-income towns, where the individual^ capacity to save is constrained by p erio d ic natural calam ities. 4/ There was general agreement on these fin d in gs among discussants at a Workshop held in A p ril, 1983 in New D elhi to discuss the main conclusions o f the study.

24 - 19 A sp ecia l feature o f Cuttack which is common to other urban and semi-urban centres in the country i s that while i t has no la rg e -s c a le in dustries and there appears l i t t l e p o s s ib ility fo r such type o f in d u s tria lis a tio n in the near fu tu re, i t has developed in to an important commercial centre fo r the surrounding region. As such, there is a substantial in flo w o f people who often come fo r temporary v is it s but gradually s e ttle down. C iv ic amenities are grossly inadequate and there are natural b a rriers fo r planned development and expansion o f the town (created by the twin r iv e r s Mahanadi and K a th a jo ri), The main reason fo r s e le c tin g Ambala is it s r e la t iv e ly high le v e l o f prosperity due to both in d u s tria l and a g ric u ltu ra l development. Ambala is also prone to the f a l l out e ffe c ts o f development in several proximate growth centres ( e. g., D elhi, Chandigarh, Amritsar and Ludhiana) and to that extent, i t s housing problems have m u ltip lied. Several examples o f a sim ila r nature are found a l l over the country. Public housing programmes have, however, made an important con trib u tion. Ambala is divided in to two d is tin c t p arts, namely, Ambala Ci ty and Ambala Cantonment, the point o f demarcation between the two being the overhead road bridge on the railw ay lin e. The survey r e la te s only to Ambala C ity, in lin e with the decision taken to exclude cantonment areas (t h is i s also done in the case o f Delhi and Lucknow). The main reason fo r the exclusion o f cantonment areas is that they are sp ecial regions and the situ ation there may be found in oth er parts o f the towns.

25 Quilon has been selected because o f i t s high le v e l o f lite r a c y, in flo w o f p e tro -d o lla rs in to i t, and it s sp ecia l featu res as a coastal torn. The housing a c tiv ity in Quilon has been almost wholly in the p rivate sector, with marginal' contributions made by the State Housing Board, The Quilon Development Authority was set up only in,1982 and, th ere fo re, in the absence o f public sector housing programmes, the exclusive e ffo r ts o f the p rivate sector in the housing sector provide a new perspective to the study, c. S election o f sample houses. A few studies that have examined the housing finance problems of home' owners have covered mainly the formal housing sector, con sistin g o f housing units b u ilt as per the p rio r approved plans o f the concerned lo c a l a u th o rities. No da,ta are a vaila b le on the housing finance problems o f the inform al housing sector, consisting of unauthorised permanent structures on public land, a g ric u ltu ra l land and/or on p riva te land without any re q u is ite approval, and semi~pucca and kutcha slum and squatter settlem ents. A n ation al housing finance p o lic y has to keep in perspective the housing finance problems o f a l l categories o f p o te n tia l home owners. I t was, th ere fo re, decided during the discussions between the NIPFP and "the MWH that the housing finance problems of the inform al housing sector would also be studied. Hence, about 15 per cent to 20 per cent o f the sample houses have been selected from the inform al housing sector. In the form al housing s e cto r, houses are constructed by in d ivid u als with the help o f h ired labour, by contractors, by co-operative s o c ie tie s and by public sector agencies lik e the housing boards and development a u th o r itie s.

26 The public sector agencies construct s p e c ific categories o f houses fo r home owners in d iffe r e n t income brackets, and sometimes they also provide developed p lo ts to in d i v i duals to build th e ir own residential!, u n its. In view o f the fa c t that the q u a lity o f construction, covered area and cost o f houses constructed by public sector agencies at any p a rticu la r point o f time are, more or less the same (except fo r the d ifferen ces due to the location on d i f f erent flo o r s o f m ulti-storeyed buildings and some d iffe r ences due to marginal varia tion s in type and area o f balcony, dining space, e t c. ), i t was f e l t that a few randomly selected houses in each major colony fo r s p e c ific income categories should be included in the sample. For th is purpose, public sector houses are c la s s ifie d in to two broad income categories, namely, one consisting o f EWS and LIG houses and the other o f MIG and HIG houses. houses constructed by in d ivid u als or by co-operative As regards s o c ie tie s, including those on developed p lo ts purchased from public sector agencies, a census was made o f such houses. The census covered houses which received a completion c e r t ific a t e (as in D elhi) and where th is system does not p r e v a il, houses which were assessed to property tax fo r the f i r s t time (in Lucknow, Arnbala, Cuttack and Quilon) during January, 19o1 to June, 19&2. As such, the m ajority of the houses in the sample can be expected to have been constructed during the fiv e -y e a r period, , The sample houses constructed by non-public sector agencies were then given random numbers and c la s s ifie d in to three groups based on th e ir rateable value (RV), as given in the records o f the municipal a u th o ritie s for.._the assessment o f property ta x. library Acc No...7i. i ^. X,

27 A major lim it a. t ion o f using RV data is th p ossib le under-estimation o f house values. Secondly, in many cases, the RV values are p ro v isio n a l, pending fu rth er in v e s tig a tio n s. F in a lly, the RV is assessed only p e rio d i c a lly and r e assessment is made gen erally a fte r four to f iv e years. However, in the absence o f any superior base fo r c la s s ific a tio n, the RV has been used to c la s s ify the houses in the sample. While s e lectin g the sample, the d istrib u tio n of the census houses by th e ir location was also kept in p ersp ective. Therefore, in e ffe c t, a tw o -tie r system o f selectio n has been used, namely, according to RV and by lo c a tio n. Before the selectio n o f RV as the base, several a ltern a tives were examined. I t would have been id e a l to categorise the houses on the basis of th e ir actual cost, but the relevan t house-wise data are not a va ila b le in municipal records and can be obtained only through a doorto-door survey. Secondly, the covered area o f the house could have been taken as the c r ite r io n, but again, data are not re a d ily a vaila b le in municipal records even though d eta ile d plans approved by the municipal a u th orities contain data on the proposed s ize of the house. The compilation o f such data, on a census basis would have been, however, a time-consuming exercise and sometimes the actual s ize may not match with the approved s ize o f the house. T h ird ly, the c la s s ific a tio n o f houses according to the income or status category ( v i z., EWS, LIG, MIG and HIG) would have required in the case o f p riv a te sector housing, the compilation, of data on cost and value, which are not rea d ily a v a ila b le. F in a lly, the c la s s ification by type o f constructing agency ( v i z., co-operativ e s, development au thority, other in s titu tio n s and p riv a te in d ivid u a ls) would have served no u sefu l purpose.

28 In the sample towns, where more than one local authority existed and were empowered to grant building permission and/or completion certificates in different parts of the town, an attempt was made to include houses coming' under the ju risd ictio n of each of the au thorities. In Delhi, for example, three authorities function, namely, Municipal Corporation of Delhi (MCD), New Delhi Municipal Committee (NHIC) and Delhi Development Authority (DDA). The bulk of the housing activity in the town f a lls under the jurisdiction of the MCD and the DDA. While in Lucknow and Ambala, two o ffic ia l agencies granted permission for construction of houses, in Cuttack and Quilon only one agency operated during the period when the survey houses were constructed.*^/ The areas under the jurisdiction of cantonment boards have been excluded. Houses constructed by non-public agencies were c la s s ifie d into three categories based on th e ir RV, namely, ( i ) RV upto Rs 5,000; ( i i ) RV from Rs 5,001 to Rs 25,000; and ( i i i ) RV above Rs 25,000. The classification of the population and sample houses according to their RV is shown in Table I I. 1 for private sector houses and in Table I I. 2 for houses b u ilt by public sector agencies. The composition of the sample of 720 units, including the informal housing sector units, is shown in Table I I. 3 5/ These included the Cuttack Municipality in Cuttack, Quilon Municipality in Quilon, Lucknow Municipal Corporation and Lucknow Development Authority in Lucknow, and Ambala Municipal Committee and Haryana Urban Development Authority in Ambala.

29 TABL-. I I. 1 C la s s ific a tio n o f Census and Sampl e Houses in the P riv a te Sector by th e ir Rateable Values Town 1. Delhi Cfensus> 425 (49.77) Sample 62 (49.60) Rateable value ttpto1 Rs Rs ToTaT'*" Rs 5000 Rs and above.. r o... T 2 j V i) T4 302 (35.36) 44 (35.20) 127 (14.87) 19 (15.20) 854 ( ) 125 ( ) 2. Lucknow Census' Sample 20 (55.56) Cuttack "Census- Q u ils f lple Census- (55.27) (36.98) ( 7.75) ( ) 748 (99.73) ( 9 5 ) 722 (99.10) Sample 57 ( ) 5. Ambala tfensus- 329 (97.63) Sample 43 (97.73) 13 (36.11) ( 8.33) 2 (0.27) (o.h ) 14 (1.90) 2 (3.39) 8 (2.37) 1 (2.27) ; 36 ( ) 750 ( ) (ij 4 ) ( ) 59 ( ) w 337 ( ) 44 ( ) T o ta l Census (74.22) Sample, 335 (80.14) 789 ( ) 61 (14.59) 224 (5.70) 22 ( 5. 26) 3929 ( ) 418 ( ) Note: 1. The census r e la te s to p erio d January, 1981 to June, Figures in parentheses are percentages o f t o t a l. 3. in d icates n il.

30 TABLE I I. 2 C la s s ific a tio n of Public Sector Constructed Houses by th e ir Rateable Values (Number) Town Rateablevalue Upto Rs 5,000 Rs 5,001- Rs 25,000 Rs 2,5001 and above T ota l 1. Delhi Census 6508 (32.96) Sample 25 (32.89) (58.62) 45 (59.21) 1662 (8.42) 6 (7.89) (100.00) 76 (100.00) 2# Lucknow Census 3861 (57.75) Sample 57 (59.38) 2223 (33.25) 34 (35.42) 602 (9.00) 5 (5.21) 6686 (100.00) 96 (100.00) 3. Ambala Census ( ) Sample 6 (100.00) f*'* 1011 (100.00) 6 (100.00) TOTAL Note: 1. Census (41.47) Sample 88 (49.44) (50.28) 79 (44.38) 2264 (8.25) 11 ( 6. 18) (100.00) 178 (100.00) The census re la te s to the period January, 19&1 to December, F igu res in parentheses are percentages o f t o t a l.

31 TABLE I I. 3 Composition o f NIPFP Sample o f Home Owners Town 1, Delhi (Pop lakh) 2. Lucknow (Pop lak h) 3. Cuttack (Pop. 3.3 lak h) 4. Quilon (Pop. 1.4 lak h) 5. Ambala (Pop. 1.1 lakh) Formal Sector Inform al sector T ota l P riva te Public T o ta l Permanent Slums T o ta l structures and squ atter s e t t le ments.... X C L _ ^. X 2 l - X 3 ]. (4 )...i n... ~ T S T T r r ~ 125 (50.00). 36 (22.22) 154 (83.70) 59 (79.73) 44 (88.00) TOTAL 418 (58.06) 76 (30.40) 96 (59.26) 201 (80.40) 132 (81.48) 154 (83.70) 59 (79.73) 6 (12.00) 178 (24.72) 50 (100.00) 596 { 2.7Q) 25 (10.00) 15 ( 9.26) 18 ( 9.78) 24 (9.60) 15 (9.2 6 ) 12 (6.52); O. 49 (19.60) 30 ' (18.52) 30 (16.30) 250 ( ) 162 ( ) 184 (100.00) 7 15 ( 9.46) ( ) (20.27) 74 (100.00) 50 (100.00) 65 ( 9.03) 59 (8.1 9 ) 124 (17.22) 720 (100.00) Notes; 1. Figures in parentheses are per centages o f t o t a l o f form al and in fo rm a l.secto rs. 2. Figures in parentheses below the name o f the town in d ic a te the population as per 19&1 census.

32 27 - cl. Questionnaire. Data were obtained during the housing finance surveys on the basis o f a fiv e -p a r t questionnaire. The f i r s t three parts re la te d to data on physical ch a ra cteristics of the housing p ro je ct and the socio-economic background o f the home-owner. The fourth part focussed atten tion on the cost of the house and on the resource m obilisation e ffo r ts o f the home-owner. An attempt was made to obtain inform ation and data, on the pattern o f resource m obilisation e ffo r ts o f the home owners and, in the case o f resources m obilised through borrowings, also on relevan t issues lik e the rate o f in tere s t charged by in s titu tio n a l and n o n -in s titu tio n a l lenders, type of mortgage, expenditure on servicin g o f loans, etc. The la s t part o f the questionnaire sought some q u a lita tiv e assessment by the home owner o f the problems encountered by him in m o b ilisin g resou rces. 4. Framework o f Report The report contains seven chapters. The importance o f housing in the development process and an estim ate o f the fin a n c ia l resources needed in the housing s e cto r are brought out in Chapter I. This chapter provides the perspective fo r the analysis and discussions in Chapters I I I to V II. The ob jectives of the study, as la id down by the Government o f In d ia, have been sta ted in the present chapter, to geth er w ith an explanation o f the study*s approach. The methodology used in the housing finance surveys to obtain qu a n tita tive and q u a lita tiv e evidence on the problems o f resource m obilisation o f in d ivid u al home owners and on t h e ir housing finance p attern have also

33 "been sp elt out. An analysis of the data obtained from the f i e l d surveys i s then presented and analysed in chapter I I I In chapter IV, the s a lie n t features o f the e x is tin fin a n c ia l in s titu tio n a l set-up in the housing sector are examined,bringing out the important inadequacies and weataiesses, An evaluation o f the in tera ctio n between the c a p ita l market and the housing sector i s also presented. Chapter V is o f a recommendatory nature. The o b jectives o f a new housing finance system are f i r s t id e n tifie d, follow ed by an examination o f the approach that may be considered. Several suggestions are made on the lin e o f action that may be considered to strengthen the housing finance system, make i t broad-based, and e a s ily accessib le by the masses and yet ensure i t s v ia b ilit y. Some suggestions on expanding the flow of household and non-household savings into the housing sector are also examined. In Chapter V I, an analysis is made o f the p o te n tia l sources that might be tapped to m obilise a d d itional fin an ces f o r housing, 8 The main fin d in g s and p o lic y recommendations are summarised in chapter V I I.

34 I l l. THE RESOURCE M9BILISAIION EFFORTS 'OF NEW HdE OWNERS I. Introduction Mu- *"!»«.iwmiai» m, Ai,*»» The o b jectives in undertaking the case studies in fiv e selected towns in the country and the reasons fo r s e le c tin g the sample towns have been explained in Chapter I I. The primary purpose o f the case studies was to get an idea o f the pattern o f resource m obilisation by new home owners in the country and o f the major problems that they had encountered in ra is in g resources. However, fo r a proper p erspective on the housing finance scenario, data were also obtained on the s a lien t featu res o f the new housing stock. 2 S a lien t C h aracteristics, o f New Housing S t o c k a* Magnitude and s iz e o f housing stock. The housing finance surveys in the f iv e selected towns covered 720 re s id e n tia l units comprising 2,245 rooms with a to ta l covered area o f 5.89 lakh sq. f t. The surveyed housing stock had a permanent occupancy o f 4,222 resid en ts. A l i t t l e over one-sixth o f the surveyed housing stock ( i. e., 124 re s id e n tia l u n its) was in the inform al sector, having a to ta l covered area o f 34,580 s q. f t. i. e., about s ix per cent o f the t o t a l covered area o f the sample houses (Table I I I. l ) ^ / 6/ There are two features that d iffe r e n tia te housing in the inform al housing sector from housing in the formal housing sector. In the f i r s t place, the construction o f the house in the inform al sector is not according to a plan approved in advance by the concerned lo c a l authority and secondly, the ownership o f the land may not be clea r or the land may not belong to the home owner (may belong to the government or a public sector agency), or the land may be earmarked fo r a non~ re s id e n tia l purpose.

35 - 30 -» * P h y s i c a l C h a r a c t e r i s t i c :S '*** TABLE Salient Character is tlc a o f Mew Housing Stock o f Home Owners In S elected Townt D e l h i L u c k n o w C u t t n c k d u i l o n " 1 1 t o u r s r r." 3 " F o r m a l I n f o r m a l T o t a l F o r m a l f n f o r m a l T o t a l ^ o r r c a l I n f o r m a l t o t a l F o r m a l I n f o r m a l t o t a l r s, r n c t o :. i f o r»«! T o t a l n r s e c t o r s e c t o r s a c t o r a a c t o r s a c t o r s a c t o r a a c t o r...,s 9 S V > r, S 0. i. t o J l i L I T " v Q f - - i c t o r T i ] - " C l 7 ' * ' K T ' ( 4 ) > ( S J ( 6 )... {?. i ^ ( s ; ( 9 J i l f i L - U U t i x l. L i. i L.... L u l...l I I L i L 1 * N u m b e r o f h o m e s G SO ( 3 3 * 7 2 ) ( ) ( 3 4 * 7 2 ) ( ) ( 2 4 * 1 9 ) ( 2 2 * 5 0 ) ( 2 5 * 8 4 ) ( ) ( 2 5 * 5 6 ) ( 9 * 9 0 ) ( ) ( 1 0 * 2 8 ) ( 8 * 3 9 ) / ( 6 * 9 4 ) ( *0 0 ) ( l O O. O O ) ( c o ) Z * T o t a l c o v e r e d a r e a * * ? * * S4 * S O T. 0 4 ( ' e c i. f t. ) ( ) ( ) ( 4 7 *0 2 ) ( ) ( ) ( 2 1 * 8 9 ) ( ) ( ) ( ) ( ) ( 5 * 4 1 ) ( ) ( ) / ( j ( ) ( *0 3 ) ( ) 3» H v e r a g e a r e a p e r * * * * * * 3 0? t 1 h o u s e ( s q * f t * )» 4 * T o t a l n u m b e r o f _, r o o a s ( 3 6 *6 4 ) ( 3 5 * 1 5 ) ( 3 6 * 4 8 ) ( 1 8 *6 9 ) ( 1 9 * 2 5 ) ( 1 8 * 7 5 ) ( ; ( 3 1 * 8 0 ; ( 2 7 * 3 5 ) ( 1 1 * 0 7 ) ( 1 3 * 8 1 ) ( 1 1 * 3 6 ) ( ) / ( 6 *0 6 ) ( *0 0 ) ( l O O. O O ) ( l O O. O O ) S * A v e r a g e n u m b e r o f 3 * * «8 4 1 * * * * * * r o o a s p e r h o u s a ;. O c c u p a n c y C h a r a c t e r i s t i c * _ , * T a t o < t #., o t e l n u» b T i a o c c u p a n t s ( 3 4 * 5 9 ) ( ) ( 3 4 * 4 9 ) ( ) ( 2 5 *0 0 ) ( 1 B. 9 5 J ( ) ( ) ( 3 0 «6 5 ) ( ) ( ) ( 9 * 4 0 ) ( 7 * / ( 6 * S l ) ( ) (. 0 0 *0 0 ) ( ) 7 * A v e r a g e a r e i. p e r * * * * * * S * , ;. S 2 m a m b a r ^ s q * f t * ) 8 * A v a r a g e mo a b a t e p e r 6 * * * * 7 1 ; 5 * * * * 3 6 S * 5 0. S. 8 -* 5. 7 * h o u s e i 9 * A v e r a g e ^ a g a o f h o a a 4 5 * 3 9 \ 3 9 * * i & > : 4 2 * *S * * * * * * * ' o w n e r. C * I n c o m e ' S t a t u s o f H o n a O w n e r s v ; ; 1 0 * T o t a l a n n u a l i n c o m e 8 1 * * * 2 9 ; 2 * 0 ^ 3 3 * * S * * * o f a l l - h o u e a h o l d Q b l a k h ),, >. 1 1 * T o t a l a n n u a l i n c o m e 5 5 * * * * *6? 2 3 * * S * * o f a l l h e e d o f h o u s a v h o l d ( fc l d t ) " v 1 2 * 1 1 e s p a r t o f * S * * * * * * * * * * * P a r c a p i t a a n n u a l 4 0 * 4 9 > * , * * * * * I n c o m e o f h o u a a - 'r h o l d ( fc ' ) )' /..,K 5 ; 1 4 * P a r c a p i t a a n n u a l. i n c o a e o f h e a d o f h o u a a h o l d t l k ' O O O ) O. C o s t a n d I n v e s t m e n t * * * , S * * ^ 1 9 * « * 3 0 <* 1 5 * T o t a l c o a t ( k ^ i ) * * * 8 2 S * S * * * * * * A v e r a g e c o s t o a r h o n e (Rs * ) 1 7 * C o a t p a r t q < f t * ( k ) 1 8 * H o a a i n v e s t m e n t a s p e r c e n t o f h o u s e h o l d a n n u a l i n c o a e ( i. e. 1 5 a s p e r c a n t * * * * * , 3 5 «P» S 1 s. o o 4 9 * * * * T I * * * * S 8 1 * * * * S * * *6 1 / 2 * * w.... otal Figures in parenthesis are the par cant to total*

36 ~ 31 ~ There are.sig n ific a n t d ifferen ces in the sizes o f new houses in the d iffe r e n t sample towns and within each town, also betv/eo::. f'.o formal and inform al seetors. While the average size o f the 720 sample housing units taken together works out to 818 sq. f t. (w ith 3.1 rooms), the average s ize of a formal sector housing unit i s 930 s q.ft. ( 3.4 rooms) and that of an inform al sector housing unit is 279 s q.ft. (1.9 rooms). In other words, a formal sector housing unit is 3.3 times the s ize of an inform al sector housing u n it. Within the formal housing sector, the average house has as la rge an area as 1,300 s q.ft. in Delhi, but 923 s q.ft. in Lucknow, 811 sq. f t. in Ambala, 805 sq. f t. in Quilon, and 541 s q. f t. in Cuttack. In the inform al housing s e c to r, the houses are substant i a l l y sm aller, the average s ize ranging from 125 s q.ft. in Quilon to 328 s q.ft. in Cuttack. Within a town, the extreme example o f sharp, d ifferen ces in the size o f a re s id e n tia l unit, in the formal and the inform al housing sectors is seen in Quilon, where a formal sector housing unit is about 6.5 times la rg e r than an inform al sector housing u n it. In the two major m etropolises, namely, Delhi and Lucknow, a formal sector housing unit is la rg e r than the inform al sector housing unit by four times and 2.6 times, re s p e c tiv e ly. In Cuttack, however, the d iffe ren c e is comparatively small, a formal sector housing unit being only 0.6 times la rg e r than an inform al sector housing u n it. These figu res show that while there are substantial d ifferen ces in the quality and s ize o f a house in the formal and the inform al housing sectors in the la rg e r and more urbanised towns, in the case o f a low income. less-u rban ised centre lik e

37 Cuttack, th is is not so. One reason fo r th is situ ation may be that the d iffe ren c e in the incomes o f households in the formal and the inform al sectors is le s s g la rin g in Cuttack (where the r a tio o f average income o f the inform al sector' household to that of the formal sector household is 1s2.6) than in the other towns (where the r a tio ranges from 1:3.5 to 1 :5.2 ). ^ Type o f new housing s to ck. As one would expect, the bulk o f the houses in the inform al sector are kutcha houses or non-permanent structures. However, about oneth ird o f the houses can be c la s s ifie d as pucca houses or permanent structures, these being mainly the unauthorised constructions on a g ricu ltu ra l land in New Delhi (about on e-h alf) and on government land in Cuttack (on e-fo u rth ). In the formal housing sector, almost the en tire housing stock can be c la s s ifie d as pucca (95.6 per c e n t), with a small proportion as semi-pucca houses, mainly in Cuttack (Table I I I. 2 ). The data on the inform al sector housing reveals that about tw o -fifth of the new stock is in the nature of huts and another one-fourth is in the form o f semi-perman* ent structures. I t is in te re s tin g to fin d that about one-fourth o f the inform al sector housing units are independent bungalows in the non-slum segment o f the sector. For a ll p ra c tic a l purposes, these units are lik e formal sector housing u n its, except that they have been constructed on unauthorised land and/or on n on -resid en tial land and without any o f f i c i a l permission or plans approved by the concerned lo c a l bodies. An equally in te re s tin g fa c t is that the owners o f such houses were able to m ob ilise some fin an ces from the organised fin a n c ia l market.

38 I *r 1», ' i v- f'i o /> ^ ^ ^3f * I 1 f L I ' «-. ' W '?, «{ *.» ' o w > ' o o V ' * : * i i " -i* r. j ' ' : 1 " S > -c n o ( I 1 ul.? # -csr I i *: * it? g «'? e ;>o «rvc? 1 X * «- J I «c f.=; i S j \j ~ j:*cl *- ** A * * * * * 1.; ~ t ~,o { *

39 In the formal housing sector, almost th reefourth o f the new housing stock can be c la s s ifie d as independent units lik e uuuigalows and they fo m an important proportion o f the housing stock in the sm aller towns, namely, Cuttack, Quilon and Ambala, but bungalows form a small proportion o f the new housing stock in Lucknow and D elhi. As much as 95 per cent to 96 per cent o f the formal sector housing units in Quilon and Cuttack and 84 per cent in Ambala f a l l in th is category and these three towns together account fo r over one-half o f the bungalow population in the sample. However, by standards o f major m etropolises, many o f these houses may be in fe r io r in terms of const ruction, f a c i l i t i e s and amenities than the f la t s in major m etropolises and la rg e r towns, but they are conceptually d efin a b le as "bungalows* - independent re s id e n tia l u n its, mainly sin g le-sto rey ed, with a small courtyard/open p lace, to ile t/ k itc h en and two or more other rooms. P la ts in m ulti-storeyed buildings are found mainly in Delhi and Lucknow and a few in Cuttack. I t appears that the p ra ctice o f liv in g in fla t s has not y et spread to the sm aller towns in which the housing surveys were conducted. c. Occupancy pattern and home s iz e. No s ig n ific a n t d ifferen ce has been noticed in the occupancy ra tio s between the formal and the inform al housing sectors in the f iv e survey towns. Taken togeth er, on average, 5.9 persons occupy a resid e n tia l unit in the formal sector and 5.7 persons in the inform al sector. These occupancy ra tio s compare quite favourably with the a ll-in d ia average o f 5.7 persons, as per the '\98J\ Census. However, the average now observed f o r the f i v e survey towns i s

40 35 - higher than the average occupancy r a tio o f 5.2 fo r the same f iv e sample-towns, as per the 19o1 Census, suggesting that the occupancy ra tio s in newer houses in the sample towns are r is in g. Within the f iv e survey towns, however, there are sharp d ifferen ces in the occupancy ra tio s (Table 111,1), In the f i r s t p lace, in the 'form al housing sector, the occupancy r a tio v a ries from as high as 7.1 persons per house in Cuttack to as low as 4.7 persons per house in Lucknow, and in the inform al housing sector, the range is from as high as 6,7 persons per house in Cuttack to as low as 4.9 persons per house in D elhi. The su b stan tially higher occupancy r a tio in the formal housing sector in Delhi (6.0 persons per house) than in Lucknow (4.7 persons) is due to la rg e r d ifferen ces between the rates o f growth o f population and o f housing stock in the two m etroplises. In fa c t, i f one goes by the data on the occupancy ra tio s of the sample towns, the pressure on the formal housing sector seems to be the le a s t in Lucknow and th is may be p a rtly due. to the r e la t iv e ly high rate o f in-m igration in the other towns as compared to Lucknow. What, is more important is the varia tion s in the occupancy ra tio s in the formal and the inform al sectors w ithin a town. This is quite large in D elhi, where the occupancy r a tio in the formal sector is 22.3 per cent higher than in the inform al sector, but in Cuttack i t is only 6.4 per cent higher. On the other hand, the occupancy r a tio in the inform al sector is* higher than in the formal sector in Lucknow and Quilon, 25.9 per cent in the case o f the former and 18,6 per cent in the case o f the la t t e r.

41 Prom the point o f view o f housing p o lic y, an equally important aspect is the. average l i v i n g space p er resid en t, in the for..._ _! oin 0- sector, f o r the f iv e towns taken togeth er, a resident has more than three times the liv in g space than a resident in the inform al sector ( i. e., i5o s q.ft. and 49 s q. f t.,resp e c tiv e ly ) and the to ta l area per house also is more than three tim es. The d ifferen ces are marginal in Cuttack, perhaps a ch a ra cte ristic rep resen tative of housing in a low-income undex 'developed town. In Quilon, however, the d ifferen ces are substantial and the occupancy r a tio in the inform al sector is also higher than in.th e,formal sector. In the case o f D elhi, the average area per resident in the formal sector housing unit is 3.3 times higher than that in the inform al sector housing unit and in Lucknow, i t is almost f iv e times higher (Table I I I. 1). The average actual liv in g space per resident in the d iffe re n t towns, fo r the houses surveyed, ranges from 72 s q.ft. in Cuttack to 190 s q.ft. in D elhi. In the form al housing s e c to r, the average area ranges from 76.7 s q. f t. in Cuttack to 215 s q.ft. in D elhi. Contrary to th e"general fe e lin g, i t was found that the average s ize of a house increases w ith the density o f population in:both the formal and the inform al sectors^/on e reason may be the higher income le v e ls in the sample town with a higher population density. Thus, while the average size o f a formal sector housing unit in Cuttack is 541 s q. f t., that in Quilon is 805 s q. f t., 7/ The density per sq.km., as per the 1981 Census data, i s 4151 in Cuttack, 6172 in Ambala, 7464 in Quilon, 8036 in Lucknow and 10,595 in D elh i,

42 in Ambala 011 s q. f t., in Lucknow 923 s q. f t. ahd in Delhi 1,300 s q. f t. S im ila rly, the average s ize o f a resid e n tia l unit in the inform al sector ranges from 125 s q.ft. in Quilon to 321 s q.ft. in Delhi though i t was found to be s lig h tly higher in Cuttack (328 s q. f t. ). These sizes o f re s id e n tia l units may appear r e la t iv e ly large in the Indian context, but they are in lin e with the recent trends in the housing sector. In an e a r lie r study ( L a l l, 1982), i t was found that the average s ize of a re s id e n tia l unit in Surat was 813 s q. f t. and in V illu - puram i t was 1017 s q.ft. The average number o f rooms per house in these two towns was also comparable with what has been found to be the case in the f iv e survey towns included in the present study. S im ila rly, the area per residen t estimated at 104 s q. f t. in Surat and 148 s q. ft. in Villupuram, are within the range o f occupancy r a tio s found in the present study. d. Land.acquisition aspects. A s ig n ific a n t fin d in g th at emerges from a study o f a v a ila b le survey data i s th at 13.2 per cent o f the new housing stock covered in the surveys was constructed on land that was encroached upon by the home owners. Such encroachment was marked in Lucknow and Cuttack (each accounting fo r 31.6 per cent o f the t o t a l encroachment cases in the sample), follow ed by Delhi and Quilon (Table I I I. 3 ). The bulk (fo u r - fift h ) o f the housing units on authorised land was b u ilt on land that was purchased by the home owner or by the co-operative society through which a house was acquired. The proportion p f housing units constructed on in h erited land was about o n e -fifth o f the t o t a l housing units in the authorised sector.

43 ~ 38 ~ TABLE I I I. 3 Pattern of Acquisition of Land and its Legal Status A Authorised T owns Inher ited Pure hased Freehold Le ase hold Total 1/ (1+2) or (3+4), n r - : m S-^Llnauthor ise't En-croachment Grand total / (546) l 3 l _ 'f5t... (6) (7) Delhi 16 ( ) 21 4 (43.15) 114 (29. 53) 116 (48.54) 230 (36.80) 20 : (21.05) 250 (34.72) L uc kn ou r (0.78) 131 (26.41) 9 -(2.33) 123 (51.46) 132 (21.12) 30 (31.58) 162 (22.50) Cutt ack 74 (57.36) 80 (16.13). 154 (39.90) ( ) 30 (31.58) 184 (25. 56) Quilon 26 (20.16) 33 (6.65) 59 (15.29) - 59 (9.44) 15 (15.79) 74 (10.28) Ambal a 12 (9.30) 38 (7.66) 50 (12.95) 50 (8.00) 50 (6.94) TOTAL 129 (100.00) 496 (100.00) 386 (100.00) 239 (100.00) 625 (100.00) 95 (100.00) 720 (100.00) Notes: 1J 2/ Figures in parentheses are per cent to to ta l. Includes 5^6 formal sector housing units and 29 unauthorised permanent struct-urrs from informal housing sector, which were constructed on le g a lly acquired land but without relevant approvals.

44 ~ 39 - The proportions are su bstan tially high in sm aller towns, namely, 48.1 per cent in Cuttack, 44.1 per cent in Quilon and 24.0 per cent in Aiibala, lout low in the large c it ie s, being 0.8 per cent in Lucknow and 7.0 per cent in D elhi. These fin d in gs point to the sca rcity o f land in a highly urbanised town and in d icate that a large part o f the construction in such a town has to take place on land that may be released by the government as in the case of Delhi or land that may be actu ally purchased by the home owner. On the other hand, in r e la t iv e ly small towns and le s s urbanised centres, fam ily ownership o f land provides a major p h y sica l input fo r the house-building. The survey data have provided in te re s tin g evidence on the freeh old and leasehold ownership o f land. In the sm aller towns a l l the new housing units are constructed on freeh old land and i t is only in the la rge c it ie s lik e Delhi and Lucknow that the lease system e x is ts. In fa c t, in'lucknow 93.2 per cent o f the new housing units are constructed on leaseh old land and in D elh i, the corresponding fig u re is 50.4 per cent. Further, in the case o f leasehold land, there is a r e s tr ic tio n on the sale o f the land, usually the period o f r e s tr ic tio n being 10 years (in 75 per cent and 80 per cent, resp e c tiv e ly, o f the to ta l leasehold cases in Delhi and Lucknow). While in Delhi there is no r e s tr ic tio n on resale o f houses on leasehold land a fte r 10 years, in the case o f Lucknow in about 20 per cent o f the cases, the r e s tr ic tio n on resale o f the houses on leasehold land extends upto 15 years (Table A. I I I. 1 ).

45 S alien t C h aracteristics o f New Home Owners a» Age.pat.tern. Date, on the age of new home owners in d icate that th e ir average age is almost the same in both the formal and inform al sectors, the resp ective ages fo r the sample towns taken together working out to 40.3 years and 40.6 years. Among the in d ivid u al towns, there is some d iffe ren c e noticed only in the case o f Lucknow and Delhi where the age o f the inform al sector home owner (around 39 years in both towns) is su b stan tially lower than that o f the formal sector home owner (43 and 45 years, resp ectiv e l y ). In the sm aller to m s, such d ifferen ces are n e g li~ g ib le, though the inform al housing sector home owner is somewhat old er, The inform ation presented above on the age pattern o f home owners, and on the higher cost o f a house in m etropolises than in sm aller towns, throws some lig h t on the lim ita tio n s o f a prospective home owner in m obilisin g a la rg e r volume o f resources to acquire a house in a metro than that fo r a house in a sm aller town. The d isaggregated data on the age o f home owners.in d iffe r e n t income brackets fu rth er bring out the seriousness o f the resources con strain t: the low-income in d ivid u al (in sp ite o f the lower cost o f the house that he may acqu ire), is able to own a house at an old er age than his high-income cou n terpart. An analysis o f the frequency d istrib u tio n of home owners by th e ir age groups confirms the g en e ra lly - held b e lie f that in In dia, the proportion o f home owners who acquire a house in the early stages o f th e ir career i s very low. Less than 1 per cent o f home owners in the

46 formal housing sector included in the surveys are less than 25 years o f age and about tw o -fifth of them are in the age group 26 to 40 years. The m ajority o f the home owners, t h r e e - fift h of the sample, are more than 41 years old and 16 per cent are above the age o f 55 years. The town--wise data show that a la rg e r proportion o f home owners in the resp ective samples are more than 41 years old in Delhi and Lucknow, but a smaller proportion, than the sample average, belong to th is age group in the smaller towns. In the inform al sector, the situ ation is d iffe r e n t in view of the low average cost o f the houses more than one-half o f the new housing stock is owned by r e la t iv e ly young in d ivid u als (Table I I I. 4 ). b. Occupational p a ttern. Disaggregated data on the pattern of occupation o f new home owners in each o f the sample towns in d icate that the ro le of the sala ried secto is le s s important in the sample towns where organised employment, including government sector employment, is no as widespread as in the c it ie s and m etropolises. In fa c t a la rge proportion o f home owners in these towns are engaged in p etty trade and business a c t iv it ie s. A co ro lla ry to the evidence on the sm aller contribution of the sala ried sector is that new home owners in smaller towns obtain a lower income from retirem ent b en efits than those in the la r g e r urban centres (Table I I I. 5) 4. Housing Investment, HomeOwnert s Income P attern and Impact a* Estimates on housing investm ent. The 720 housing units covered in the survey towns in volved an investment o f Rs 477 lakh. As much as 97 per cent o f th is in v e s t ment was used f o r 596 form al s e cto r housing u n its, the

47 I d:- ' ±<X i ; T. rj.vj iio i,- 'X,., e. r. r ^. * r?6t. n;:, i.: ± f j;:c. O,o J i 1-!< i ; I' : i Jv -'5;», * 2 * ^ i s VV >y : r -V < I 3 Vj* i '*> ^ j * I. i i- * ;» " " A;;;; - i^ 'V! J J. ; :.i; h ' ~Q' ro ;, l '.7..do ; io. 1"IV-OCi' J v i t r \i : :;- i -m/:. :>I' ' V; '. "' ''i -i-'o. ''-J.! "/ (j h

48 - 43 ~ TABLE I I I. 5 Pattern of Occupations of New Home Owners Occupational status Delhi Lucknow Cutt ack Qu ilon Ambala T ot al (1) (2) (3^ ( * ) (5 )' (e ) (Number) 1. Service 133 a. (34.91) b. (53.20) 100 (26.25) (61.73) 86 (22.57) (46.74) 34 ( 8.92) (45.95) 28 ( 7.35) (56.00) 381 (100.00) ( 52.92) 2. Business S3 a. (41.50) b. (33.20) 24 (12.00) (14.81) 56 (28.00) (30.43) 21 (10.50) (28.38) 16 ( 8.00) (32.00) 200 (100.00) ( 27.78) 3. Retired 32 a. (42.11) b. (12.80) 18 (23.68) (11.11) 17 (22.37) ( 9.24) 5 ( 6.58) (6.76) 4 ( 5.26) ( 8.00) 76 (100.00) ( 10.56) 4. Others 2 a. ( 3.17) b.( 0.80) 20 (31.75) (12.35) 25 (39.68) (13.59) 14 (22.22) (18.92) 2 ( 3.17) ( 4.00) 63 (100.00) ( 8.75) T ot a l a. (34.72) b. (100.00) 162 (22.50) (100.00) 184 (25.56) (100.00) 74 (10.28) (100.00) ( 6.94) (100.00) ( ) (iq0.no) Notes: a. Figures in parentheses are per cent to total of each source of income in a ll towns. b. Figures in parentheses are per cent to total of income from all sources in each town.

49 marginal remainder being spent on 124 inform al sector housing u n its. The average cost o f a formal sector housing unit was Rs 77,610 and..that o f an inform al sector housing unit was Rs 11,900. There werk sharp va ria tion s in the resp ective costs of the two types o f housing units in the sample towns. The average cost o f a house in the formal sector was Rs 1,20 lakh in Delhi but i t was su b stan tially low er in the oth er towns, th at i s, Rs 68,516 in Lucknow, Rs 60,510 in Quilon, Rs 51,940 in Ambala and Rs 33,920 in Cuttack. In the inform al sector, the cost o f a re s id e n tia l unit ranged from Rs 5,000 to Rs 8,000 in Quilon, Cuttack and Lucknow, but i t was r e la t iv e ly high, Rs 20,000,in D elhi. (Table I I I. 1 ) What is more important than the t o t a l cost o f a house and inter-tow n d ifferen ces in cost is the 'marked varia tion s in the cost per s q. ft. The cost per s q. f t. in the formal sector is r e la t iv e ly high at Rs 99 in Delhi but i t ranges from Rs 63 to Rs 74 in the other four towns. In the inform al sector, the cost per s q.ft. ranges from Rs 33 to Rs 40 in Lucknow and Quilon, is as low as Rs 18 in Cuttack but i s as high as Rs 63 in D elh i. b. Income pattern o f new home owners. The to t a l annual income o f the 720 households covered in the study is estimated at Rs lakh, of which about th ree-fou rth o f the income is earned by the heads o f the resp ective households. The average annual income per household fo r the f iv e towns taken together, is estimated at Rs 27,150 in the formal sector and Rs 7,870 in the inform al sector. The income o f the formal sector home owner is, thus 3.4 times that o f the inform al sector home owner. There are also wide v a r ia tio n s in the average income per household in the

50 45 - formal housing sector in the fiv e towns (th e annual income ranging from Rs 11,810 to Rs 40,490) but the d ifferen ces in the inform al sector are marginal (annual income ranging from Rs 6,800 to Rs 9,840, with the exception o f Quilon,where the annual income is Rs 2,270). Thus, w hile the s ize o f -a tpwn and the le v e l o f urbanisation has a bearing on the le v e l o f household income in the formal housing sector, low-income le v e ls are c h a ra cte ristic o f the inform al housing sector. (Table I I I. 1 ). A comparative study o f the le v e ls o f annual income o f sample households and th e ir to t a l investment in housing shows that housing absorbs a very substantial proportion of th e ir annual income, almost three times in the formal housing sector and about one-and-a-half times in the inform al housing sector, In other words, on average, a household requires the combined annual income o f three years to pay fo r the p rice o f a house in the formal housing sector and one-and-a-half years* annual income in the inform al housing sector. Within the survey towns, sharp d ifferen ces e x is t (Table 111,1), Even i f we assume that a household is able to save about 20 per cent o f it s annual income to be invested subsequently in a house, i t would require a household at le a s t 15 years to save the re q u is ite resources, assuming that the cost o f the house does not increase during the savings p eriod. The need to strengthen the in s titu tio n a l housing finance system in the country is c le a rly in d icated. Disaggregated data on the le v e l o f household income and housing investment o f home owners in d iffe r e n t income brackets in the survey towns, brings out even more strongly the need to strengthen housing finance interm ediation. (Table A. I I I. 2 ).

51 c# Sources o f home ow ners income. A study o f the sources o f income o f the 720 households reveals that several o f the new home owners had m u ltiple sources o f income. For the group of survey respondents as a whole, the average number o f income sources works out to Almost one-half o f the sou rces.of income o f the home owners is s a la rie s, and around -one-fourth is trade and commerce. Income from pensions accounts fo r about 10 per cent o f the sources o f income o f the home owners and in te re s t income fo r another 2.6 per cent (Table I I I. 6 ). Salary is the predominant source of income in a ll the survey towns, accounting fo r between 44 per cent and 55 per cent of the to tal income of the home owners. The importance of the pension sector increases with the level of urbanisation, whereas that of the business sector declines (Table A.III.3 ). An analysis of the sources o f income o f home owners in d iffe r e n t income brackets c le a rly in d icates that the income range Rs 5,001 to Rs 35,000 can be c la s s ifie d as the salary income group: over one-half o f the home owners in th is income range derive th e ir income in the form o f s a la rie s, and pension income is also an important source o f income fo r them. Cn the other hand, home owners in the income bracket above Rs 35,000 derive th e ir income mainly from trade and commerce (Tables A. I I I.3 and I I I. 7 ). O bjectives fo r investment in housing. I t is in te re s tin g to fin d that the vast m ajority o f new home owners acquired th e ir house fo r the purpose o f s e lfoccupancy. Self-occupancy was sta ted as the main o b je c t iv e f o r owning a house by n in e-ten th o f the home owners,

52 TABLE I I I. 6 Souroes of Income of Neu Home Owners in Selected Towns ( Number) Sources of Income Delhi Lucknow Cutt ac k Quilon Atnb al a T ot al n r 73) (4) (5) (6) 1. S al ary ,40 4 (a) (34.16) (27. 23) (22. 52) (9.16) (6.93) (100.00) (b) (43.53) (53.14) (45.73) (45.68) (54.90) (47.25) 2. Business (a) (39.19) (12.61) (29.28) (11.71) ( 7.21) (100.0 o) (b) (27.44) (13.53) (32.66) (32.10) (31.37) ( 25.96) 3. Pension (a) (48.15) (20.99) (20.99) ( 4.94) ( 4.94) (100.00) (b) (12.30) ( 8.21) ( 8.54) ( 4.94). ( "7-84) ( 9.47) 4. Interest 16 6 _, 22 (a) (72.73) (27.27) (100.00) (b)( 5.05) ( 2.90) - - ( 2.57) 5. Others (a) (29.37). (36.51) (20.6 3) (11.11) ( 2.38) (100.00) ( b) (11.6 7; (22.22) (13.07) (17.28) ( 5.88) ( 14.74) T ot al (a) (37.08) (24.21) (23.27) ( 9.47) ( 5.96) (100.00) (b) (100.00) (100.00) (100.00) (100.00) (100.00) (100.00)!Motes : 1. a. Figures in parentheses are per cent to total of a ll owners. 2. b. Figures in parentheses are sources of income in each per toun. cent to total of a ll 3. - Indicates n il.

53 TABLE I I I. 7 Sources of Income of Homo Owners in Different Income Groups Sources of Income Inc ome Groups Above T at al 1. S al ary 45 (31.91) 183 (51.40) 151 (56. 77) 18 (29.03) 6 (22.22) 1 (33.33) 404 (47.25) 2. Business 31 (21.99) 83 (23.31) 66 (24.81) 26 (41.94) 15 (55.56) 1 (33.33) 222 (25.96) 3. Pension 14 (9.93) 51 (14.33) 14 (5.26) 0 1 (3.70) 1 '(33.33) 81 (9.47) 4. Interest 0 (1.40) 5 (1.88) 11 ( ) 1 (3.70) - 22 (2.57) 5. Ottre r s 51 (36.17) 34 (9.55) (11.28) 7 (11.29) 4 (14.81) (14.74) TOTAL 141 (100.00) (100.00) (100.00) 62 (100.00) 27 (100.00) 3 (100.00) 855 (100. 0B.. Note; Figures in parentheses are per cent to t o ta l.

54 49 the proportion being higher in the inform al housing sector ( 98.4 per cent) than in the formal housing sector ( 87.8 per c e n t). Self-occupancy i s, however, found to be r e la tiv e ly less important in a more urbanised and la rg e r town, fo r the data show that the proportion of home owners statin g self-occupancy as the purpose fo r acquiring a house is the lowest in Delhi and also i t is lower in Lucknow than in Cuttack and Quilon. In the case o f Ambala, where the sample o f home owners included a la rge proportion o f government employees, self-occupancy is a le s s important con sid eration fo r owning a house. The acqu isition of a house, p a rtly fo r self-o ccu pancy and p a rtly fo r renting out, is a more important consideration in la rg e r and/or urbanised centres lik e D elhi, Lucknow and Ambala than in the small, less-urbanised towns lik e Cuttack and Quilon. The p ossible explanation fo r th is situ ation may be, on the one hand, the higher investment required fo r the house, resu ltin g in the need to ra is e resources in a l l p ossib le ways and the desire to earn an income from the la rge investm ent, and 011 the other hand, the su b stan tial demand f o r r e n ta l housing. A n e g lig ib le proportion o f sample home owners acquired a house to wholly rent i t out, the proportion fo r the sample as a whole being 0.7 per cent. This is the situ ation only in the formal housing sector (Table I I I. 8 ). Disaggregated data reveal that the o b je c tiv e of self-occupancy o f an en tire house becomes le s s important w ith an in crease in the income l e v e l o f the home owner. While 93.6 per cent o f the home owners in the income bracket upto Rs 5,000 stated self-occupancy as the reason f o r owning a house, the prop ortion i s 91.8 p er cent fo r

55 TA3US I I I. 8 R a tio n a l8 o f Home Owners In D lffr; cant Income Groups f o r O vnl- n a,j*3s2 Income groups Pllrv^ , _2.503JclQggfl,_-Sg.QQJL-.l&QSSU, A b o v 2 _ ^ r u r p o ^ Fbrmal Inform al B atal Pbrmal Inform al Tbtal fb m a l Inform al ib t e l itonadl Tbtol Fb tnvil Ttotal Ftormal vrjfcii ontw. ^ sec to r sec to r s e c to r s e c to r sec to r soc to r_sac U ) "... (2) ;J T3) ' («.) (5 ) (6 ) 7 L._... U ) 1. S e lf b c c if ancy ( X )( 93.60) ( 90.00) (100.00) ( ) ( 86.64) ( H 86.55) ( 86.64) ( 86.64) ( )( ) ( 66.67) ( 66.67) ( 0 /.7 5 X "3. 2. P a r t ly " ren tin g o u t ( l l. C T ) ( 1.54)X 6.40) ( 8.80) -- ( 7.26) ( )( l6.6 7 )( 12.56) { 13.33) { 13.33) ( ) ( 23.81) ( 11. < M 3. Wholly ren tin g o u t ^ i ( 1.20) r ( 0.99) ( ) - ( ) { 33.33) { 33.33) ( 0 X 4. P a r t ly non l \ r e s id e n tia l ( ) - { ) ( 0. ) il Tbtal S (100.00) (100.00) (100.00): (100.00) (100.00) (100.00) (100.00) (100.00) (100.00) (100.00) (100.00) (100.00) (100.00) (100.00) (100.00) (100.00V Notes Figure* in parenthesis ere percent to total o f a ll income groqps.

56 «51 - the income bracket Rs 5,001 to Rs 15,000, 86.6 per.cent fo r income brackets Rs 15,001 to Rs 35,000 and' Rs 35,001 to Rs 50,000, 76,2 per cent fo r the income bracket Rs 50,001 to Rs 1 lakh and 66.7 per cent fo r the income bracket above Rs 1 lakh. As a coro lla ry to th is, i t was found that the ra tio n a le fo r acquiring a house fo r p a r tia l ren tin g becomes stronger with the increase in the income le v e l. Data show that while only 6.4 per cent o f the home owners in the income bracket upto Rs 5000 acquired a house to p a rtly rent i t out, th is proportion increased progressively to 23.8 per cent fo r the income bracket Rs 50,001 to Rs 1 lakh (Table I I I. 8 ). These findings suggest that the low er income home owner acquires a house prim arily as a s h e lte r, in the absence o f any a lte rn a tiv e such as economical rental accommodation. F u rth er,'th e s ize o f the houses i;hat he may acquire may also be too small to p a r tly rent out. As the income le v e l in creases, and with i t also the size o f the house, the home owner in higher income brackets can p a rtly rent out his house and, sometimes, also wholly, as he may have access to an a lte rn a tiv e sh elter eith er provided by the employer or obtained from the ren ta l market, and home ownership, in his case, may be fo r the * rainy day1 (th e post-retirem ent p eriod) or as an avenue fo r secured investment o f savings. e. The ren ta l housing scen ario. The analysis in the preceding sub-section (d ) indicated that about one-tenth of the new home owners acquired th e ir houses rath the o b je c tiv e o f wholly or p a rtly d erivin g some ren ta l income from them. In the sample o f 596 formal sector home owners, 93 home owners (o r 15.6 per c en t) belonged to th is category.

57 52 - An attempt was made to obtain data from such home owners on the s p e c ific reasons fo r le t t in g out th e ir houses and the le v e l o f ren ta l income that they derived. The data on ren ta l income, obtained from 72 out o f the 93 home owners who rented out th e ir premises (77.4 p e r-c e n t), are presented in Table 111,9. While an element o f underestim ation of ren ta l income cannot be ruled out, the data do provide some in sigh t in to the ren ta l market, The to t a l annual ren ta l income o f the 72 home owners i s ;estimated at Rs 7.4 lakh or about Rs 10,333 per ren ta l u n it. There is substantial d ifferen ce in the annual ren ta l income in the f iv e sample towns, ranging from as low as Rs 1,000 in Quilon to Rs 3,290 in Ambala, Rs 6,250 in Cuttack, Rs 8,760 in Lucknow and Rs 13*820 in D elhi. These data, thus, show that ren ta l incomes tend to r is e with the s ize and le v e l o f urbanisation o f the resp ective towns. A la rge proportion o f home owners (45.9 per cent) who rented out th e ir houses to f a c ilit a t e the repayment o f th e ir home loan. In the case o f about o n e -fifth o f home owners, recovery o f th e ir housing investment was the primary consideration and addition al income was a major consideration in the case o f one-third o f the home owners. Some home owners (about o n e -fifth ) were induced to rent out th e ir houses in order to pay taxes on the property. (Table A. I I I. 4 ). The rent con trol act, is gen erally b elieved to deter investment in housing, but home owners seem to weigh the negative e ffe c ts o f the le g is la tio n with the p o s itiv e b e n e fits o f investment in housing. About o n e -fifth o f

58 TABLE I I I. 9 Rent al Income of New Home Owners in Selected Towns (Formal Housing Sector) (Rs >000) Name of towns All respondents Per capita 1. Delhi (38) Lucknow (17) 149 a Cuttack (8) Qu ilon (3) Ambala (7) TOTAL (73) Notes: 1. Figures in parentheses are number of respondents. 2. Includes 1 respondent in Cuttack from informal sector with annual rental income of Rs 5000.

59 home owners (mainly in Delhi and Lucknow) invested in housing, in s p ite o f being fu lly aware o f the im plication s o f rent con trol le g is la tio n, because they 'f e lt that housing provided an avenue fo r safe investment, bestowed some status value, and allowed fo r substantial c a p ita l gains. The status symbol is more important in Delhi than in Lucknow (Table A. I I I. 5 ). Income impact, on housing stock. In section 4 (b ) o f th is chapter, we had seen that the resource m obilisation e ffo r ts o f in d ivid u als in the survey towns might requ ire a substantial savings e ffo r t fo r 15 years or more, to ra is e the re q u is ite resources to buy a house, assuming that the cost o f the house did not escalate su b stan tially during th is period. The impact o f income on the s ize and type of house that in d ivid u als may acquire, on the cost o f the house, and on the nature o f construction is an aspect which has a s ig n ific a n t bearing on the form ulation o f a housing finance p o lic y and strategy. The data that were obtained from the 720 housing units bring out c le a rly the p o s itiv e rela tion sh ip between the le v e l o f income o f an in d ivid u al and the s ize o f the house th at he acquires. While the m ajority o f the home owners in the annual income bracket upto Rs 15,000, acquired a house having a covered area o f upto 500 s q. f t., the m ajority o f home owners in the income bracket above Rs 50,000 acquired a house having a covered area o f more than 1000 s q.ft. At the two extremes o f the annual income scales examined in th is study, namely, upto Rs 5,000 and above Rs 1 lakh, the d ifferen ces in sizes o f houses acquired are very m arked,for the m a jo rity o f home owners in these

60 "two income brackets acquired a house o f upto 250 s q.ft, and above 1000 s q. f t., re s p e c tiv e ly, (Table I I I. 10). The observed impact of income on home s ize is more marked when the analysis is extended to in d ivid u al towns and also when we make a comparison between the housing stocks in the two sectors. However, within the inform al housing sector, the home owners do not have an annual income above Rs 35,000* the m ajority o f them (52.4 per cent) have an annual income of upto Rs 5,000 (Table I I I. 10 and Table A. I I I. 6 ). A c o ro lla ry to the income impact on the size o f a house is the income impact on the cost o f the house that an in d ivid u al acquires. The survey data show th at these are p o s itiv e ly rela te d sthe cost o f a house ris e s with the income le v e l o f the in d ivid u a l. While more than one-half o f the home owners aearaing le s s than Rs 5,000 acquired a house costing upto Rs 10,000, the m ajority o f home owners in the Rs 5,001 to 35,000 income bracket acquired a house at a cost of upto Rs 50,000, The house cost goes up p ro gressively th e re a fte r; at an income le v e l exceeding Rs 35,000, the m ajority o f home owners in vest more than Rs 1 lakh (Tables I I I. 11 and A. I I I. 7 ). What is more important from the point of view o f housing p o lic y, is the r a tio o f home cost to annual household income. The ra tio goes up p ro gressively with an increase in the income o f the home owner, upto an annual income of Rs 50,000, and th e re a fte r i t sta rts f a llin g. While at the low income le v e l, say,upto Rs 5,000 per annum, the cost o f the house is 2.3 times the annual household income, in the middle income range (between

61 TABLE I I I. 10 In c o w Group* o f H o w Ownara and Horn* S I» Incowa groups Slza of o» w d d wui-iduuu SprtOQ 35Q O l-5qnnn 50^01-1QQQQQ Abova ta 1QQQQQ houaa ror«al Informal Total Foraal Informal Total Foraal Informal Total F or* el Informal Total Formal Informal Total Formal Informal Total Fermal TrT,.. r * 7 T T o l «l (aq f t ) ctor aactor aactor aactor aactor ^sector aactor sactor aactor sactor actor sactor act or - i l l. JL2L Iz) _L4L U l js: * r t o r o r SI ( ) ( ) ( ) ( ) ( ) ( ) ( ) (2?2*) 1 ( ) ( ) ( ) ( ) 148 ( ) ( ) ( ) ( ) ( *. 4 0 ). ( ) ( ) ( ) ( ) ( ) ( ) 2. ( ) - - m ( ) ( ) 166 ( ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( 4. * ) ( 4 l7 9 " ( ) (1 J.* " > C O l ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) I f 2 (85.71) ( ) ( ) ( ) ( i 6 1 ) 307 S.75) Ib e v t 5000 I 6? 6 7 ) 3 2 ( ) ( ) ( 5 2 ) " m m ( f» 4 ) 5 ( ) $ T o t a l ( ) ( ) ( l 0 a.q ax l ) ( )( l0 0.0 { J ( l0 0 i0 0 ) ( ) ( ) ( ) (100.00) (100.00) 21 3 (100.00) (100.00) «720 ( io o.o o ) ( io o.o o ) ( io r,f> ^, ( ) t e a l 1. f i g u r e s In p a r a n t h e e le i t i p a r c e n t t a t o t a l.

62 - 57 ~ TABLE I I I. 11 Cost of Construction of Houses of Owners in D ifferen t Income Groups (Rs) Cost of con- struction(rs, D00) Q Income groups Above 100G00 T otal m. T T T m.... U L r s r - T6) T T i (56.80) 6 3 (20.79) 8 (3.59) 1 (2.22) 143 (19.86) " (24.80) 77 (25.41) 31 (13.90) 3 (6.6 7). - 1 (33. 33) 143 (19.86) 26-5Q 12 (9.60) 77 (25.41) 53 (26.01) 5 (11.11) 1 (4.76) (21.2 5) 51 - ion 11 (8,80) 59 (19.47) 73 (32.74) 9 (2C.00) 4 (1 9.05) (21,67) 101 ~ (8.91) 47 (21.08) 14 (31.11) 8 (38.10) 1 (33.33) 57 (13,47) Above (2,6 9) 13 (28.89) 8 (38.10) 1 (33,33) 28' (3.8 9)- TOTAL 125 (100.00) 303 (100.00) 223 (100.00) 45 (1 oo.oo) 21 (100.00) 3 (ino.oo) 720 (inn.nn) Notes; 1. Figures in parentheses are per cent to tota l in each income group 2. Indicate n il.

63 53 Rs 5,001 and Rs 35,000) the house cost is 2.6 times the annual household income. The ra tio ris e s to 3.6 times and 3.3 times in the two high-income groups of Rs 35,001 to Rs 50,000 and Rs 50,001 to Rs 1,00,000, r e s p e c tiv e ly. At the top o f the income scale, i. e., at the income le v e l above Rs 1 lakh, the cost o f the house, however, works out to 0.9 times, the annual household income. These data bring out, on the one hand, the substantial problems in ra is in g resources fo r housing at lower and middle income le v e ls, and on the other hand, the re la tiv e, ease at very high income le v e ls. (Tables I I I. 11 and A. I I I. 7 ). As one would expect, the qu ality o f a house improves with the income le v e l o f the home owner. The kutcha houses, a l l in the inform al sector, are la r g e ly b u ilt by in d ivid u als in the income bracket upto Rs 5,000 and to some extent, by those in the income bracket Rs 5,001 to Rs 15,000. The semi-pucca houses are also b u ilt la rg e ly by home owners in these two income brackets, both in the inform al and the formal sectors. The houses o f home owners in the income brapket above Rs 15,000 are a l l o f a pucca, nature and they are mainly (04 per cent) bungalows (16 per cent being f l a t s ). Disaggregated data at the town le v e l show that more than 50 per cent o f the bungalows are in smaller towns lik e Cuttack, Quilon and Ambala, where there is a tendency to bu ild bungalows rath er than acciuire a f l a t, in view o f the a v a ila b ilit y o f land, the socio-economic environment and the fa c t that the f l a t system has not yet become popular. On the other hand, in la rg e r towns lik e Delhi and Lucknow, f la t s account fo r almost the whole o f the new houses included in the sample (Tables I I I. 12 and A. I I I. S ).

64 TA B LE I I I. 1 2 Tvd«o f W tu H o u a j n q S t o c k o f O w n e r s i n O l f f e r e n t I n c o f G ro u p s, i n S e l e c t e d T o w n s Inc owe G r o u p s x Above 1C0Q00 T o t *1 F o r n a l In fo r m a l T o t a l F orinal In fo r m a l t o t a l F o rin a l In fo r m a l T o t a l f o r m a l T o t a l P oritial T o t e l f o r m a l T o t a l r o r a a l i n r o r i. «l s e c t o r s e c t o r s e c t o r s e c t o r s e c t o r s e c t o r s e c t o r s a c t o r s e c t o r a a c t o r s e c t o r T o t a l t n : t a r u r... r a... g y A. T y p e o f C o n s t r u c t! r»n 1. P u c c a 4 9 ( ) 14 ( ) ' 6 3 ( S O. 40) 236 ( ) 3 3 ( ) ( ) ( ) 3 9 ( ) ( ) 2. S a a l - p u c c a 1 1 ( ) 1 3 ( ) 24 ( ) 14 ( ) ( ) ( ) ( ) ( ) - 26 ( *. 3 6 ) 32 ( ) 56 ( ) 3. K u t c h a - 36 ( ) 38 ( ) I S - - ( ) ( ) S3 ( ) S3 ( ) T y o * o f H o u * e 4. Hut 1 ( ) 34 ( ) 3 S ( ) 1 ( ) I S ( ) ( ) 2 ( ) 49 ( ) 51 ( ) 5. S a u l - p e r m a n e n t 6 s t r u c t u r e ( ) I S ( ) 21 ( ) 5 ( ) ( ) ( ) ;» 1 t ( ) 3 S ( ) 46 ( ) 6. T l a t a 1 7 ( ) 3 20 ( ). ( ) 78 ( ) S S 1 1 ( ) ( ) ( ) ( ) ( ) ( H, 1 1 ) ( ) ( ( ) ( ) 1 4? ( ) 1 < ) ( ) 7. B u n g a l o w J ( ) ( ) ( 6 6 * 4 0 ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( 9 5 ; 2 4 ) ( ( ) ( ) 44 1 ( ) 34 ( 2 7, 4 2 ) ( 6 5. S7) T o t a l ( 1 t o ( ? 0 o r 4 t o 7) ( ) ( ) ( H ) ( ) ( ) (100.00) ( ) ( ) ( ) t > 0 0 ) / ( ) ( ) ( ) ( ) ( ) ) ( ) N o t a i 1. f i g u r e * I n p a r a n t h a a i a a r a p a r c a n t t o t o t a l i n e a c h i n c o a a g r o u p.

65 - 60 Some other in te re s tin g evidence brought out by the survey data are that the occupancy ra tio s are h igh erf but the average area per house and per occupant are su b stan tially lower in the case o f houses owned by in d i viduals in lower income groups than in those owned by in d ivid u als in higher income groups. This suggests that the stresses and strain s o f liv in g are more acutely f e l t at lower income le v e ls. I f one o f the prime ob jectives o f housing and housing finance p o lic y is to am eliorate the liv in g conditions o f people in the lower and middle income groups, then a major e ffo r t would have to be made to improve the qu a lity of housing at these income le v e ls. The need to strengthen housing finance interm ediation fo r these income groups, thus, i s o f c ru c ia l importance. Another in te re s tin g fin d in g is that the o b je c tiv e o f acquiring a house to improve the income o f the home owner is a more important consideration at lower and middle income le v e ls than at higher income le v e ls, as can be seen from Table I II.O, Data show that at the lower and middle income le v e ls, p a r tia l renting out is an important consideration fo r the m ajority o f home owners, whereas these considerations become le s s relevan t as we go higher up the income scale. g. Annual expenditure on housing loan and housing stock. About fo u r - fift h o f the home owners (596 out o f 720) provided data on annual expenditure on items lik e servicin g o f home loans, maintenance o f the house, payment o f taxes and payment o f lease charges, i f any. The t o t a l annual expenditure on these four id e n tifie d items aggregated to Rs 16,64 lakh and the per house annual expenditure works out to about Rs 2,800. The annual expenditure i s

66 s u b s ta n tia lly h igher in Delhi and. Lucknow (Rs 4,560 and Rs 4,000, re s p e c tiv e ly ) than in Cuttack (Rs 700) and Quilon (Rs 600) (Table A. I I I. 9 ), The r e la tiv e importance of expenditure on servicin g o f home loans declines with an increase in the income o f the home owner, viz~a- -viz both to ta l expenditure and annual income. The most important expenditure item turns out to be on servicin g o f the home loans, accounting fo r over on e-h a lf o f the t o t a l annual expenditu re, The second most important expenditure i s on maintenance of the house (29.2 per cen t). Property taxes account fo r one-sixth o f the annual expenditure, whereas lease charges (in D elhi, Lucknow and Cuttack) account fo r 1 per cent o f the annual expenditure, 5. P attern o f Resource M o b ilis a tio n by New Home Owners a. Magnitude o f the housing finance e f fo r t s. The 720 sample re s id e n tia l units were acquired by th e ir owners at an estimated cost o f Rs 477 lakh. As much as 97 per cent o f the investment was in the formal housing sector, accounting fo r 82,8 per cent o f the housing stock surveyed. The remaining 3 per cent o f the investment 7/as in the inform al housing sector accounting fo r 17.2 per cent o f the housing stock. An attempt was made to obtain as much data at the disaggregated le v e l as was possible on the sources tapped by in d ivid u al home owners in m obilisin g the re q u is ite resources. The data were then c la s s ifie d in to two broad categories, according to the type o f interm ediation availed of to ra is e the housing finances. The f i r s t category is in s titu tio n a l interm ediation through what may be termed as

67 62 the formal housing finance market. This market includes sp ecial housing finance in s titu tio n s, general fin a n c ia l in s titu tio n s lik e the insurance-companies and commereial banks and other organised sector interm ediation through the home owner*s employer, provident fund organisation, etc.. The second category is n o n -in stitu tio n a l in te r mediation through what may be termed as the inform al housing finance market. This market consists o f external sources lik e frien d s, r e la tiv e s, associates and the indigenous money lenders and the home owner1s own resources, represented by his past and current savings and the resources that he may m obilise through liq u id a tio n o f his personal and/or fam ily a ssets. The important d is tin ctio n between the formal and the inform al fin a n c ia l interm ediation in housing (as in other sectors a lso) is that the former is based on some predeterm ined and uniform ly~applicable norms, procedures and terms, whereas the la t t e r is based on ad hoc fix a tio n o f terms and con d ition s. On the basis o f the above mentioned tw o -tie r c la s s ific a tio n o f the housing finance data, an attempt has been made to develop the scenaries o f the two housing finance markets in the country. The scenarios are developed fo r both the formal housing sector ( i. e., houses b u ilt according to approved plans o f lo c a l bodies) and the inform al housing sector ( i * e., houses b u ilt without the approval o f the lo c a l bodies, including slum and squa-tter settlem ents, unauthorised construction on government lands, a g ric u ltu ra l lands, e t c.) The analysis brings out not only the d ifferen ces in the methods o f

68 - 63 ra is in g resources in the two sectors but also provides evidence on the resp ective ro le s o f the formal and the inform al housing finance markets, and on th e ir id e n t ifiable components. The analysis is then extended to the disaggregated le v e l to bring out the r e la tiv e r o le o f the two housing finance markets in major m etro p o liees, mediumsized towns and sm all-sized towns in the country and to examine whether the a c c e s s ib ility o f in d ivid u al home owners to d iffe re n t sources o f housing finance i s, in any way, rela ted to the le v e l o f income o f the home owner and to h is age, and the s iz e and type o f house th at he acqu ires. k* The formal housing finance market. The formal housing finance market contributes le s s than o n e -fifth o f the to ta l resources m obilised fo r housing by the 720 home owners included in the study. In the formal housing sector, the proportion is 20.3 per cent and in the inform al i t is 10.7 per cent. In the in d ivid u al towns, the contribution o f the formal housing finance market ranges from 10.6 per cent o f the resources used in Quilon to 26.7 p er cent in Lucknow. In D elhi, the proportionate contribution o f the formal housing finance market is 18.9 per cent and in Cuttack 12.1 per cent. In Ambala, however, i t is as high as 37.0 per cent, mainly due to the in clusion o f a la rg e number o f government employees among the sample home owners, and they had access to fin a n c ia l assistance from the government, provident funds and co-operative housing finance s o c ie tie s in the State (T ab les and I I I. 14). A d e ta ile d analysis o f major suppliers o f funds in the formal housing finance market ena,bles us to id e n tity the main channels through which funds flo w in to housing

69 5 :) I v 1 i M - * ~'/<y * * '» ' i l l o :.. :. - V i <%«r» «- «>v>o ««b_ ^ *r * r- «.. fm*m**. - i t r - ti;: i y 'a # 6r>- t/> 'te-» W -'5 -y~<?* * * ^. i : o j" - \ l o o i : 1! Cr C v c i..0 ' LtfJX h ^c!:^ ' ^fnl cr ;, ( ''.#,<,L : 4- t ' <*; O n ip '»> r.i :r h ; i- c:r z-'iy'c t ]-i.i:r--.l.'.':.,'g,: i.'; - V 3 *v ^ * *: ' ±2 ' o i : ; : t? 0T>0i~h ;.'i'.... ' t» I iifci rj *> V Ok v. so-*ri,. xw if W '>2 i J -v -":Vh ; 1; 'i.;:'. OJ.i - *1 ^ : ;v i; -.rf i t. - v <--v a>»»>f j Ji S ^.-. v.' '. ' -'i -, - i,. :-0i ;; *-.;.*r a-- u s E 'ia o > g b o W -» ' ' «ti V, *.. ;, i p -, -j d L?-'..rl i. c. : o-»-... ; 3 u ^ i.r* r>.w V.. «*./. ;f «#? s? s s - " j-.'/viroo -.> [ ; :[ ' i H i 't o ui ^ as co *? *.-a ' -i:, - i ; x - ' r i t ^ <*, ' *> - ^5 e j ** : %. Sii*-- V. 0 i..a. [ i.,n>' i j..'... vt_j ;. "t. '" ', ' i $ :. j i? :'T.;.o - i l r ' ":' x,.'.v O *.X>U V- - O" ' : - rj ;'Ci! ' L;-f ;.. :::...i'. i.r : - - " -0T;: :V,, iiu >:, x r f, S :«o.ovj"uxr0! tr*/. ' o q o. V:.. - t - V - i i i i - - i... 7P. C. : ' V.. r y t-.,<...yn v.-.,: -.ore < 'x^rrwe^. j - ' ' SCi:j: "si. 0 V 0 rjz'ij, j--«oi - u.. X 0.? - f;4 :;s jo 5 t i -1*.. s i s.s.. 3 * i i -«-i> it S *!; t,, r / U ' ^ r i (»j 1 ;»...; i4 T'Ti-. Q -? a, { 5.1 Jtt T. S. ; J,;.r.. J.,' - ^ '..i ;*Uj :...

70 4 «* JjCj T. i L,. _. ii u l h. a l In fo rm a l iii' ; or s e c t o r.*. A......< i. : s ^ *? 1* *% ' i \ <i, <6 n a r* K i ;-v (A ';i9 Art..w -\? t<t :;f\t,s! 3. 1 ' ' X* 0 14 V.. is Si *.! * VU «/ 0* b '*V, t. * ^ r. t c.l. '-1 ' 2?V;.. f : oe 0# 40. ' i, ;. 1 4 i 7. 2 V ( ii p? ' :, ' E, ht ~? IV = i Of 'Jtf rv 5!,.,58 4 7,3 7 'W 1g t *Prt - i - 3P t. a; c t - ft V c *>' ' « ? ^ t * u ;S 1 ' 2S j *U <? r s i ' 3.8 r ' -I- ' ; - i. *S :M 2.5 3! Da 22 l. o i. *» ;.. a. r. I V j if c 5.5 " - 1 " '( " -?) V 7.0? 1 ir f!>>.4.* ' - ' 01 1 C 00 ' V-iJ

71 - i.': l.!t Jv'J' 4J. i... R r v.'j. K»re«i«i.o r'w.m i) ,!.f> V >tif > - wutl «! ; otal In; ori..«a ' To t 7!( fc-mt ' Jjn» i. r* i otijr' r oraal i'tfo rsu. - lissiaor. _J *"' ;$.<& '.. - _ sctor., \ * X ''1. 'ix. - J -----u _! 7'; - * *._ i a l _ 1q)... -X1 1U\!. u C*7 7',, ' t <2. a? t. ^6 # 11* Vj ' >.?*- 72 : 2.s r.;.! f 1. : - " -i. ' : i 0.1 J-.08. * : o.pv'-' ~r;.. *» ' - is 1 I 0, v: f, , «. '». ' «' 1. % 1,98 -. * e.i t.4 t.,8", 16 - " ; - 10.t. ;. L- 3. /a. i,f. * I.04 5.b9: *.. 1.S0 o.v. i «4.99 2,rt 1.8* n > >,bl a. j 6.6 f 5. ' _ b , 5.*S 0.40,. l A' 4.8? < , ' '' ' i 2.4? ' ;... * v 1 ^, V '87. fs.33 ; *.3^ t *, «'1 VJ.S2 42,21 : A^: e o.r, I *t.<? i«93 40, "' * 1» r : 0.J.7 «3.01 1U lo.t ^ ' ' - 2, >? 7, «, - 7,6# S, jti :: _ 0.05! ;.,» f 1. n 1,02 s 2.SS {,50 U29 4.* ' * t 14, : 1.06 ' f,33 : : 2rMi 6. > ,1?. t. Cl.?' (, 49 : - r. t..i : 0,09 w - f ;, 13.7-^.,, m*; - i j -V.l*. <*. - ;. > " ; ' io.n o i.? - ; - ), 7-,09 i4.* ' ^ 37 «.., if.; ; '* 11.. "...». «" i. u. 28 U. : I -I ', j-:.r.i ' '.. 1C 01: n o. i.,c 1' ao. j 'k 1*?.- 4.

72 66 from th is market. As a consequence o f the la rge organised sector employment in major towns, the employers, in both the public and the p riva te sectors, and the provident fund organisations, play an important r o le. Data show that almost one-tenth o f the resources fo r housing in the f i v e survey towns i s m ob ilised from the organised employment sector, namely, the employer and the provident fund organisations. Disaggregated data at the town le v e l show th at these sources o f housing finan ce are more important in the more urbanised cen tres, where a la rg e rp ro p o r tio n o f the population is employed in the organised sector than in the sm aller towns, where the r o le o f trade and commerce sectors in employment generation (in clu d in g self-employment) is more important. The LIC and the commercial banks are also important suppliers o f housing finance, each meeting around 3.0 per cent o f the t o t a l housing fin an ce requirements o f sample home owners. The ro le o f the employer and the provident fund organisations and also the general fin a n c ia l in s titu tio n s, lik e the LIC and the commercial banks, i s, however, almost wholly r e s tr ic te d to the formal housing sector. In the inform al housing sector which is represented by the slum and squatter settlem ents, the LIC, the commercial banks and the provident fund organisations do not play any r o le though some amount o f finances comes from employers. This support of the employer, through short-term or mediumterm loans, is very la rg e ly dependent upon the in d ivid u al employee-employer rela tio n sh ip. The segment o f the inform al housing s e c to r, which i s represented by unauthorised but permanent constructions has some access to the formal housing finance market, including the LIC (on l i f e insurance p o lic ie s ), commercial banks (general-purpose

73 lo a n s), provident fund organisations and employers. The proportion o f support from provident fund organisations is substantial in th is part o f the inform al housing sector, meeting 4.1 per cent o f the to ta l resources o f the home owners. This proportion is roughly the same as in the formal housing sector. I t is p ossible that some proportion o f the provident fund support in both the housing sectors may have been obtained through the provident fund withdrawal process fo r general purposes lik e marriages, education, illn e s s, e t c., a part may be fin a l withdrawal towards term ination o f membership o f the provident fund and only a small proportion may be in the form o f a housing loan per se.^/ The sp ecia lised housing finance in s titu tio n s make a n e g lig ib le contribution to the finances o f aspirin g home owners. The HDFC, fo r example, provided a mere 0.1 per cent o f the fin a n c ia l requirements o f the home owners included in the study. In fa c t, among the f iv e survey towns, the HDFC did not make any contribution in Ambala and Cuttack, whereas i t s contribution in Delhi (0.13 per cen t), Lucknow (0.07 per cent) and Quilon (0.52 per cent) i s n e g lig ib le. ^ The State housing boards have 8/ I t is in te re s tin g to note that housing loan from a provident fund organisation does not require a mandatory examination o f t i t l e deeds o f the property, the approved bu ildin g plans from the lo c a l body, etc, 9/ I t may be pointed out that in the case o f home owners assisted by the HDFC, the average Contribution o f the HDFC to the to ta l housing finance e ffo r ts o f the home owner worked out to 41.5 per cent fo r a sample o f 272 HDFC'-assisted home owners. For d e ta ils, see L a ll (1982) Chapt er 4.

74 made a la rg e r proportionate contribution than the HDFC, but in view o f the fa c t that they operated in a l l the selected survey towns r:.~-1 have been in existence fo r a longer time than the HDFC, th e ir contribution to the resource m obilisation e ffo r ts o f home 'owners, at around 0.5 per cent o f th e ir to t a l resources, i s also in s ig n i fic a n t. The co-operative housing finance s o c ie tie s, which have beencin-:c3d.^tenc'q*_for a considerable period in a l l the survey towns,, have also not made any s ig n ific a n t dent in the housing finance market, th e ir aggregate support to the fin a n c ia l e ffo r ts o f home owners being le s s than 2 per cent. The foregoin g analysis points out the underdeveloped state o f the organised housing finance market in the country. On the b^sis o f the experiences in the fiv e surveys towns as also two towns covered in an e a r lie r study, namely, Surat and Villupuram (L a ll, 1982 i t would be rather more appropriate to state that there does not exis t an e ffe c t iv e housing finance system in the country. Further, whatever l i t t l e.funds flow in to housing from the organised fin a n c ia l system in the country, tend to the concentrated in r e la t iv e ly la rg e r towns, and home owners in small and medium-sized towns in e ffe c t, have p r a c tic a lly, no access to organised sector fin a n c ia l interm ediation. c» The in form al housing fin an ce market. The predominant ro le o f the inform al housing finance market is brought out e ffe c t iv e ly in the analysis o f data obtained fo r the 720 new home owners. While in the formal housing sector, the home owners m obilised almost fo u r - fift h

75 69 o f th e ir resources from inform al sources o f finan ce, in the inform al housing sector, nine-tenth o f the resources were m obilised from these sources. In fa c t, in the slum and squatter settlem ents, except fo r some fin a n c ia l support provided by emplojrers o f the home owners (2,1 per cent o f the to ta l funds), almost the whole amount was m obilised from inform al sources (Tables I I I. 13 and I I I. 14). In the formal housing sector, self-gen erated resources account fo r tw o-third o f the housing finances that are required, and about 14 per cent are m obilised from external sources, including frien d s, r e la tiv e s and indigenous money lenders. These fin d in gs stress the predominating contribution o f personal and/or fam ily savings in the housing finance e ffo r t s, a situ ation that is common in most developing countries, where the * extended fam ily* is the main catalyst o f fin a n c ia l interm ediation in housing. Current savings in the form o f cash and bank deposits supply more than one-half (54 per 'cent) o f the housing finances, and the resources m obilised through liq u id a tio n o f assets lik e shares and stocks in the corporate sector, fam ily je w e lle ry, land and property, including a g ricu ltu ra l property, account fo r another 8 per cent o f the re q u is ite resources, A notable fa c t is that sale o f fam ily property alone accounts fo r 6,6 per cent o f the housing fin an ces o f new home owners. The concept o f extended fam ily is amply confirmed by the data c o lle c te d. While one-tenth o f the housing finance is provided by close r e la tiv e s including parents, u n cles, aunts, brothers and s is t e r s, another 3.6 per cent

76 is provided by frien d s. I f to these contributions are added the resources raised by the home-owner from his past and current savings and disposal o f investments, almost fo u r - fift h o f housing finances may be said to.b e m obilised from w ithin the f a m ily 1 c ir c le. The in d ivid u al moneylender may not seem to make an appreciable contribution (p rovid in g 0,3 per cent o f the t o t a l resou rces) but, as i s brought out in section ( d ), the ro le o f the indigenous moneylender is r e la t iv e ly important in the case of people in the lower and middle income groups, as compared to home owners in the high income groups. d* P is aggr e gated an alysis ( i ) Income impact. The le v e l o f income is a major fa c to r in in flu en cin g the pattern o f resource m obilisation o f in d ivid u a l home owners. The formal housing finance market makes a, substantial contribution to the resource m obilisation e ffo r ts o f home owners in the m iddleincome groups. In the income group Rs 15,001 to Rs 35,000, 30 per cent o f the housing fin an ces are provided by the formal housing finance market as compared to about 20 per cent f o r the sample home owners taken togeth er. The only other income group wherein the proportionate contribution o f the formal housing finance market is s lig h tly higher than fo r the sample taken as a whole, is the income group Rs 5,001 to Rs 15,000. In other words, the middle income group among the horae owners included in the sample, appears to be the m^in b e n e ficia ry o f the l i t t l e fin a n c ia l flows in to housing from organised fin a n c ia l interm ediation. But the resources that they obtain are mainly from non-specialised housing finance interm ediation, sources lik e the LIC,

77 provident fund organisations and employers. But resource m obilisation,from sp ecia lised housing finance in s titu tio n s is small. The HUPC impact? fo r examplet is not yet n oticeab le (Table ). The lowest income group in the suar^ey towns, that i s, with an annual income o f upto Rs 5,000, gets l i t t l e support from the formal housing finance market, le s s than 8 per cent o f th e ir funds coming from th is source. Further, a substantial part o f these funds comes from the provident fund organisations and employers, i. e., finance suppliers lin k ed to the organised employment secto r. In c id e n ta lly, among the d iffe r e n t income groups, the most n oticeable impact o f the HDFC is seen in th is low income group, and in th e ir case, almost 1 per cent o f the req u is ite resources are provided by the HDFC. In the higher income groups ( i. e., those with annual income le v e l above Rs 35,000), the personal resources are laicgely s u ffic ie n t to make any approach to organised fin a n c ia l interm ediation unnecessary. In view o f tim e- consuming procedures and the fa c t that the amount o f resources Ytfhich. the high income home owners may be e lig ib le to m obilise (because of monetary c e ilin g s on home loans to be given by housing boards, co-operative s o c ie tie s, banks and the KCEFC) would c o n stitu te only a small proportio n o f th e ir investment requirements, they may consider i t not worth the w hile to seek in s titu tio n a l fjjq,anci^l support. The highest income group among the sample home owners ( i. e., the group with annual income exceeding Rs 1 la k h ), do not receive any support from sp ecia lised

78 r ^ f o r» a l Hou**ino f in a n c e P l'irk at V 7*93 TABLC I I I. 1 5 ^ r ; P a t t e r n a n d S t r u c t u r e o f H o u a i h a f i n a n c e e f Hoaia O u fia r s l o D i f f e r e n t ' I n c o w a G r c u a a r- ^, - ~ - Pfl r I n t o * # t a n o «: o a f a n n u a ' Or 5000 K T C C.1-3 E C 0 C '. ' * Abovs T o t a l ( ) (3 0 3 ) O, ( 4 5 ) ( 2 1 ) ^, (3 ) (7 2 0 ) p e r c e n t P e r c e n t w P e tc e n t-v ;v f e r m e n t., P a r e n t - - }. P * r c * n t U l ta x w i _ v s j ; - f J p i-i-s.: ULU ' ^ '-*1?8.6 i7i r s. u a) S p e c i a lis e d d o u s in g f in a n c e 0. 2* t K ; h ' ' * i m t i t i i i l on... s* 1 J ft o? p 6 f* ;c l'\ ' a. 07 " 0. 6? i a j. 2»! - r'vj ^ ii * - t a t e H o u s in g b o ard > , o. i o > -. o. n vb. 8«- ^ i i i ) C o o p e r a t iv e h o u s in g f i n a n c e / i O y \ - ' j bu 11 d i ttg s o c i e t i e s P>-- b l Ot'ha r*. f i«t c 1 a l I n s t i t u t i o n s V. 1 / Z ' » ),U.IC , * 1- ' "" r i i ) 'B an ks S 4. 0* I S. t * c ) O th e r s $ J i ) P ro vld atftt fu n d ^ S >: i i i ). C n p l o yer , i 14) 0t ha ra : r ; 6o ' In fo r m a l' H o u s in a f in a n c e M arket ^ i ; ^02 a) *» ^ f oene ra t e d , V i ) C as h, a C t7 '; i l l Bank d e p o s it s *48 ; * 7 9, S i i i ) p a v in g s d u r in g c o n s t r u c t io n ' ft o.e f f lv ) O theca b) O la n o a a l e f a s s e t s r ) S h a r e s V J 21 ' O. t Z _ -V; ) 3 o u e lliir * -; i i i ) L «n d :in f ilv e u lld in g lv ) A g r lc u lt ^ jr ^ p r o p e r t y v ;v 3.^ : v) Q thajra ) 1 - I 'x ' t: , ' : 0. 9V , 7 7 : 1 ' t I S : i c ) E x t e r n a l s o u r c e * ', 1) R e l i t j v «a ' tn V c 7 : i i i f r i e n d s , i l l ) In d ig e n o u s b a n k e rs o _ lv ) O th e ra O ' S > T o t a l o C- j ' otel Figures In parenthaais ara nucaber of hoaa ounar a in each category.

79 housing finance in s titu tio n s lik e the HDFC, State housing boards and co-operative housing finance s o c ie tie s, but they do obtain assistance from commercial banks. However, data on the type and extent o f s p e c ific type o f bank loans are not a v a ila b le. I t is more lik e ly that a substa n tia l proportion o f the commercial bank support may not be d irect housing loans but may be general-purpose loans or overdrafts whiqh may have been used to p a rtly finance the housing investm ent. The analysis r e la tin g to the formal housing finance market shows that the ro le o f the inform al housing finance sector is comparatively le s s important in the middle income group(annual income from Rs 5,001 to Rs 35,000). At the higher income le v e ls, as w e ll as at the low est income le v e ls, the impact o f the inform al housing finance market is very su bstan tial, fo r i t provides between 85 per cent and 92 per cent o f the finances fo r housing a c t iv it y. con stitu te the.a fa c t worth nothing is that self-gen era ted resources most important source of housing finance in a l l the income groups, the proportion being the highest in the lowest and the highest income groups. Savings in the form o f cash play an important ro le in the lowest income group, providing fo r 42.1 per cent o f the to t a l m obilised resources. But in the other income groups, cash savings are le s s important, supplying between 16 per cent and 26 per cent o f the housing finances in the income groups upto Rs 1 lakh and only 8 per cent at income le v e l above Rs 1 lakh. I t is in te re s tin g that over tw o«th ird o f the resources, fo r the above Rs 1 lakh income group comes in the form o f bank deposits, the proportion going down p rogressively with a declin e in the income le v e l. Thus,

80 w hile cash savings f a l l in importance with increase in the le v e l o f income, the importance o f hank deposits increases The dominance o f cash savings in the case o f low and middle income groups and that o f hank deposits in the case of high income groups has important p o lic y im plication s. Thus, on the one hand, the resu lts suggest that low-income home owners have to scrimp and tighten th e ir belts su b stan tially in order to save fo r a house, keeping th e ir savings in the most liq u id form so th at, i f necessary, they can be u tilis e d, fo r other purposes a ls o. The capab i l i t y to save being lim ite d, the low-income home owners are not in a p osition to block th e ir small savings in time bound fix e d deposits and in the process, they also lose an opportunity to earn any return on th e ir savings. On the other hand, current liq u id it y is not the major constraint fo r home owners in the higher income groups as they have s u ffic ie n t savings to meet liq u id it y needs and to earn a reasonable rate o f return on time bound d eposits in. banks. Another in d ication suggesting the hardships o f low and middle income groups in ra is in g even the lim ite d funds required fo r th e ir house is the r e la tiv e ro le o f liq u id a tio n o f physical and monetary assets. Assets are mostly liq u id a ted by the low and middle income group home owners. While disposal o f assets provided between 2.7 per cent and 6,9 per cent o f the resources fo r home owners in the income groups above Rs 35,000, they provided between 8 per cent and 11 per cent o f the resources in the three income groups below Rs 35,000. Among the id e n tifia b le assets that are sold to ra ise housing fin a n ces, land and b u ild in gs are the most importan t, esp e c ia lly in the case o f low-income and m iddleincome groups.

81 The p o lic y im plication o f these resu lts is that the lower income home owner not only has to keep his l i t t l e savings in the most uneconomic form, but also has to s e ll his personal and/or fam ily p ro p erties, probably even make d istress sale at low p rices, to m obilise the r e la t iv e ly small amount o f money fo r his house. The fin d in gs, thus, confirm the well-known fa c t o f the severe stresses and strain s f e l t by low-income groups in acquiring a house; they also in d icate that the situ ation is only s lig h tly b e tte r fo r middle income group home owners who get some support from t h e ir employment-linked sources o f fin an ce. In th e ir case a lso, personal savings are' la r g e ly in the form o f cash holdings and only a small proportion is held as fix e d deposits with banks and liq u id a tio n o f assets is also important. On the other hand, the r e la t iv e ly a fflu e n t home owner is not only able to earn a reasonable rate o f return on h is savings but he also docs not fin d i t necessary to touch his personal and ancestral p ro p erties, he may also get adequate fin a n c ia l assistance from fin a n c ia l in s titu tio n s. The r o le o f the * exlanded1 fam ily is more s ig n ific a n t in the middle income group (Rs 5,001 to Rs 35,000), wherein around 14 to '15 per cent o f the housing finances axe provided by frien d s and rela tiv e 's. But th is proportion declin es with the r is e in the income le v e l, being le s s than 10 per cent in the income group Rs 50,000 to Rs 1 lakh and 3.3 per cent in the income group above Rs 1 lakh. In other words, the high income home owner has enough resources o f his own; he requires no support from r e la tiv e s and frien d s or from the organised fin a n c ia l market. But the 1extended* fam ily has come to play a major ro le in the case o f lower and middle income groups.

82 ~ 76 - ( i i ) The home owner* s age impact. The access to the organised housing finance market seems to increase p ro gressively with' the p.z" the home owner. The maximum contribution o f the organised housing finance market to the resource m obilisation e ffo r ts of home owners is seen in the case o f the age group 41 to 55 years. Among the sample home owners, th is is the scenario that emerges fo r the KGFC (which provided fin a n c ia l support in the sample towns only to the age groups 26 to 40 years and 41 to 55 y e a rs ), State Housing Boards (which provided no loans to the age groups below 40 years) and co-operative housing finance s o c ie tie s (which provided no loans to the age group below 25 y e a rs ). Even in the case o f other in te r mediaries in the organised sector, except fo r commercial banks, no funds were provided to home owners in the age group below 25 years, and the fin a n c ia l support went only to the age,group 41 to 55 years (Table ), While o f f i c i a l l y, there is a minimum age r e s tr ic tio n fo r a v a ilin g o f in s titu tio n a l fin a n c ia l interm ediation, in e ffe c t, the e x is tin g system is r e a lly closed to young home owners, on account o f conventional norms r e la tin g to income earning capacity, cred it worthiness, etc. The r e la tiv e importance o f d iffe r e n t sources o f fin a n c ia l interm ediation brings out the s ig n ific a n t ro le o f provident fund organisations in the above 55 years age groups (because o f fin a l withdrawal, provident funds provided 10.5 per cent o f the t o t a l housing finances o f th is age group, as compared to the average o f 4.4 per cent fo r the sample). Employers also make a r e la t iv e ly s ig n i fic a n t contribution to the age group 41 to 55 years, when the employee could be expected to have a s u b s ta n tia lly

83 T A R X in. 16 P a t t e r n and S t r u c t u r e o f H o u s i n g f i n a n c e o f H a w O u n» r» I n O l f f e r e n t A o e - G r o u n e 1. T o run! Hoot in o r ln a n c «Hark8t I. i i. < v9<l hotie j n q f i n a n c e I n g t l t u t i o n e i i r-ta h o u s i n g b o a r d b. O t h e r f i n a n c i a l I n s t i t u t i o n! 1. I IC 11. Banks c. Others 1. Provident fund 11. Employer i l l. O t h e r. 2. Informal Hom in g financa Market SlLt=.9«n» rated 1. Cas h 11. Bank deposits 111. Savings during construction lv. Others b. O l s p o s a l o f sasetfl 1. Shares 11. Jewellery i l l. Land and building lv. Agriculture property V. Others c. E x t e r n a l s o u r c e e 1. Relatlves i i. Friends r» i l l. Indigenous benkers lw. Others Aoe G r o u p rw.2 5 V8 ar a 2 6 -M I'v e ara va a n T n t.l ' (1 2 ) (2 9 7 ) (2 9 5 ) (1-16) (7 2 0 ) P e r c e n t P e rc e n t P e rc e n t P e r c e n t _ P erc e n t _XUi (? ) iz).... M...H V " ' " M..... (7 ) ( s i (9 ) ' * , is O.SO S1S ! , * S.3 6 ' * * S ~ ~ ; i. M '381.» SO " ; 4.37 S * S T o t a l Wotst Figures in parenthesis are nuaber of hose owners in each cetegory.

84 long service to his record, a permanent income stream and may yet have enough years o f a ctive employment allead o f him to obtain fin a n c ia l support from the employer fo r buying a house. I t is, th erefo re, not surprising to fin d, as a c o ro lla ry, that the youngest age group, i. e., upto 25 years, depend to a la rge extent on self-gen erated resource in the form o f cash, bank deposits and liq u id a tio n o f assets, than the other age groups. The r o le o f s e l f - generated resources declines in the case o f middle age groups but again becomes important fo r home owners above the age o f 55 years, who have life - t im e savings with them on the one hand, and shorter loan-repaying period ahead o f them, on the other. R ela tives and frien d s make a sizeable contribution in the case o f home owners below the age o f 25 years. The indigenous bankers are important f o r the above 55 years age group. ( i i i ) The s ize impa c t. The s ize o f a house that a home owner acquires also has a bearing on his pattern o f resource m ob ilisation. Broadly, the pattern that emerges from a study c f -gated data o f home owners by the s ize of the house that they acquired is s im ila r to that o f home owners in d iffe r e n t income groups. As was seen in the analysis re la tin g to the income impact on the pattern o f resource m ob ilisa tion, the access to the formal housing finance market is the greatest fo r the group o f home owners acquiring houses having a covered area o f 501 to 1000 s q.ft. In th is group, 27.4 per cent o f the resources are ra is e d from the

85 formal housing finance market and the ro le o f the HDFC, the co-operative housing finance s o c ie tie s, the LIC, the commercial banks and the p -^ ^ n je r is, as compared to home owners o f other sized u n its, more important. In the case o f home owners acquiring houses having a covered area o f 1001 to 5000 s q. f t., the r e la tiv e importance o f provident fund organisations, employers, the LIC and the commercial banks is c le a r. I t may be noted that most of the middle income group home owners acquire houses having a covered area ranging from 500 s q.ft. to 1500 s q. f t., y/hereas large houses, esp ecia lly above 5000 s q. ft. in area, are acquired by high income home owners (Table I I I. 17). Another notable fin d in g is that home owners who acquired the sm allest houses (say, covered area less than 250 s q. f t. ) have l i t t l e access to sp ecia lised housing finance in s titu tio n s, and' they receive only marginal support from commercial banks. In fa c t, in th e ir case, the two important sources o f housing finances in the organised finance market are the provident fund organisations and the employer, i. e., agencies lin k ed to organised sector employment. In the in form al housing fin an ce market, s e l f generated resources are very important, accounting fo r around 60 per cent o f the to ta l resources in the case o f houses le s s than 250 s q. ft. in area as also those houses having an area between 250 and 500 s q.ft. In these cases, while bank deposits are important, cash savings are more important, e s p e c ia lly fo r the home owners o f the sm allests ize d houses. In the case o f the home owners acquiring very la rge houses (covered area more than 5000 s q. f t. ) also, the recourse to in s titu tio n a l agencies is n e g lig ib le, and

86 TABLC I I P a t t e r n and S t r u c t u r e o f H o m i n g F jn a W c e p f Hq i h O w n e r * * c a u l r l n a 0 I f f e r * n t -» l i e d H p m n S i z e o f h o u s e ( e q. f O 1. ' ;'n>al- H o u s i n o F i n a n c e M a r k e t A b o v e 5000 T o t «l..." X ) ' l?30) ( ) P e r c e n t I LiJ ' (ife S ) ' " ( ) P e r c e n t P e r c e n t \ ' 1 ' P e r c e n t VPt (5) P e r c e n t -TTT t S p e c i a l i s e d h o u s i n o r i n e n c e i n s t i t u t i o n. O.O S «1 1. * _ - 1. HTjFC i i. S t a t e h o u s i n g b o a r d O.S O C o o p e r a t i v e h o u s i n g f i n a n c e / , 3 * b u i l d i n g e o c i e t i a a <. -- b. O t h e r f i n a n c i a l i n s t i t u t i o n s O.S O L I C B a n k a * * c. O t h e r s J S i. P r o v i d e n t f u n d t a p l o y s r O. S S " i l l. O t h e r s , , * * M 2. I n f o r m a l H o u s i n o F i n a n c a f l a r k s t * a. S e l f - o e n a r a t a d i. C a s h B a n k d e p o s i t s i i i. S a v i n g s d u r i n g c o n e t r u c t i o n l v. O t h e r s b. O i s o o s e l o f a s s e t * S S h a r e s i i. 3 e w e l l e r y S. * i l l. L a n d and b u i l d i n g S l v. A g r i c u l t u r e p r o p e r t y v. O t h e r a T c, F x t e r n a l s o u r c e * R e l a t i o n s * * J. F r 1 e nd s ' M. I n d i g e n o u s b a n k e r * i. «O t h e r s * * T o t a l b * I C O igurrs In parentheeia ere number or hoa* ownere in each cats gory.

87 81 - thesb in s titu tio n s provide about 2 p e r ent O f'th e t o t a l M tisingrfiiiarsce, W hile one reason. may be that the cost o f such houses is very higv. r " \ th erefo re, in s titu tio n a l support may mean very l i t t l e to induce the home owners to approach.them in view o f the procedures in volved, a more irafbortant reason may be the fo ie o f the p a r a lle l economy in high-value housing u n its. Self-gen erated resources, among the inform al sources o f housing finance, jare no doubt most important in the case o f houses o f a l l s ize s but th e ir r e la tiv e ro le is more s ig n ific a n t in the case o f la rg e sized houses (84 per cent o f the finances are provided through personal savings, bank deposits and disposal o f assets in the case o f houses having an area more than 5000 s q. f t. ). The external sources o f the inform al housing finance market provide between 11.7 per cent and 17.1 per cent o f the t o t a l housing finances needed, and among the in d iv i dual sources, r e la tiv e s and frien d s play a m a jor.ro le. The ro le o f the indigenous bankers cannot be overlooked in the case o f owners o f smaller- houses. e, Type o f house and pattern o f resource m o b ilisa tion. Our fin d in gs also conform that the owners o f semi-permanent and kutcha r e s id e n tia l units have p ra c tic a lly no access to the formal housing finance market except, to some extent, to employers and the commercial banks. Data on the pattern of resource m obilisation of owners o f fla t s and bungalows again substantiate the evidence presented e a r lie r, that the main b en eficia ry o f the organised housing finance market is the upper middle class, which p refe rs a f l a t to a bungalow in the major m etropolises, but may sometimes acquire a small bungalow in the towns (Taible I I I, 18).

88 TABLC P a t t a r n and S t r u c t u r e o f H o m i n g F l n a n c a o f H om o O u n e r a o f O j f f a r a n t T y p a a o f H q m a Ov CO::. ' J ^ '7>MLi * 2 'ot* cob-,-',i qh n f ' *}!# h-<tj H i-' ±rh O -,Q ty... y- 1?., +3 l^^siat^'houal ",i (Sop T«ti*e i!c I?00*8*1** b*t-t Q thaif!f I n a n e l a l :7_i. -cr- I'- c ^nka2 f t -Ot ha r'«j.:' ^ ^ H ou aliffi F l n a n c a W a r k a t S a p c l a l l a e d h o u s i n g f l n a n c a I n a t l t u t l o n a,2--i ftq fa rcp r\, P r o v ^ d a n t. e f j i t ',,, E «p l o'yar ' Otha.r-a. s i n g b o a r d ve h o u s i n g f i n a n c s / b u l l d l n g f u n d i n a t l t u t l o n a I - ; I n f o r m a l H o u s i n g F l n a n c a f f a r k a t, v.c ii -! S j ^ f - S a n ^ f a t a d 4 V*M»hO d a p o a l t CO-" O i i f ^ S bwi o o s d u r i n g c o n a t r u c t l o f i -n L-;-4%*..(. O tj l.tilft1"1*-* i Q - V p ' O t i l c t i O ^ u a l l a r y U? nd-.»n d b u i l d i n g 01 A g r i c u l t u r e p r o p a r t y ^ O t h a r a a o u r c a a T y d» o f h o u a a H u t s. P. S t r u c t u r e F l a t Bun a a l ow T o t a l» ( 5 1 ) P a r c a n t (4 6 ) P a r c a n t ( ) P e r c e n t ( ) P a r c a n t ( ) P a r c a n t i n - T O w...1.4] I 5j... ( ).. T 9 T U H i _ _ - -, o.o i 0 * o.o i * ; * S * 5 ^ f c j, O. S S ^ * \ r > T ? _ O. S S * * S H 0 *2 fij I i ; ' R'a 1 a t l v a a it) ; O : X I. ') F r d s n«j a f ' O ' T t i l i t i n d l g a n o u a b e n k a r a > 1 l v., - O t ih a r a ia - o Total _KotaP C^guraa In paianthaala ara nuaber e>f hoaa owners In aach Category ~ t ?

89 f. Town-wise an alysis. The data on the pattern o f resource m obilisation o f home owners in the f iv e selected towns included in the sample are presented in Tables I I I. 14, I I I. 19, 111,20, and A. I l l, 10 to A. I I I. 34. The disaggregated aata substantiate the fin d in gs at the aggregated le v e l. The em pirical evidence on the resource m obilisation e ffo r ts o f home owners brings out c le a rly that the access to the formal housing finance market is greater in the la rge towns than in the smaller ones. Much also depends on the s ize o f the organised employment sector, because a s ig n ific a n t proportion o f housing finance needs o f home owners are met by the employers and provident fund organisations. Where the government sector employment is im portant, the contribution o f the formal housing finance market is more appreciable. Thus, the data show th at, whereas 26,7 per cent o f the housing finance o f home owners in Lucknow is met by the formal housing finance market (m ainly, employers including the government, provident fund organisations, the LIC and commercial banks), in Delhi the proportion is 18,9 per cent and in Ambala, w ith a large government sector-employed home owners in the sample, the proportion is s t i l l higher at 37.0 per cent. I t may be mentioned here that the contribution o f the employer alone in Ambala i s as high as 10.8 per cent and th at o f the co-operat iv e h o u s i n g finance s o c ie tie s is even higher, at 15.7 per cent. On the other hand, the formal housing finance market supplies only 12,1 per cent o f the resources o f home owners in Cuttack and 10.6 per cent in Quilon, the two sm aller towns in the sample, where organised sector employment and, in p a rticu la r in the government sector, is not as widespread as in the la rg e r towns (Table I I I. 14).

90 In cm *»roup ( * ) TABLC I I I. 19 Stiuctura of Waaourca «> ob lll»ition C fforta of Wan H o t Ounara In O lffatan t lncd»» Srouoa In Sajactad Tqw^I (~» p «r c «n t «f to t i l ) / p r a a l h o u a l n a f i n a n c e ln t orial housing financa ln m c i v. T i 3 p»c i*li**d - ntrix f i - Ct Other S.i^- biaoosml Lxtarnal housing f i - n social li*- aourcaa 9* not atod of aaoata aourcaa nanca I n c atltutiona o n t HE 33E I*E HE JEE (T'lSVf * _ : W J -45.? S S001 - * S ) Abowa ' m T o ta l 1.74 * ' * * i i. i s s k a t t : /' s _ * S * * bow* '» T o ta l M S 1 0.lt I I I. C uttaofc IS m _ 0.8 S « * ". ; - io o. oo Abowa * 1. To ta l ^ n r 0 - soco 2#3» _ jooi * J WOt * ;... w-1 soot. ; m MB ^. 100W c w 4 t> 1. 0I>' - _ 4* lit j IS ,V ;; J * 1*. a» <«Ci»fc * SO.OO 25. as f » * ?,

91 TABHS I I I.20 StrUP^UTt.. pf B*9our9#Hoblll8a'tlai Effort a of Hoi tee group* In 8«leotad Towna Ownora in Different i. SsiM 1. O ibova T o ta l.'.1.1. n. Istiasv Abor* T o ta l XZZ. O tfttaot ibora T o ta l I f. Q nilon Abort T o ta l _5$» el t Bpaclell General 11- utber aej **d hon- nanoial to- aouro*a (tntritid ing fi- atitutiona nano* inat3 m : p«r oent of total) housing ttnenc* Diapoaal Extern ornay' of aaeata aouroea 3EC H I JSC JEL T?IoV j - o *87 11; B « a* <5 10* m «_ a* % «V; m m km 1*34 3;« * i « * i d t u * toora 55.. c T o ta l - m m * » 1* « S

92 36 Disaggregated data at the in d ivid u al town le v e l strengthen the aggrega ted -level fin d in g that sp ecia lised housing finance in s titu tio n s, with the exception o f the co-operat±ve housing finance s o c ie tie s,.in Ambala, make a n e g lig ib le contr ib r tio n to the resource m obilisation e ffo r ts o f home own-rs. The proportionate supply of housing finance by such in s titu tio n s is n i l in Cuttack and 0.7 per cent in Quilon and s lig h tly higher in Delhi and Lucknow (1.7 per cent and 2.7 per cent, r e s p e c tiv e ly ). Therefore, ir r e s p ective o f the s ize and location o f the town in which a home owner resid es, a c c e s s ib ility to in s titu tio n a l fin a n c ia l interm ediation is e ith e r non-existent or marginal. In e ffe c t, qu a n tita tive evidence from the housing finance surveys in f iv e selected towns suggest the highly underdeveloped nature o f the organised housing finance market in the country. In the context o f the merely token existence o f the formal housing finance market in the country, the survey data at the disaggregated town le v e l confirm the very high dependence on the inform al housing finance market. Further, the dependence is more marked in the sm aller towns where, the data also reveal the s ig n ific a n c e o f self-gen erated resources (p rovidin g 72.8 per cent o f the t o t a l housing finance in Quilon and 70.3 per cent in Cuttack) as compared to the la rg e r towns (59.5 per cent in Delhi and 42.1 per cent in Lucknow). The liq u id a tio n o f fam ily assets is also more important in the sm aller towns, though in Lucknow the sale o f a g ric u ltu ra l property provided a la rge proportion (6.2 p er cen t) o f the resources o f the home owners. Further, a d isaggregated -level study o f the housing finance structure o f home owners in the d iffe r e n t

93 87 - 's and belonging to d iffe r e n t income groups, reveals that the dependence on the inform al housing finance market is not only g re a te r in the sm aller towns, but that i t is even more substantial in the case o f lower income groups in these sm aller towns. Thus, fo r example, in Quilon, the inform al housing finance market provided 92.2 per cent o f the resources fo r home owners having an annual income upto Rs 5,000, 88.0 per cent fo r the income group Rs 5,001 to Rs 15,000 and 89.4 per cent fo r the income group Rs to Rs 35,000, and in Cuttack, the resp ective proportions fo r sim ila r income groups were 99.2 per cent, 88.9 per cent and 84.4 per cent, resp e c tiv e ly. However, on the other hand, the proportions in Lucknow were 96.1 per cent fo r the income group upto Rs 5,000, but only 70.6 per cent and 73.7 per cent re s p e c tiv e ly, fo r the two other comparable income groups and in D elhi, these proportions were 82.2 per cent, 78.4 per cent and 65.9 per cent, re s p e c tiv e ly (Table I I I. 19) The above an alysis, thus, shows that home owners in the lowest income group have p ra c tic a lly no access to sp ecia lised housing fin a n c ia l interm ediation in any town, irre s p e c tiv e o f i t s s ize and extent o f urbanisation. In the case o f the middle income group, the a c c e s s ib ility to the formal housing finance market is p ra c tic a lly non-existent in the sm aller towns, unlike the la rg e r towns, where i t is quite d is cern ib le. Much of the a c c e s s ib ility to the formal housing finance market, however depends upon the extent o f the organised sector employment in the resp ective towns, and in p a rtic u la r, the government sector employment. The data also revea l that the lower income home owners depend very la r g e ly on th e ir personal savings and/ or on disposal o f personal and fam ily assets, whereas

94 98 '* the ro le s o f tljes eourcas o f housing tfinaqce become le s s * iportant in the la rg e r towns, Thus, f<3? example* while. in Quilon and Guttnok 92.2 p er cent and 91.1 p e r cen t, res p e c t iv e ly, o f the resources are m obilised through ptfrsonal savings aa<# sale o f assets, in Delhi the proportion is 65.4 per cent, in Lucknow 68.9 per cent asad in Ambala 66.1 per c e it f o r home owners having an ennual income o f upto Rs $j,c0o. The disaggregated data on home owners in the f iv e 8$ajple towns c la s s ifie d in to d iffe r e n t groups on the basis o f th e ir resp ective ages substantiate the aggrega ted -level fin d in g that the younger the fcome owner-, the le s s is h is a c c e s s ib ility to the formal housing finance raacrket. The formal housing finance market, thus, provides no finances fo r the home oim tr in the below 25 years age group in four o f the f iv e survey tcw nf, the exception being D elhi, wherein only the commercial bejaks, among the id e n tifie d suppliers o f funds in th is * a rk e t, provided some fin a n c ia l assistance. Even in the age group 26 to 40 years, the support from the formal housing finance market meets around 16 per cent to 17 per cent o f the needs o f the home owners in D elh i, Lucknow, Cuttnck and Qujlon, though in Ambala, the p rop ortio n a te support is higher (27.9 per cen t), due to the in clu sion o f a la r g e ;number o f government employees, who received fin a n c ia l support from government agencies and providend fund organisations. Further, the data reveal that in sm aller towns, even the proportionate support that the middle income group home owners obtain from the housing finance in s titu tio n s compares p oorly with that in la rg e r towns. (Table I I I. 20)

95 6. Qualitative Evidence on the Resource Mobilisation Efforts of Home Owners a. Ma,ior con strain ts. In view o f the need to strengthen in s titu tio n a l fin a n c ia l.interm ediation in housing,-^/ i t was considered desirable to understand the problems that wure faced by the home owners in m obilisin g resources from fin a n c ia l in s titu tio n s. An attempt was made to obtain the reactions o f home owners to a few id e n tifie d problems that are gen erally b elieved to act as constraints on obtaining access to the formal housing finance market. These problems were also considered to be important by a group o f experts in housing finance at a Workshop held in New Delhi in A p r il, A f a i r ly good response was received, os 45.7 per cent o f the sample home owners ( excluding those in slum and squatter settlem ents) responded to the questions raised by the NIPFP f i e l d in v e s tig a to rs on the problems faced by them in m ob ilisin g resources. In fa c t, the response was b e tte r in the la rg e r towns (D elh i 67.6 per cent, Lucknow 45.1 per cent, Ambala 46 per cent and Cuttack 34.8 per c e n t). Inadequate inform ation about the a v a ila b ilit y o f fin a n c ia l interm ediation at the in s titu tio n a l le v e l is stated as the main problem by over one-fourth o f the respondents. The "inform ation gap" i s more s ig n ific a n t in towns lik e Cuttack and Ambala than in the c it ie s lik e Lucknow and D elhi. Another major constraint on the in it ia t iv e o f home owners in approaching fin a n c ia l in s t i tu tion s, even though they were aware o f the a v a ila b ility o f t h e ir a ssista n ce, i s the com plexity and time-consuming 10/ For a discussion o f the advantages th a t flo w from in s titu tio n a l fin a n c ia l interm ediation, see Chapter IV.

96 procedures in volved in obtaining in s titu tio n a l fin a n c ia l -upport fo r housing. Q-he seriousness o f th is constaint is f e l t almost uniform ly in a l l the selected towns. In fa c t* th is problem seems to be even more c ru cia l. Fot only have a la rge proportion o f home owners (35.3 per cent) id e n tifie d complicated and time-consuming in s titu tio n a l procedures as a major con strain t, but as these respondents included only those w ith some experience-and/or awareness o f the a v a ila b i l i t y o f in s titu tio n a l finan cing, the qu a n tita tive evidence th at has been obtained become very important (T ab le ). Another important constraint pointed out by our survey is the in te re s t burden o f in s titu tio n a l home loans. One sixth o f the respondents id e n tifie d the ra te o f in te re s t as a major constraint and disaggregated town-wise data show th at the issue is considered more important in sm aller towns l i k e Cuttack and Ambala than in Delhi and Lucknow. The lack or inadequacy o f appropriate s e c u ritie s and guarantees that have to be provided fo r a home loan, the high i n i t i a l contribution that a home owner has to make to become e lig ib le fo r a home loan, and unsuitable repayment schedules were id e n tifie d as important problems by only a small proportion o f the respondents. One p ossib le reason fo r th is may be th a t, in the absence o f any informo.tion on the a v a ila b ilit y of fin a n c ia l interm ediation, only a small proportion o f home owners were exposed to the operational problems that would be encountered in m obilisin g fin a n c ia l support from fin a n c ia l interm ediation, and th ere fo re, in the case o f most o f the' home owners, the issue was more o f an academic nature.

97 91 TABLE I I I. 21 Frequency D istribution of Home Owners on Major Problems Encountered in Mobilisation of Resources from Financial Institution s (Numbej: of Home Owners) Delhi Lucknow Cuttack Ambala All towns " (1)...(2 f H T L ack/inadequacy of information of fin an cial intermediation (26.04) (10.96) (39.06) (34.78) (25.84) 2. Lack/inadequacy of security (10.65) (9.59) (1.56) (7.90) 3. Lack/inadequacy of guarantors (5.92) (9.59) (5.17) 4. Complicated and time consuming procedures (34.32) (38.36) (35.94) (30.43) (35.26) 5. High i n i t i a l contribution fo r assistance from fin an c ial intermediaries (4.14) (4.11) (3.04) 6. Unbearable interest cost (1 3.01) (10.96) (21.88) (34.78) (15.81) 7. Unsuitable repayment schedules/repayment (4.73) (10.96) (1.56) (5.17) 8. Others (1.18) (5.48) (1.82) TOTAL ( ) ( ) ( ) ( ) ( ) Notes: 1. Figures in parentheses are per cent to to ta l indicates nil.

98 b. Type o f home loan mortgage. Some data were obtained in the case o f home owners in D elh i on the type o f mortgage that had to be provided by the fo r g e ttin g fin a n c ia l o rt from in s titu tio n s and in d ivid u als* While the response was lim ited (27 or 13.4 per cent o f the 201 home owners in the. formal housing sector in D Xhi), i t may be broadly in d ic a tiv e. In s titu tio n a l suppliers o f housing finance are in terested in having a mortgagf o f the concerned property or o f a l i f e insurance p o lic y, niiereas fo r n o n -in stitu tio n a l suppliers there is no clear-cu t p o lic y (Table I I I. 22). Further, i t is in te re s tin g to fin d that fo r the home owners who supplied the inform ation, the value o f the home loan is gen erally le s s tfcan 50 per cent o f the value o f the mortgagfd property and only sometimes i t goes upto 75 per cent o f the value o f the mortgaged p ro p erty. c. Cost o f home loans. Another Important issue r e la te s to the cost o f the home loan. Around tw o -fifth o f the homeowjstejrs provided data on the ra te o f in te re s t that they had "to V W on t h e ir home loa n s. Almost one-4ielf o f the respondents paid in t e r e s t in the range o f 5.1 per cent to 9.0 p tr cent and another one-fourth paid in the range o f 9.1 j& r cent to 14.0 p er cent. About one-tentk o f the respondents paid low in te r e s t, upto 5.0 per cent and another onetenth paid in te r e s t at rates ranging between 14.1 per cent and 20 per cent. Some home owners in Dell*}, and Lucknow obtained home loan at a ra te o f in te r e s t f more than 20 per cent, mainly from indigenous bankers ( able I I I. 23). d. P o te n tia l sources o f houafeig fin an ce. About one- h a lf o f the home owners responded to the question r e la tin g to the p o te n tia l sources o f housing fin an ce thqft could be

99 TABLE I I I. 22 Type of Mortgage required for Home Loans: Case Study of Delhi Home Owners Type of Institutional Non-institutional Indigenous mortgage lenders lenders ' bankers 1. No mortgage Shares a d stock Jewellery Property Insurance Others TOTAL

100 TABLE I I I. 24 Potential Sources of Housino Finance (Number of Home Owners) Del Iii 05 L ucknou ' (2} Cuttack...f 5 r - Hu ilon ' (4) Ambala (5) T ot al (6) 1. Gratu ity funds 20 (21.74) 15 (28.30) 75 (57.69) 36 (62.07) 24 (55.81) 1 70 (45.21) 2. Corporate sector 20 (21.74) 1 ( 1.89) 4 ( 3.08) 1 ( 1.72) 2 ( 4.65) 28 (,7.45) 3. Banks 50 (54.35) 37 (69.81) 51 (39.23) 21 (36.21) 17 (39.53) 176 (46.81) 4. Ot he r s 2 ( 2.17) ( 0.53) TOTAL 92 (100.00) 53 (100.00) 130 (100.00) 58 (100.00) 43 (100.00) 376 (100.00) Note: Figures in parentheses are per cent to t ot a l.

101 tapped in the country. A point o f in te re s t is that the response to th is issue was b e tte r (70 per cent to 86 per cen t) in Cuttack, Quilon end Ambala than in Lucknow and D elhi (where on e-th ird o f the home owners responded). Almost one-half o f the respondents f e l t that commercial banks should provide housing finance and roughly the same proportion id e n tifie d g ra tu ity funds as a p o te n tia l source. An increased r o le by the corporate s e c to r was suggested mainly by home owners in Delhi (Table I I I. 24).

102 IV. HOUSING FINANCE MASKED AND FINANCIAL INTERMEDIATION 1. In trodu ction The major suppliers o f housing finance in selected Indian towns were id e n t if ie d in Chapter I I I and quantita tiv e evidence was also presented on th e ir r e la tiv e importance and ro le in the resource m obilisation e ffo r ts o f home owners. I t was seen that the inform al housing finance market plays a most cru cia l ro le and that in s t i tu tio n a l fin a n c ia l interm ediation in housing is in a highly underdeveloped and unorganised s ta te. In order to provide the proper p ersp ective fo r a discussion on the strategy fo r, and m odalities o f, strengthening the housing finance market (in Chapter V ), an assessment is made in th is chapter o f the operations in the formal end the inform al housing finance markets. In the process, the inadequacies in the e x is tin g housing finance system 'and the main con strain ts on the spread o f in s t it u tio n a l interm ediation are id e n tifie d. Some estimates are also presented on the annual flow o f funds from major in s titu tio n a l interm ediaries in to the housing sector and on the r e la tiv e s ize o f the inform al housing finance market;, in the country. 2. The In f ormal Housing Finance, M a r k e t As noted e a r lie r in th is study, the inform al housing finance sector, in the absence o f w ell-developed in s titu tio n s, becomes the main ca ta lyst o f housing sector a c t iv it ie s. I t includes a ll unorganised and n o n -in stitu tio n a l supplies o f fin an ces.

103 a* Evolution and r o le. The inform al cred it market in India has existed fo r centu ries. At one time the system focussed around the lo c a l money-lenders and pawnbrokers, often the v illa g e landlords who were also the feudal lo rd s, and the v illa g e traders who supplied most o f the lo c a l goods and s e rv ic es. This group gradually developed in to the main nucleus o f trading and in d u s tria l a c tiv ity in the country by providin g finances fo r such a c t iv it y, or by undertaking such a c tiv ity themselves, much before organised fin a n c ia l interm ediation came in to being. Many o f the major business and in d u s tria l houses in In d ia e ith e r received support in the i n i t i a l years from the indigenous money lenders and indigenous bankers (who dealt in hundis1) or were themselves engaged in these a c t iv it ie s. With developments in the fin a n c ia l markets, the r o le o f the indigenous money lenders and bankers has been d eclin in g in sectors lik e industry and trade. In the housing sector, however, the inform al cred it market continues to play a prominent r o le. b. S alien t fe a tu re s. The important c h a ra c te ristics o f the indigenous fin a n cin g se cto r are; ( i ) Easy a c c e s s ib ilit y. No s p e c ifie d working hours, hence accessible p ra c tic a lly round~the~*clock; ( i i ) Quick processing. There is no need to f i l l any form, provide any evidence, guarantee, documentation or p roof o f credit-w orthiness or on repaying capacity j ( i i i ) F le x ib le c o lla t e r a l. C o lla te ra l norms are fle x ib le, depending on the borrower*~lender rela tion sh ip and on wha>t the borrower can o ffe r. Besides je w ellery and property, household goods and any other a r t ic le having a marketable value are acceptable. Finance is sometimes provided even without any c o lla te r a l 5

104 _ 99 - ( i v ) Unequal bargaining power. The assessment o f the value o f the mortgaged property and the terms and conditions r e la tin g to th e.fin a n c ia l assistance are unquestionable; (v ) High rate o f in t e r e s t. The normal rate o f in te re s t ranges from 15 per cent to 36 p er cent. The e ffe c t iv e rate is much higher as the in te re s t is deducted a t source at the time o f disbursement o f th e loan^ ( v i ) E xcellent monitoring system. The banker, being a lo c a l person and operating at the grass-root le v e l, is fu lly aware o f the sources and the timing o f receip ts o f the p o te n tia l borrower, the amount and tim ing o f his l i a b i l i t i e s, d e ta ils o f his c re d ito rs, e tc. $ ( v i i ) Good rccovory record. Pear o f fo r fe itu r e o f higher-valued property, public disrepute in case o f defau lt and fe a r o f rough recovery methods ensure a good recovery record. The informal, housing-finance market consists not only o f the indigenous money lenders and bankers but also includes extended fam ily members including r e la tiv e s, frie n d s, business associates and employers. In addition to these sources o f fin a n ce, a home owner makes use o f h is accumula te d savings in cash and/or resources obtained by liq u i~ dation o f assets that he may have acquired through his own e ffo r ts or may have in h erited. Some qu a n tita tive evidence 011 the r o le o f the inform al housing finance market and i t s broad structure has been presented in Chapter I I I.

105 c. N otional and e ffe c t iv e in te re s t ra tes. The most important features o f fin a n c ia l assistance provided by the indigenous money lenders and bankers re la te s to i t s cost. While o f f i c i a l data are not a v a ila b le, discussions w ith home owners, b u ild ers, land developers and others who had tapped them fo r purposes o f housing finance, as w e ll as to meet other fin a n c ia l requirements, have revealed that the rate o f in te re s t gen erally ranges. from 15 per cent to 36 per cent and sometimes i t is even higher. What i s more important is the method o f computation and recovery o f the in te r e s t. The in te re s t is computed on the to t a l amount o f the loan fo r the f u l l loan period in advance at the time o f loan n egotia tion and f u l l deduction is made at source, at the time o f disbursement. This p ra ctice pushes up the e ffe c t iv e rate o f in te r e s t. The e ffe c t iv e ra te o f in te re s t measures the re a l burden on the borrower and is dependent upon the am ortisation period, as can be seen from Table IV.1. The e ffe c t iv e cost works out to be higher, the lon ger the period o f am ortisation. On average, loans in the inform al c re d it market are renewed every three to four months, and are never a v a ila b le on a long-term b asis. 3. The Formal Housing Finance Market The formal segment o f the housing finance market can be divided in to two parts; general fin a n c ia l in s titu tion s (GFI) and sp ecia lised housing finance in s titu tio n s ( SHFI).

106 TABLE IV.1 N otional and E ffe c tiv e Rate o f In terest, in Inform al C red it Market Gross N otional Loan In te re s t Net E ffe c tiv e Annual Loan rate o f period amount loan rate o f e ffe c tiv e (Rs) in te re s t (months) (Rs) (Rs) in te re s t rate o f (p er cent) (1-4 ) during loan in te re s t period Col. (6 ^. n (4 as per cent o f 5) col 7V ) 0 o l u ' (1 ) (2 ) (3 ) (4 ) (5 ) (6 ) ( 7 : Sources Based on discussions with, land developers and b u ilders in the p riv a te sector and other in d i viduals who had availed o f the services of the inform al cred it market.

107 «102 - a, O bjectives and r o le. The GIT sector includes the commercial banks, insurance companies (con sistin g o f the L ife Insurance Corporation oi India and the General Insurance Corporation group) and the provident fund organisations. function o f GFI. Financing o f housing is not the primary Their p a rtic ip a tio n in the housing sector is mainly because some proportion o f investment is expected to be made in selected p r io r ity sectors in the economy which include housing, and p a rtly to meet, to some extent, the housing finance needs o f employees, members, b e n e fic ia rie s and business associates. The main o b jectives o f GIT are to safeguard the in te r e s t o f th e ir major c lie n te le and to provide to them an adequate rate o f return on th e ir savings/investments. The in c i dental nature o f the p a rticip a tio n by GIT in housing finance a c t iv it ie s is perhaps also due to the fa c t th at, fin a n c ia l support to housing has to be on a r e la t iv e ly low rate o f in te re s t and on a long-term basis and, th e re fo re, investment in housing does not y ie ld an a ttra c tiv e rat o f retu rn. The major sp ecia lised housing finance in s t it u t i ons are the Housing and Urban Development Corporation (HUDCO), the Housing Development Finance Corporation Ltd. (HDFC), State Housing Boardsand Co-operative Housing Finance S o c ie tie s. They provide finances, e ith e r d ire c tly to in d ivid u als to acquire th e ir own house or to in s titu tio n s which implement a housing programme. The HUDCO finances housing and in frastru ctu re development a c tiv ity at the in s titu tio n a l le v e l, undertaken by the state development a u th orities, sta te housing boards, and co-operative housing s o c ie tie s. The HUDCO does not g iv e home loans d ir e c tly to in d ivid u a ls. The

108 State housing boards prim arily provide built-u p houses and s ite s on various terms of payment but a few also provide d irect home loans to in d ivid u a ls. Development au th orities and housing boards which construct and make a vailable houses on a hire-purchase b asis, im p lic itly perform the functions of a sp ecia lised housing finance in s titu tio n at the in d ivid u al le v e l. The co operative housing end b u ild in g s o c ie tie s and the HDFC are, however, the only organised and sp ecia lised in s titu tio n s that d ire c tly provide housing finance at the in d ivid u a l le v e l. While the co-operative s o c ie tie s provide housing finance mainly to low-income and middle-income groups, the HDFC finan ces la r g e ly middle-income and high-income groups. 11/ i b. Resource m ob ilisa tion. The HUDCO m obilises i t s resources mainly from the LIC and the G-IC and through i t s dcb-^tures, subscribed by the S ta te -le v e l housing finance in s titu tio n s on the guarantee o f government i t also gets some in tern a tion a l assistance. The State housing boards get most o f th e ir finances from state budgets, the LIC and the HUDCO and co-operative s o c ie tie s from the LIC, the HUDCO and th e ir own members (in form o f membership fe e s ). L it t le e ffo r t is made to tap household savings other than membership fees c o lle c te d by co operative s o c ie tie s. reason is that the housing sector needs low -cost funds and household savings are d iffic u lt to m ob ilise, unless an a ttra c tiv e and com petitive rate o f return is o ffe re d. One T h erefore, due to resources constraints also., the services o f the SHFI in s titu tio n s cannot be e a s ily extended, q u a n tita tively as w e ll as q u a lita tiv e ly, to the conventio n a lly non-credit-w orthy segments o f the population. 11/ The HDFC assistance to corporate housing programmes is,howevei intended fo r low-income employee housing in in d u s tria lly backward areas.

109 The HDFC has made some attempt to tap household savings through i t s equity shares, loan -lin ked deposit scheme and c e r t ific a t e o f deposit scheme but i t s e ffo r ts m ' a n e g lig ib le proportion o f a va ila b le household c. Capital market and the housing s e c to r. There is l i t t l e in tera ctio n between the nation al c a p ita l market and the housing sector* primarqybecause there does not exis t any in s titu tio n a l framework to lin k housing with the c a p ita l markets, and banks are not allow ed to lend money to in d i viduals fo r housing (except to a lim ited e x te n t). The low return on the debentures and bonds o f the HUDCO and the State housing boards, r e s t r ic t th e ir subscription to in s titu tio n a l agencies, including fin a n c ia l in s titu tio n s, commercial, banks and provident fund organisations. The debentures and equity shares o f the HDFC are also mainly takp.n up V in s titu tio n s, and only to some extent the equity shares are purchased by in d ivid u a ls. The nation al cred it market, th e re fo re, makes a small contribution to the financing o f housing, unlike in the case o f financing o f in d u s tria l, a g ric u ltu ra l, in tern a l and external trade a c t iv it ie s. 12/ The HDFC has m obilised, as on June 30, 1983, Rs 9.98 crore as equity share c a p ita l (about 16 per cent or Rs 1,60 crore subscribed by in d iv id u a ls ), Rs 66,60 crore through it s C e r tific a te o f Deposit Scheme o f which about 25 per cent (o r Rs crore) is contributed by in d ivid u als and Rs 0,47 crore through i t s Loan-Linked Deposit Scheme (w holly contributed by in d iv id u a ls ). Thus, d ire c t m obilisation o f household sector savings stands at Rs crore, or 0,1 per cent o f the estimated household sector savings o f R s19,313 cro re.

110 Adequate data are not a vaila b le on the proportion o f nation al resources m obilised by the housing sector from the domestic c a p ita l market. Amongst the major fin a n c ia l in s titu tio n a l agencies in the country, the commercial banks, the LIC, the GIC, the U II and the IDBI, f o r example, d irected about one per cent o f-th e ir annual investments in in to housing. The flow o f funds through the domestic stock market in to housing is n e g lig ib le. compare very poorly with Tneoe fin a n c ia l flows those in countries lik e the USA, where about one-third o f the national cred it flow s in to the housing sector. While i t may not be a fe a s ib le and p ra c tic a l proposition to expect such a la rge proportion o f domestic cre d it flow s in to the housing sector in In dia over the next decade, an attempt should be made to gradually in crease the prop ortion to around 15 p er cent. The main fa cto rs which may explain the low le v e l of in tera ctio n between the domestic c a p ita l market and the housing s e cto r ares ( i ) There is no mass le v e l in s titu tio n a l framework fo r m obilisin g savings at f a ir ly com petitive rates o f in te re s t ( i i ) Commercial banks are not allow e" to in vest in housing as a normal business op eration; ( i i i ) The cap ita l market may supply mainly shortterm funds but the housing sector needs b a s ic a lly long-term c re d it; ( i v ) The supply o f saleable fin a n c ia l assets lik e equity shares, bonds and debentures which o ffe r an a ttra c tiv e rate o f return is n e g lig ib le ;

111 (v ) Due tc the u n attractive rate o f return o ffe re d on the in v e s tib le assets by housing sector in s titu tio n s, there is a n e g lig ib le demand fo r them from in d ivid u als and only in s titu tio n a l in vestors who can include such investment fo r meeting the statu tory re q u ire ment ra tio or who have o f f i c i a l re la tio n w ith them, tend to invest^ and (v i.) Investment in the housing sector is gen erally considered to be a h igh -risk prone a c t iv it y, in view o f n o n -a v a ila b ility o f support f a c i l i t i e s commonly a va ila b le in developed housing finance systems a l l over the world. These support f a c i l i t i e s include schemes fo r mortgage insurance to provide secu rity against d efa u lt, adequate land management system and a mechanism to refin ance mortgage o rig in a tin g in s titu tio n s sc as tc increase the liq u id it y. I t has to be re a lis e d th at, by and la rg e, the housing s e cto r in the country w i l l have to obtain i t s funds fio ii the cap ita l market at more or less com petitive rates o f in te r e s t. The major purpose o f any housing finance system would be to bring th is about. A separate scheme would have to be worked out to provide fo r lo w -in te re s t loans to the EWS category o f home owners. The LIC, GIC, banks, e tc., should be induced to make a small contribution. Concessional interc* ra te loans c a n n o t be the backbone or basis fo r any v ia b le housing finan ce system. 4. B u ild er*s Finance There are two phases o f housing a c t iv it y, f i r s t l y j the acqu isition and development of land and the construction o f the house, and secondly, it s sale to the home owner. A developed housing finejnce system should meet the fin a n c ia l needs o f both these

112 - 107 programmes. G enerally, countries with a developed housing finance system have a tw o -tie r in s titu tio n a l structure under which short-term "construction finance is provided to the b u ild er to complete the house and long-term "home finance is provided to the home owner to meet his fin a n c ia l needs. The under-developed organised sector housing finance market in India is presently geared to meet, and that too only p a r t ia lly, the home ownership finance. a Stages o f housing finance requirements. Cn the basis o f discussions with leading land developers and builders in the p rivate sector in d iffe r e n t parts o f the country, the fo llo w in g scenario has emerged on the method o f financing resorted to by the building sector. xu f i r s t stage, in the series o f a c t iv it ie s which leads to the construction o f the house, is the acqu isition of land. About 15 to 20 per cent o f the fin a l cost o f the property is gen erally invested at th is stage.-l^the land developer/b u ild er has no access to finance at th is stage. He has to depend only on h is own funds and that o f h is extended fam ily, and cn borrowings from indigenous money lenders and bonkers. The second stage in v o lv e s the development o f plans fo r the bu ildin g and obtaining o f the relevan t approvals from resp ective lo c a l bodies. I t is estimated that 2 per cent to 5 per cent o f the fin a l cost has to be incurred at th is stage, again finan ced by the 13/ The proportion may be higher in the case o f lands sold through public auctions, characterised by severe com petition to acquire valu able urban land.

113 ~ land developer and the indigenous banking sector. The th ird stage in volves the development o f basic in fra s tructure 011 the land (le v e llin g o f land, b u ild in g o f approach roads, boundaries, temporary water and e l e c t r i c ity connections, e t c.) which in vo lve an expenditure o f about 10 per cent o f the to ta l cost. A fte r the completion o f stage 3? the land developer makes an announcement o f the housing scheme. At th is stage, h<=- receives an i n i t i a l advance from the buyer, gen erally 15 per cent to 30 per cent o f the estimated to ta l cost. From the amounts so received from the prospective home owner, the b u ild er may repay the loans obtained from the inform al money market and from others and also replenish his own resources, which had been used during stage 1 to stage 3i At stage 4, the builder attempts to s e ll as many o f the p^r.loosed re s id e n tia l units as would enable him not cniy to repay fu lly his short -term outstandings, but also to meet the estimated to ta l cost o f construction. G en erally, he reserves a s p e c ific proportion o f the proposed re s id e n tia l units as 'stock -in -trade, to be released in the market at la te r points o f time to earn higher p r o fits through p rice escalation. Discussions with several builders have shown that i f a ll the re s id e n tia l units are sold out at stage 4, the p r o fit margin on the o v e ra ll operation would be between 25 per cent and 40 per cent. However, i f the b u ild er is able to maintain a stock-in -trade of about 40 per cent to 60 per cent of the to ta l proposed resid e n tia l u n its, fo r subsequent sa le, he may earn on o v e ra ll p r o fit o f 70 per cent to 80 per cent. When the stock -in -trade is a r e la t iv e ly highe proportion o f to t a l re s id e n tia l u n its, the b u ilders very o fte n mortgage them to indigenous money lenders and

114 109 bankers fo r short-term construction c re d it, i f necessary, and such indigenous suppliers of' short-term' ci'ed it are also given the option to "buy the mortgaged property subsequently at a premium which is lower by Rs 5 to 10 per s q.ft. than the p re v a ilin g market p ric e. The actual construction (stage 5) commences only a fte r the *houses* have been sold and i n i t i a l advance obtained from the p o te n tia l home owners. The developer f i r s t procures the building m aterials fo r the f i r s t phase o f construction, which in the case o f a medium-sized re s id e n tia l group housing u n it, is completed in about a month. At the same time, le t t e r s are sent to the home owners fo r the second instalm ent. The second phase o f the construction commences more or le s s a fte r some o f the second, instalm ents have been received from the home owners ;^ad the same process o f procurement o f bu ilding materials- and actual construction a c tiv ity is repeated over the subsequent phases o f the construction programme. Depending on the a v a ila b ility o f finances from the home owners and o f basic b u ild in g m aterials, the construction programme i s phased out over 4 to 5 construction c y c le s. The p o te n tia l home owners, thus, p^y instalments towards the construction of the house, as called, upon by the b u ild er. The amount o f the instalment and i t s timing is rela te d to the phasing of the construction programme. The fin a l instalm ent, which is gen erally 10 per cent or le s s o f the to t a l cost, has to be paid by the home owner at the time o f taking possession of the house,

115 I t has been estimated that during the construction programme, the b u ild er requires about 30 days* working c a p ita l. In e ffe c t, the working capita l would cover.1 to 1- - cycles o f the construction programme, assuming that the home owners pay th e ir instalments in proper tim e, building m aterials are a va ila b le and the require d number o f re s id e n tia l units have been sold. b. Financial stalce^ o f b u ild e rs. The foregoin g analysis based on discussions with leading builders in the p riv a te sector and with others who are knowledgeable about such a c t iv it ie s, has revealed that there is very l i t t l e fin a n c ia l involvement of the b u ild er, except at the i n i t i a l stage o f acquiring land, developing i t, obtaining the necessary permissions and making the announcement o f the housing programme to the prospective buyers. A ll these a c t iv it ie s accourt fox about 30 per cent o f the to ta l cost o f the hcuse. Adequate finance to the b u ild er at reasonable cost would be desirable because, in the absence o f such finance, the high cost o f fin a n c ia l accommodation from the inform al money market is in variab ly pushed forward to the ultim ate home owner. Therefore, appropriate p rovision o f in s titu tio n a l finance may lead to a substantial reduction in the fin a l cost o f the house and, to that oxtent, reduce the burden o f resource m obilisation at the home owner* s le v e l,; The provision o f short-term construction finance or 15bridge finance* to undertake the actual construction work would allow fo r greater f l e x i b i l i t y in housing construction and, at the same time, reduce the to ta l cost to the home owner. A houcing finan ce system may, th erefo r e, function on a tw o -tie r basis; a short-term bridge finance at the construction stage and a long-term homeloan finance, th e re a fte r.

116 111 - The debt to personal cap ita l ra tio o f the b u ilder is estimated to be 4s1, i. e., fo r every rupee o f the b u ilder*s c a p ita l, borrowings are Rs 4. At the p re v a ilin g high cost of borrowings from the indigenous money market, i t has been estimated by builders that the o v e r a ll\miferest - \ I cost of the c a p ita l to the land developer/builder ma^r be in the region o f 25 por cent to 30 per cent. c. Emerging public sector p attern. Over the la s t fiv e to s ix years, the p rivate sector model o f s e l f - fin an cin g o f housing by the home owner is being in crea sin gly adopted by public sector agencies. The scheme was in it ia te d by the Delhi Development Authority and the p ra ctice is being follow ed by development a u th orities in other parts of the country. The i n i t i a l re g is tra tio n deposit ranges from Rs 5,000 to Rs 15,000 fo r d iffe r e n t categories o f houses (LIG, MIG, HIG) follow ed by 25 per cent instalment (inclu din g the i n i t i a l d eposit) at the time o f allotment o f the re s id e n tia l unit on paper and b e fo re the construction a c tu a lly commences. A fte r the required 25 per cent o f the estimated p ro je c t cost is c o lle c te d by the development authority, the development o f land and the f i r s t phase o f construction commences. Subsequent instalments c o lle c te d from the home owner are phased out according to the construction programme, one instalm ent.generally c o lle c te d every s ix months. The fin a l instalm ent, which is usually le s s than 10 per cent of the estimated to ta l cost and any subseoauent amount due to revis io n in the estimated p ro je ct cost because o f escalation in the construction cost, is c o lle c te d at the time c f actual d elivery o f the house.

117 In the case o f the h ire purchase schemes of State housing boards, an i n i t i a l amount, gen erally 15 to 20 per cen t-of to t a l cost, has to be paid at the time o f allotment and the balance has to be paid in equal monthly instalm ents over a period o f 10 to 15 yea rs. 5 Major Inadequacie s and O perational Constraints The analysis in Chapter III,b a s e d on data and the experiences o f a. sample o f home owners, brought out some o f the weaknesses in the e x is tin g system o f housing finan ce. I t was also seen that in s titu tio n a l fin a n c ia l interm ediation played a minor ro le in the resource m o b ilisation e ffo r ts o f in d ivid u a ls. Some o f the major inadequacies in the e x istin g in s titu tio n a l system o f housing finan ce are now examined. The major inadequacies can be c la s s ifie d broadly under two categories? ( i ) In s titu tio n a l inadequacies, inherent in any conventional fin an cin g system; and ( i i ) Operational inadequacies, s p e c ific a lly relevan t to an under-developed housing fin an ce system, ( i ), Conventipnal fin a n cin g system. a conventio n a l financing system, even i f i t is w ell-developed, cannot ensure a fre e flow o f finances to a l l fin an ceseeking applicants. The r e s t r ic t iv e access to a conventio n a l finance system is a d ire c t resu lt of i t s approach, p ra ctices and norms that e ffe c t iv e ly 1d isqu a lify* a, la rge proportion o f p o te n tia l borrowers. The d is q u a lifications are linked to one or more o f several e l i g i b i l i t y c r it e r ia that lorm the basis o f a home loan appraisal.

118 113 a» Adequate., income l e v e l. In several countries, a minimum income le v e l is considered an t e lig ib ilit y * "I A / criterion.in In d ia, there is no s p e c ific mandatory income le v e l to d is q u a lify a home-loan aspirant (in d ivid u a l or household), but other e l i g i b i l i t y c r it e r ia im p lic itly tiake in to account the minimum income fa c to r. b. Regular and v e r ifia b le flow o f income. Evidence o f a regular and v e r ifia b le flow o f income in the past, and which is expected to continue in the future (a t le a s t a irin g the am ortisation p eriod) is the f i r s t e l i g i b i l i t y c rite r io n. Such an approach makes the salary/wage-earning sector and the liigh-business income sector the prime ta rg e t group. In the process, small traders and others, e sp e c ia lly engaged in inform al sector a c t iv it ie s, with irre g u la r and u n verifia b le income flow s, become in e lig ib le. I n.the Indian context, a la rge segment o f the population derives income from inform al sector a c t iv it ie s. Very often, income accrues in p erio d ic and irre g u la r flow s, and the employment may also be seasonal and/or highly mobile in nature. Such income earners are also not able to provide any v e r ifia b le evidence of th e ir income pattern or on i t s s t a b ilit y. Even within the formal sector o f economic a c t iv it ie s, a la rg e proportion o f income-earning individuals/households have irre g u la r and u n verifia b le income flow s. The conventional approach to 14/ In the Latin American countries, fo r example, the le v e l is $ 4,000 per annum and in the P h ilip pin es $ 2,2885 a la rge proportion o f the population does not q u a lify fo r in s titu tio n a l finances on th is ground alone.

119 ~ housing finance interm ediation overlooks the needs o f these p eop le. The housing finance system, as i t operates today, thus, becomes highly in equ itable as the m ajority o f the people -who get d is q u a lifie d from a v a ilin g o f i t s services on the ground of irre g u la r and/or m iv e rifia b le income belong to the econom ically weaker sectio n s. c * Acceptable, c o lla t e r a l. Even i f a p o te n tia l home owner has a regu lar flow o f income, with v e r ifia b le and acceptable evidence of i t, a major constraint arises in providing a c o lla te r a l when the property is jo in tly owned or is under construction and the land i t s e l f (in case o f a f l a t u n it) does not belong to the borrower. The conventio n a l p ra ctice is to then accept as c o lla te r a l, u n til the property can be properly pledged, some a lte rn a tiv e assets, which are e a s ily and conventionally marketable and acceptable. These c o lla te r a l assets include shares and stocks and l i f e insurance p o lic ie s. However, only a small proportion o f Indian population/households own shares and stocks or subscribe to l i f e insurance p o lic ie s. In the absence o f acceptable monetary assets, the conventional fin a n c ia l in s titu tio n s may accept a guarantee from an in d ivid u al with acceptable c o lla te r a l assets or w ith substantial regular and dependable income, or from an acceptable* employer in the organised sector. Such guarantors are, however, not e a s ily a vaila b le even, to the r e la t iv e ly high-income p o te n tia l borrower in major m etropolises, with an annu'al income say, of above Rs 25,000. They may b e-availab le to an even le s s e r extent to low income and middle income individuals/households,

120 - 115 ~ e s p e c ia lly in sm aller towns and serai-urban areas. Hence, r ia te forms o f interim e o lla - ( i i ) Operational inadequacies o f an undereloped housing finan ce system. The op era tion a l inade- quacies in an under-developed housing finance system put fu rth er constraints on it s a c c e s s ib ility to p o te n tia l borrowers. These are rela te d to the s ize o f the loan, the i n i t i a l contribution o f the borrower, the low lo a n -to - home value r a tio, fix e d and regu lar am ortisation repayment schedule, s p e c ific period o f am ortisation, high loan - servicin g costs and complex loan terms and conditions, which are d iffic u lt to understand and/or comply with. loon amount,. In many developed and developing countries, a minimum loan amount is often prescribed in order to make the processing and servicin g o f the loan 'in economically v ia b le proposition to the fin a n c ia l in s titu tio n. In In d ia, some minimum loon norms have been la id down (in the case o f HDFC, fo r example, i t is Rs 7,000) but the major problem r e la te s to the monetary 15/ I t may be mentioned here that Indian households, gen erally possess assets lik e basic trade to o ls/ equipments, inventory in shop/stores, transport equipments (c y c le, scooter, ta x i, tru ck ), je w e lle r y, and household goods lik e sewing machines, expensive cloth es, antiques, u te n s ils, te le v is io n, fans, e tc., which may be r e la t iv e ly p ortable, but are valuable and marketable assets and, cum ulatively, th e ir value may be quite su bstan tial. While these assets are acceptable as c o lla t e r a l by the indigenous money _ lenders, the conventional fin a n c ia l in s titu tio n s 'd o not consider them as proper c o lla te r a l assets. V/hile the in ten tion is not to suggest that fin a n c ia l in s t i tutions act as p etty pawn-brokers and c o lle c t and store household goods in return fo r a home loan, i t may be considered whether on the basis o f such assets, a system o f group guarantee in c lo s e ly -k n it communities, as is prevalent in some developing countries, could be developed.

121 116 - c e ilin g on the s ize o f the loan. Various r e s t r ic t iv e conditions increase the margin between the s ize o f the home loan that may be desired and the s ize o f the home loan that is actu ally granted,. These r e s t r ic t iv e conditions are rela ted to one or more o f the fo llo w in g determinants o f loan amounts i. i i. i i i. iv. T o ta l cost o f the houses Minimum self-gen erated component o f to t a l c o s t; Income le v e l o f the p o te n tia l borrower (th e M I is fix e d at a s p e c ifie d proportion o f income, gen erally around 25 per cent)^ and Monetary c e ilin g on home loon to any sin gle in d iv id u a l. As a resu lt o f these r e s t r ic t iv e norms on amount o f home loan, the self-m o b ilis e d resources finance a la rg e r part o f the to ta l cost o f the house than in s titu tio n a l finances. Evidence on th is situ a tion, r e la tin g to the experience of 272 HDFC borrowers, has been presented elsewhere (L a ll, 1982), the HDFC contributing 41.5 per cent o f the to ta l cost o f the house and the s e lf-m o b ilis ed resources providin g roughly t h r e e - fift h of the to ta l finances. Further, the proportion o f s e lfgenerated funds seems to be in versely rela te d to the le v e l o f the in d ivid u a l*s income. e. I n i t i a l payment. In the Indian context, the housing finance support at the in s titu tio n a l le v e l is a va ila b le only a fte r some proportionate amount is paid by the in d ivid u al towards the to ta l cost o f the house. The proportion is gen erally around 25 per cent. Further, as a general p ra ctice, the housing finance in s titu tio n s

122 117 provide th e ir assistance only a fte r the f u l l targeted contribution o f the'borrower has been made, Y/hile there may be some m erit in such a p o lic y, that is, i t ensures the f u l l financing o f the house when the fin a n c ia l in s t i- tu tion may make it s contribution, i t places -undue strain s on the home owner -and su b stan tially r e s tr ic ts h is accessi b i l i t y to in s titu tio n a l finance. A small down payment or i n i t i a l investment by the in d ivid u al does not necessa r ily suggest th at, subsequently the in d ivid u al may not bring in his remaining contribution, as agreed upon. A low i n i t i a l contribution by the in d ivid u al based on his current savings, is lik e ly to encourage him to decide to buy a house at cn earlier stage o f his earning l i f e, than at present, provided he can be sure o f receiv in g fin a n c ia l support from a sp ecia lised housing finance in s titu tio n to meet a substantial part o f the cost of the house, and i f his own to t a l contribution can be staggered over a p eriod o f tim e. f. Loan to cost r a t io. A clo sely rela te d constraint is the e x p lic it or im p lic it condition o f a home-loan to home cost r a tio. The HDFC expects a minimum contribution o f 30 per cent, but in p ra ctice, as was suen in Section 4( i i ) ( a ) o f th is chapter, the proportion works out to about 60 per cent. In the case o f co-operative housing s o c ie tie s, the proportion v a ries from State to State and the range o f contribution o f the co-operative s o c ie tie s is from 55 per cent to 60 per cent o f the cost o f the house. In the case o f HUDCO-financed housing schemes, the in s titu tio n a l contribution may range from 40 per cent to 50 per cent o f the cost o f the home, except in case o f low-income housing, where i t is 100 per cent fo r houses costing upto Rs 5,000 (For d e ta ils, see Table A. I Y.l),

123 - i 18 - Amortis a ti on schedule. The p eriod o f amortisation is gen erally "between 10 years and 20 years, or the age o f retirem ent, whichever is e a r lie r. In some countries, the maturity o f home-loan mortgages goes upto 30 years. But short-term maturity mortgage is also available i f the in d ivid u al is not ready to pay a high in te re s t l i a b i l i t y fo r a long maturity period loan. Another issue re la tin g to the am ortisation schedule is the stip u la tio n o f a regular and fix e d M I, which does not take in to account flu ctu ation s and changes that are lik e ly to take place in income le v e ls over a period o f years. This system places an unduly high burden during the i n i t i a l years, when income le v e ls are lower. A graduated payment mortgage (GPM.), by taking in to account the increases in income le v e ls over the loan period in computation o f the M I, would resolve th is problem by reducing the bure'en in the i n i t i a l y ea rs. T h ird ly, the computation o f the M I is la r g e ly based on norms follow ed in developed countries, where i t is f e l t that an average household con save about 25 per c a it o f i t s gross monthly income. In the ease o f the HDFC, fo r example, the M I is gen erally around 25 per cent o f gross income. I t would be desirable to study the income and expenditure patterns o f Indian households and then frame some norms on the proportion o f income to con stitu te the M I at d iffe r e n t income le v e ls. A vailable data o f the N ational Sample Surveys show that the proportion o f income that is used by Indian households to purchase basic consumption items lik e food, essen tial services and non-durable goods is in versely rela te d to the l e v e l o f income. In the very low income groups, these

124 119 expenditure items account fo r 70 per cent to 80 per cent o f the to ta l household budget, whereas at higher income le v e ls, they may account fo r not more than 25 per cent to 30 per cent. Hence, the a v a ila b ility of income to he d iverted towards the E ll may be as low as 5 per cent to 10 per cent in the case o f the low income households but may be " ' er cent to 40 per cent at the other A fou rth issue r e la te s to EMI payment cen tres. The experience o f many owners o f re s id e n tia l units provided by State housing boards on a hire-purchase basis, fo r example, has not bee-i too happy. The centres are g en erally located at a considerable distance and there are also d iffic u lt ie s presented by haphazardly-m aintained'records, e tc. The problems are accentuated in the case o f in d i viduals with tran sferable employment or who are engaged in h ig h ly mobile occupations. a* Rat-6 o f in terest.. In In d ia, the rate o f in te re s t that a borrowerfhas to pay to a housing fin an ce in s t it u tio n is g e n e ra lly low er than what he may have to pay to a 16/ Data presented by the N ational Sample Survey ( 28th Round) show that in , the expenditure in the fam ily budget on a basic consumption item, lik e food goes down p ro gressively w ith increase in income o f the household, both in the urban and the ru ra l areas. Thus, fo r example in the urban areas, food items alone accounted fo r around th ree-fou rth to fo u r - fift h o f the monthly household expenditure upto an income le v e l of Rs 350 but le s s than one-half o f the monthly household expenditure at an income le v e l exceeding Rs 950. In the ru ral areas, the resp ective share o f food item exceeded fo u r - fift h o f the monthly household expenditure fo r income le v e ls upto Rs 350 and le s s than oneh a lf fo r income le v e l exceeding Rs 950. I t is lik e ly that the proportions are even lower at very high income le v e ls (For d e ta ils, see Tables A.IV.2 and A.IV.3 ).

125 - 120 ~ commercial bank and su b stan tially lower than that to be paid to an indigenous money lender or banker. Further, a p re fe re n tia l in te re s t rate p o lic y has become a sp ecia l featu re of the in te re s t-ra te structure. The p re fe re n tia l rate o f,in te r e s t is lin k ed e ith e r to the income o f the borrower and/or to the amount o f the loan. In e ith e r case, no cognisance is made of the income p o ten tia l o f the in d ivid u al in the future. As such, the burden o f in te re s t payment, even on a p re fe re n tia l basis, is more in the i n i t i a l years than la te r. Some weightage to the age o f the in d ivid u al in the computation o f the rate o f in te re s t may f a c ilit a t e a more r e a lis t ic spread over o f the in te re s t and repayment burden on ohe in d ivid u al over the l i f e o f the loan, as under a GB1 system.~-^/ This does not suggest that in te re s t rates should be subsidised fo r the younger borrower, fo r subsidy in in te re s t rates may be granted, on a very r e s t r ic t iv e b asis, only to the EWS. With, the in fla tio n rate being around 8 per cent to 10 per cent, a nominal rate o f in te re s t o f around 14 per cent fo r home loans does not seem unreasonable;. only fo r the EWS, the rate o f in te re s t should be low er. i. Complicated procedures. The conventional approach is based on complicated procedures, requ irin g substantial data and inform ation on the home owner*s family., occupatio n, income, savings p o te n tia l and house property, apart from referen ces, guarantees, and compliance with several 17/ For an exhaustive an alysis o f th is issu e. see L a ll (1982).

126 le g a l documentation processes. P o te n tia l borrowers, even those who are well-educated'and resident in major m etropolises, fin d the processing and documentation fo r m a litie s a ti/ue- and incomprehensible experience. The ca p a b ility o f merely lit e r a t e and semilit e r a t e borrowers and those resident in distant locatio n s, with r e la t iv e ly l i t t l e access to advice and guidance to understand the procedures and meet the.stringent terms and conditions (referen ces and guarantees, in p a r tic u la r ), is s t i l l low er. In.'e ffe c t, a la rge segment o f such people cannot a v a il of in s titu tio n a l finance, even when they may be aware about i t s a vaila b i l i t y and may be considered as 'e l i g i b l e 1 by the finan c i a l in st i tut i on. 3* Affordable housing fo r the, p oor. Public housing programmes are, in p a rticu la r, mainly d irected towards the economically weaker sections o f the population. Financial assistance by the HUDCO through State housing boards and co-operative s o c ie tie s is earmarked la r g e ly fo r in d ividuals in the EWS and LIG groups. In the case o f the EWS, the s ite s and services p ro jects are formulated on the basis of s e lf-h e lp p rin c ip le, with tra d itio n a l or ra tio n a lis e d methods o f construction, so that the to t a l cost o f housing can be considerably brought down to le v e ls which are afford able to the b e n e fic ia rie s. P o lit ic a l demands, however, lead to p rovision o f high standards fo r public housing, regardless o f the cost, and th is leads to construction o f resid e n tia l units whose costs are fa r above the a ffo r d a b ility o f the target groups. There are also ad m in istra tive problems in

127 implementing the programines because, very often s e lf-h e lp programmes are administered by tech n ica lly-o rien ted personnel, who may be s k ille d in construction a c tiv ity but who may not be capable o f organising, m otivating, tra in in g and managing people in s e lf-h e lp and construction a c t iv it ie s. This problem is not sp ecial to India alone, and a United Nations* study has presented examples o f s e lf- h e lp programmes whose b e n e fits never reached the lower-income groups and where "the s to rie s o f successful ta rg etin g are almost always exceptions to the gen eral r u le" (U n ited N ation s, 1978, p. 17).-^/ A p ra c tic a l way to reduce home costs is through low ering o f standards. While maintaining necessary norms in house construction, tne high conventional life - s p a n 'o f houses (say, 80 to 100 years) needs to be r e a lis t ic a lly ;?duced7 so that homes are not only afford able in terms o f current le v e ls o f incomes o f the b e n eficia rie s ', but' also alloy/ fo r future upgradation in standards, in lin e with improvements in income le v e ls. What is more relevan t is the provision of a su itable re s id e n tia l unit at an a ffo rd able p rice end not the provision o f a permanent* structure which is not afford able at current le v e ls o f income. The present p ra ctice o f providing Thigh-cost* houses, r e la tiv e to the a ffo r d a b ility o f the ta rg et group, th erefo re, needs to be re-examined so that the e ffe c t iv e b e n e fic ia rie s o f public housing programmes fo r the poor are r e a lly the ta rget groups. 18/ United Nations (1978). Non-conv;enLtio n a l finan cing o f housing fo r low-incomet hpusenotds'.~ HE&ls '~<focument contains an in forn iative discussion oh major l i m i t ations inherent in conventional fin an cin g systems.

128 Another problem concerning the a v a ila b ilit y of public housing finemce to low income households arises from the p o lic y o f applying fin a n c ia l standards and norms to people who cannot meet them. As a re s u lt, the category o f people who require public housing support the most get d is q u a lifie d in p ra ctice and oven though they may get the b en efits on paper, the re a l b e n e fic ia rie s are often the n on-ta rget groups, I t is pertin ent to emphasise that the antiquated d e fin itio n s o f income groups developed in 1974 have c o n tributed towards the d is q u a lific a tio n o f a la rg e segment o f people from being e lig ib le fo r houses which they con a ffo rd. In the absence o f any re v is io n o f the norms, fo r example, even the lowest category o f salary-income re c ip ie n ts (e. g., sweepers, messengers, sem i-sk illed workers) in the organised sector get d is q u a lifie d fo r an EWS or LIG house as th e ir monthly emoluments exceed Rs 600 and they fin d that a MIG house to which they are e lig ib le " is not r e a lly afford able. I t has also been pointed out during discussions in several States, that a uniform "n ation al" norm on e lig ib le income le v e l, cost c e ilin g, s ize o f house, e tc., becomes ir r e le vant at in d ivid u al town end d is t r ic t le v e ls, with varying degrees o f development, income generation capacity, land p rices and cost o f liv in g, among the socio-economic fa c to rs that have a bearing on a ffo r d a b ility o f a s h e lte r. The norms fo r public housing should be formulated under three or four broad categories, taking in to account urban, semi-urban and ru ra l/ trib a l nature o f lo ca tion s. Norms should also toke in to account the l e v e l o f development o f the lo catio n and o f basic in fra stru c tu ra l and other f a c i l i t i e s. T h erefore, in n ovative adaptations are

129 - 124 needed to support conventional financing approach and norms and a new in s titu tio n a l set-up has to be created which would, in p a rtic u la r, support the low income housing finance programme in a r e a lis t ic way. To quote the United Nations study (1978); "The mismatch between conventional solutions to the urban problem and no'nconventional needs'must, th ere fo re, be addressed by creatin g new approaches fo r dealing with the modern consequences o f rapid u rbanisation" (p. 6). The lim ita tio n s examined in the foregoin g an alysis, which arc inherent in any conventional financing system and, in p a rtic u la r, in an under-developed housing finance system, are rela te d to the desire to p rotect the system from undertaking undue ris k s and in cu rrin g high administr a tiv e costs o f serv ic in g small loans, loons to low income home owners and to.o th e r home owners who are not considered credit-w orthy by conventional norms. These lim ita tio n s could be removed through a package programme which would, in t e r - a lia ; i. i i. i i i. Develop, strengthen and extend housing finance systems through p rovision o f support services to spread ris k and increase liq u id it y ; Develop in n o va tive and non-conventional approaches, operation al norms and d e livery mechanisms to provide housing finance services to h ith erto!,n o n «e lig ib le n segments o f homeloan-seekin g population^ and Develop savings and resource m obilisation instruments and mechanisms to channelise a growing proportion o f n ation al savings into housing sector a c t iv it ie s, and yet minimise the risk s o f lenders and depositors.

130 In sh orts th erefo re, what is required ic the creation o f new in s titu tio n s that w ill m obilise savings fo r housing and g ive home loans to in d ivid u a ls, as w e ll as spread risk o f home loan o rig in a to rs. The development o f a sp ecia lised in s titu tio n a l framework would also help in bringing about a closer in tera ctio n between the capita l market and the housing sector. The major p o lic y measures in th is regard are examined in Chapter V. Annual Investment glows a. Some estimates and p attern. The proportion o f plan outlay in housing, as was seen in Chapter I, has fa lle n s ig n ific a n tly since the F ir s t Plan. This f a l l is r e fle c te d in the d eclin in g share o f the housing sector in the gross domestic c a p ita l formation (GDCF), as can be seen from Table A.IV. 4. The annual growth of the housing sector has been lower then that o f the n ation al economy, except during the s ix tie s ( b e c a u s e o f in d u s tria l recession ) and in the f i r s t few years o f the e ig h tie s. The proportion o f annual contribiition o f housing to the GDCF has, th ere fo re, fa lle n from 18.8 per cent in the f i f t i e s to 10.8 per cent in the e ig h tie s. The estim ation o f the contribution o f housing and a llie d a c t iv it ie s to the GDCF e ffo r t is subject to method o lo g ic a l i n a d e q u a c i e s ^ / Data are also not a vaila b le on investment actu ally taking place in housing through the housing fin an ce ma-rket. 19/ Thus, f o r example, the data in clu d e, on the one hand, commercial rea l estate and business.services, but exclude, on the other hand, many components o f housing (construction s, fo r example, by public sector undertakings and by the government in ru ral a rea s). Several types o f fin a l consumption expenditure are also included in the GDCF estim ates, such as expenditure on in tern a l and external pain tin g, in s ta lla tio n o f permanent fix tu re s lik e a ir conditioners, lig h tin g, wa.ter supply f a c i l i t i e s and other equipments.

131 - 126 Some estimates can be made o f the flow o f in s titu tio n a l finances in to housing from the formal housing finance market, on the basis o f sectora l investment data presented by in d ivid u al in s titu tio n s in th e ir resp ective annual rep orts. But no d ire c t estimates can be made o f the resources m obilised fo r housing by thp inform al finance market, including those by in d ivid u al home owners, his extended fam ily, r e la tiv e s, associates and the indigenous money lenders and bankers. These estimates can only be made in d ir e c tly through n e ttin g out the estimated con tribution o f the formal housing finance market from the estimated GDCF, on the. assumption that the balance is m ob ilised through inform al c r e d it sources. Some estimates on the annual flow o f funds in to the housing s e c to rt basea on th is methodology, were presented in an e a r lie r Report (L a ll, 1982). These estim ates have now been updated and presented in Table IV. 2. In , the GDCF in the housing and re la te d sector was o f the order o f Rs 4179 crore and 22.6 per cent o f th is was estimated to be financed through id e n tifia b le sources from the formal.housing finance market. The proportionate contribution o f the formal housing finance market was, on the one hand, over-estim ated due to some overlapping o f resources shown among the d iffe r e n t in s titu tio n a l agencies and, on the other hand, i t was under-estimated as estimates o f GDCF also include some non-housing a c t iv it ie s. What is clear, however, ia that the inform al housing finance market supplied almost fo u r - fift h o f the to ta l annual resources in the housing sector.

132 TABLE IV.2 Annual Investment Flows into the Housing Sector (Rs crore) Year ending March Formal Budget ar:.oca/eion- i. Centre,1/ i i. State and Union T erritories (55.35) ( ) (19.99) (47.98) (6.89) (6.90) (10.74) (2.26) (2.64) (37.25) (4.63) (4.26) (20.66) (7.79) (2.83) (4.96) (22.59) (7.97) (3.09) (4.87) b. General financial ins^iiuilonst^ orgsm satipns (4.05) (5.22) (5.69) i. LIC (4.05) (5.01), (2.99) i i. GIC 0.13^ 7.18 (0.01) (0.23) i i i. Commercial banks& , (0.36) iv. Provident funds ^ (0. 20) (2. 11) c. Specialised housing 'finanee ln tttir l on.s (3.32) (5.99) (7.40) i. HUDCO (0.05) (2.43) (2.88) i i. Apex co-opera*-^/ tive societies (0.02) (0.44) (1.54) i i i. Primary co-o p era -^ ,34 tive societies (3.24) (3.13) (2.31) iv. HDFC (0.67) (5.69) (3.51) 9,44 (0.26) 7.82 (0.21) (1.71) (7.18) (2.85) (1.47) (2.14) (0.72) (6.91) (3.49) (0.24) 6.82 ( 0. 16) 126,37 (3.02) (7.71) (3.15) (1.48) 86,60 (2.07) (1.01) 2. Total Informal Housing finance (44.65) (81.90) (80.01) (79.34) (77.41) 968, ( ) ( ) ( ) ( ) ( ) Contd.,..

133 - 128 TABLE IV.2 (Contd.) Notes* 1/ Includes capital and revenue expenditure on housing 2/ Relates to calendar years 1980, 1981 and / Estimated fo r , and on the basis of actual growth between and , the la st two years fo r which data have beeen published. In the amount was Rs 33.1? crore and in the amount was Rs crore. 4/ Estimated fo r , and on the basis of actual growth beween and The published amount fo r is Rs crore and the amount fo r is Rs 46. f 4 crore. Sources? Annual Reports of concerned in s titu tions. Government of India, Public i inance" Reserve Bank of India CSO Nationo1 Income Accounts 5/ Data from Finance fo r Housing Schemes - Report of the Working Group on the Role of the Banking System, RBI, p / Gross domestic capital formation in housing and related sectors, including commercial, real estate and business sectors. 7/ Figures in parentheses are per cent of to ta l, 8/ Data fo r State housing boards have not been presented separately as they take loansfrom State governments, LIC, GIC and HUDCO.

134 - 130 sign ificantly more at about 5 per cent of tiie to tal annual investment. General financial institutions, including the LIC, the GIG, commercial banks and provident fund organisations provide for about 7 per cent of the annual investment and specialised housing finance institutions fo r about 8 per cent. In each case, the proportionate share has be:an risin g over the years. In the years to come, resource mobilisation activity has to be directed towards the primary source of national savings, namely, the household sector, and a suitable in stitutional framework would have to be developed for this purpose. During the Seventh Plan, the improvement in the share of the formal housing finance market should be accelerated.

135 129 This evidence on the respective roles, o f..the formal and the informal housing finance markets is affirmed by our overview (Chapter I I I ) of the housing finance pattern in five representative towns in the country. These results are also corroborated by the evidence presented in other studies on the relative role of the informal housing finance market in India as w ell as in several developing countries. Over the last eight years, with the development of housing finance institutions (HUDCO and HDFC), there has been an increase in the proportionate contribution of in stitutional financing (Table IV.2). The proportionate contribution of the informal housing finance market in the annual to ta l GDCF in housing has, therefore, fa lle n from 82 per cent in to 77.4 per cent in The annual rate of growth of the formal housing finance market during to works out to 36.2 per cent as compared to the GDCFf s annual rate of growth of 26.2 per cent in housing and a llie d a c tiv itie s ' during the same period, the annual rate of growth of the informal housing finance market was 23.9 per cent. It may be pointed out that as housing is a State subject under the Indian Constitution, the Central government, through it s budgetary allocations, can provide for only a small proportion of the total annual investment. Over the la st few years, the share of Central government has been about 3 per cent of the total GDCF in housing. In absolute amounts, the Central government annual budgetary allocation during the three years, to , has been Rs 104 crore. The budgetary allocation s of the State and Union T e rrito rie s are

136 V, REFORMS IN THE SYSTEM CP HOUSING FINANCE INTERMEDIATION 1. Objectives o f a Housing Finance System The basic objectives of a housing finance system should be to mobilise the requisite investible resources fo r housing and to make i t accessible to hitherto overlooked locations and income categories of prospective home owners. In addition to meeting the financial needs of the ultimate beneficiarys namely, the individual home owner, the housing finance system would also have to extend adequate financial assistance to land developers and the construction sector, and to intermediatory agencies lik e business corporations, trusts and associations of persons who may build, or otherwise acquire, houses fo r th eir s ta ff and associates. An important feature of the Indian housing finance scenario, as was seen in Chapter I I I, is it s dual sector compositions a formal conventional sector and a large informal sector which has no access to any support from the former. A closer interaction between the two sectors is crucial in any scheme to strengthen housing finance intermediation in the country. have A national housing finance system should, therefore, the follow ing functions: ( i ) To mobilise, on an in stitutional basis, an increasing volume of household savings (through provision of attractive savings schemes), so that a larger proportion of national income, than at present, is directed towards the national savings

137 effgrts, end a growing proportion of the increased volume of savings flows' as investments into the housing sector; ( i i ) To m ob ilise national resources through the national capital market (the private corporate sector and the public sector) and from domestic contractual savings organisations and the international capital market5 ( i i i ) To attain a more efficien t allocation of funds and, in particular, reallocation of funds from relatively surplus areas to relatively d eficit areas; (iv ) To attain closer interaction between the formal and the informal housing finance markets 5 (v ) To develop and strengthen the primary mortgageoriginating market so that it s services may spread to hitherto underserviced/unscrviced sectors, and y^t maintain i t s v ia b ilit y ; and (v i) To attain a greater velocity of circulation of available financial resources within the housing sector, through refinancing operations. 2. The Approach to Financial Intermediation Two major issues which are relevant to the development of a healthy housing finance system revolve around the p rin cip le of centralisation of power and authority and the

138 r e la tiv e r o le o f the public and the p riv a te sectors. In a fe d e ra l set-up of the dimensions o f In d ia, i t is desirable to have appropriate Centre-State norms and relation sh ip s in any v ia b le and growth-oriented financing system. I t would be equally cru cia l to develop healthy norms fo r the r e la tiv e ro le o f the public and the p riv a te sectors and fo r in tera ctio n s between them. Such s p e c ific a tio n o f norms and o f the r e la tiv e ro les is p a rtic u la rly important in housing, because unlike many other areas o f development a c t iv it ie s in the country, housing is one area where the public sector operates on a low key.the n ation al p o lic y also envisages that the p rivate sector should provide the major thrust in housing programmes in the years to come. But, the savings in the form o f fin a n c ia l assets o f households have be.on la r g e ly pre-empted by the public sector and hence, the a v a ila b ilit y o f fin a n c ia l resources fo r p riv a te sector housing programmes has become a major co n stra in t. a. C en tralisation v is -a -v is d e cen tra lisa tio n. ( i ) Im p lication s. Two d is tin c t but contrasting approaches can be visu alised? a highly cen tra lised approach (HCA) and a high ly decen tralised approach (HDCA). Under the HCA, an apex body can be visu a lised to con trol, supervise, monitor and develop a ll housing and housing finance a c t iv it ie s in the country, covering both the public sector and the p riv a te sector operations. The main advantage o f a HCA, a p r io r i, is that the pattern o f housing finance operations a l l over the country would be developed according to some u n ifora p o lic y and gu id elin es, enabling a fre e flow o f resources w ithin the country, in clu sive o f fin a n c ia l, physical and manpower resources. A HCA also fa c ilit a t e s >the development o f a system atic monitoring

139 programme and provides fo r economies in op eration s, partic u la r ly in regard to m obilisation o f resources. However, in p ra ctice, any programme o f extreme c en tra lis a tio n leads to delays, generates monopoly power and vested in te re s ts, adds to the overhead and operational costs and thereby resu lts in higher e ffe c tiv e burden on the ultim ate b en eficia ry* Further, while an -uniform operatio n a l approach has i t s own advantages, i t tends to overlook the s p e c ific region al and lo c a l needs and problems. A -uniform solution may often also deviate fa r from the r e a lit ie s and needs o f s p e c ific region s. On the other hand, a HDCA which, a p r io r i allows fo r adoption o f p o lic ie s, procedures and instruments as per the s p e c ific needs o f the target people, would r e s tr ic t the resource m obilisation e ffo r ts to a lim ited radius, resu ltin g in creation o f areas o f surplus funds and inadequate demand on the one hand, and areas o f inadequate funds but in s a tia b le demand, on the ether. National and region al resources would tend to b e m i s a l l o c a t e d and/or i n a d e q u a t e l y u tilis e d. The influence and dominance o f lo c a l p o lit ic a l in terven tion and patronage may b e more d iffic u lt to countervene in a region a l or lo c a l set-up, than in a na/tional~level in s titu tio n, in the absence o f any d is tin c t, reg u la to ry or m onitoring agency. Between the two extremes o f a HCA and a HDCA, various combinations are p ossib le. An appropriate HCA-HDCA mix should be made, keeping in view the needs o f the home owners* population, the resources constraints and nation al p o lic y o b je c tiv e s.

140 ( i i ) Qper a tion al issu es. Four main areas o f operations o f a housing finance system may be examined, wherein relevan t end useful features o f a HCA and a HDCA may be drawn upon. The f i r s t issue re la te s to m obilisation o f resources. A v ia b le housing finance system should be able to m obilise the req u is ite resources on it s own, an<3 should not depend on budgetary a llo ca tio n s alone fo r a long tim e. I t would be desirable to incorporate in the proposed housing finance system, the advantages o f economies o f scale in m obilisation o f fin a n c ia l resources from the nation al and the in tern a tion a l c a p ita l markets. As such, a nation al resource m obilisation agency may be required to tap such funds. In fa c t, many o f the decen tralised units may not have the necessary exp ertise and/or status and public image to m obilise funds from these avenues, or fo r that m atter, to make continuous study o f a lte rn a tive sources o f funds, th e ir terms and conditions, and s trik e a bargain when in te re s t rates and other terms o^e most favourable. This would be esp ecia lly true when the in tern a tion a l c a p ita l market has to be tapped; la rg e -s c a le m obilisation might alloy* fo r n egotiation o f s o ft cred it terms, i. e., low in te re s t r a te s? lon ger repayment period, e tc. The b e n e fits o f la rg e -s c a le resource m obilisation could be passed on to the ultim ate b e n e fic ia ry. The per unit operational cost o f resource m obilisation would also be lower than when several in s titu tio n s m obilise small amounts o f resources independently. M ob ilisation o f households savings should, however, be l e f t to decentralised in s titu tio n s, which would be fa m ilia r with region a l and lo c a l economic

141 conditions, liv in g patterns, consumption and savings habits and other aspects o f lo c a l l i f e * which, have to be taken into account when form ulating appropriate and r e a lis t ic savings instruments. M ob ilisation o f lo c a l savings through lo c a l in s titu tio n s would also be a more fe a s ib le and economical operational proposition. Most im portantly, lo c a l in s titu tio n s should be given the main res p o n s ib ility fo r i t is b e tte r, as a matter o f p rin c ip le, to encourage p riv a te in it ia t iv e, acumen and lo c a l e ffo r t. Two d iffe r e n t approaches are id e n tifia b le fo r the m obilisation o f resources on the basis o f the experiences o f decen tralised housing finance systems in the developed economies. The f i r s t is the Anglo-American model based on the.prin ciple o f d irc c t m obilisation o f deposits from the household sector. The second is the European.model based on the p rin c ip le o f in d ire c t m obilisation o f household savings and d ire c t m obilisation o f non-household savings through sale o f bonds and debentures o f varying m aturities in the c a p ita l market, subscribed to mainly by in s titu tio n s. The d ire c t in d iv id u a l-le v e l resource m obilisation approach makes use o f the f is c a l system to improve the y ie ld on m obilised resources, while the in s titu tio n a l- le v e l resource m obilisation approach b a s ic a lly o ffe r s a compet i t i v e rate o f in te re s t on open market borrowings. The main weakness o f the Anglo-American model arises from i t s p o lic y o f borrowing-short and len din g-lon g in a sin gle economic a c t iv it y. The system becomes highly s e n s itiv e to in fla tio n and during the early e ig h tie s, the system almost collapsed in the USA, as the y ie ld on

142 137 home loans became su b stan tially lower than the cost o f fresh ly-m ob ilised resources. In the European countries, the higher cost o f corporate public borrowings through the ca p ita l market in terms o f in fla tio n can be passed on to the home owner but the housing finance in s titu tio n would also be a ffe c te d to an extent. The in vestors in the cap ita l market are also able to influ en ce the terms o f the mortgage instruments. Further, the scope fo r public borrowings through, the c a p ita l market is lim ited in low-income countries, with an under-developed c a p ita l market. In the Indian context, i t would be d esirable to have a judicious blend o f both the resource m obilisation approaches fo r the housing finance system. While the Anglo-American approach to reach household savings d ir e c tly may be the strategy at the HDCA-level, the European approach v ia the c a p ita l market may be the nucleus o f the resource m obilisation strategy at the HCA-level. A second major area o f operations o f the proposed housing finance system would re la te to p o lic y form ulation. There are advantages in th is function being performed under a cen tra lised agency. A uniform n ation al housing and housing finance plan and p o lic y can be developed which would keep both n ation al and lo c a l requirements in proper p ersp ective. Such a p o lic y v/ ill o ffe r an opportunity to reduce in te r-re g io n a l and in te r -s p a tia l d ifferen c es in housing constructions and resources a v a ila b ilit y. However, the n a tio n a l-le v e l p o lic y form ulation a c tiv ity has to be based on a continuous flow o f data and inform ation from the d ece n tra lise d areas o f op eration s.

143 The th ird major aspect o f operations re la te s to home loan operations including appraisal, sanctions, disbursement and recovery. While a cen tralised agency may draw broad gu id elin es, i t would be desirable to leave the region al operational approach to the decen tralised region a l in s titu tio n s. P u ll autonomy must be provided to them to formulate th e ir own assessment procedures, p o lic ie s, cred it norms and recovery measures, among other things, so as to serve the needs o f the ultim ate b e n e ficia ry, keeping in perspective the in s titu tio n a l v ia b ilit y also. F in a lly, the fourth major area o f operations re la te s to monitoring o f the a c t iv it ie s o f the ultim ate b e n e fic ia rie s, and th is should also be performed at the grass-root le v e l. Guidance and d irection s on plans of action may be formulated, however, at a cen tra lised le v e l, based on feedback from the grass-roots le v e l in s titu tio n s. c * Role o f the public and the p rivate sectors. At present, about fo u r - fift h o f the a c t iv it ie s in housing in the country, including home financing, is in the p rivate sector. In the formal housing finance market, the public sector plays, however, the dominant r o le. The predominant o v e ra ll ro le o f the p riv a te sector is because o f the la rge inform al housing finance market. However, l i t t l e data or organised inform ation are a vaila b le on a c t iv it ie s in the inform al housing finance market or, fo r that matter, even on the extent to which the p riv a te sector plan investment ta rgets are being rea lised. Some qu a n tita tive evidence on the predominant r o le o f the inform al housing fin an ce market has been presented in Chapter I I I.

144 In the p riv a te sector, only the EDEC provides housing finance, but i t.supplies about four per cent o f the annual finances in the formal housing finance market and on even low er p roportion (about one p er cen t) o f the fin an ces in the.ifpt.al baausing finance market. Even i f HHFO*sc operations were to increase th re e -fo ld over the next f iv e years, i t s r e la tiv e share o f a growing housing finance market would remain small. The co-operative housing finance s o c ie tie s play a more important r o le, but they function more as interm ediaries o f other in s titu tio n s (lik e the LIC and the HUDCO) and make l i t t l e system atic e ffo r t to m obilise household sector savings d ir e c tly. There, thus, is a need fo r a m u lti-fo ld growth o f housing finance agencies i f the p riv a te sector ta rgets fo r housing have to be r e a lis e d in the Seventh and the.subsequent Plans. Public housing finance operations may not appear spectacular or e ffic ie n t in the Indian context. The important reasons are th at, in the f i r s t p lace, such operations are exposed to more p u b lic scrutiny and judgment than the operations o f the p rivate sector and, secondly, they are d irected la rg e ly towards conventionally "non-credit-w orthy 5 sectors, i. e., s o c ia lly and economic a lly weaker sections o f the -.population. The financing o f such sectors is done at highly subsidised rates o f in te re s t and the e ffe c t iv e cost burden becomes even higher in view o f g reater lik e lih o o d o f d efa u lts. Hence, i t may not be w holly proper to emphasise only the weaknesses o f the public housing finance system, without keeping these issues in p ersp ective. In sp ite o f several inadequacies in th e ir operations(see L o ll, 1982), public housing fin an ce in term ed iation through the HUDCO and oth er

145 agencies has encouraged low -cost housing and pioneered some ru ral housing a c t iv it ie s. The major problems o f public housing programmes emanate from resources con strain t, lack o f in it ia t iv e and innovative ^approaches, e s p e c ia lly to m obilise resources, poor monitoring and d e livery systems, p o lit ic a l in terven tion and bureaucratic p ra ctices. As a r e s u lt, in sp ite o f low -cost funds being made a v a ila b le, the public sector in s titu tio n s are, by and la rg e, not able to operate in an optim al manner. One thing is clear nevertheless: the housing sector gets adequate feedback on public housing finance a c t iv it ie s but n e g lig ib le feedback is a va ila b le on the unorganised inform al housing finance a c t iv it ie s. Therefore, the p o lic y fo r the Seventh Plan and the subsequent Plans should be d irected towards, in the f i r s t p lace, ra is in g the public sector investment outlay in housing; secondly, providin g the f a c i l i t i e s, p a rtic u la rly finances, to enable the p rivate sector to undertake the ta rget Plan a c t iv it ie s ; and, th ir d ly, adequately monitoring the p riva te sector a c t iv it ie s, so that Plan ta rg ets are attained, and bottlen ecks, i f any, are resolved s u ffic ie n tly in time. I t may be d esirable, th erefo re, to ra is e the share o f the public sector in housing to, say, 25 per cent o f the n ation al housing a c t iv it y. I t would also be d esirable to ra is e the share o f the p riv a te sector in the formal housing finance market to the le v e l o f per cent so that the formal housing finance market would gradually con stitu te, over the next decade, about one-half o f the n ation al housing finance market. Such a development would be desirable in the n ation al in te re s t and p a rtic u la rly in the context o f attain in g Pirn ta rg e ts, because housing

146 a c t iv it ie s financed through the organised housing finance market would be more amenable to e f f e c t iv e m onitoring. The increased r o le fo r the public sector, as has been proposed here, should fee evaluated in the perspective o f attainment o f Plan ta rg ets. At a la te r stage, when the housing finance system would have developed s u ffic ie n tly and a good and e ffe c t iv e inform ation system fo r monitoring o f a c t iv it ie s in housing, both in the public and the p rivate sectors, has been b u ilt up, a gradual reduction in the r o le o f the p u blic se cto r is proposed. 3, Components o f a New Housing Finance System a. P ersp ective and approach. The analysis o f the housing finance market in f iv e towns in Chapter I I I, and in other studies, has shown that only a small proportion o f new housing investment b en e fits from in s titu tio n a l financing. The major advantages o f organised housing finance interm ediation in an economy are the induction o f fin a n c ia l d is c ip lin e, e ffic ie n c y in resources use, responsiveness to nation al p r io r it ie s and ta rg ets and net accretion to n ation al development a c t iv it ie s. As fa r as the s p e c ific sector, namely, housing,is concerned, in s t i tu tio n a l financing allows fo r a more systematic development and regu lation o f a c t iv it ie s, as per the p o lic ie s o f the government and the norms o f lo c a l bodies. The f i r s t need then is to create and extend the in s titu tio n a l framework f o r housing fin an ce. The analysis in Chapter I I I, based on experiences o f home owners in f iv e selected towns, also revealed the need to meet the housing finance needs o f low-income households, on the one hand, and middle income and

147 r e la t iv e ly a fflu e n t households, on the other. The approach and terms o f fin a n c ia l interm ediation fo r the two d is tin c t income groups have to be n ecessarily d iffe r e n t. There does not seem to be a need to develop any sp ecial fin a n c ia l interm ediation fo r :very a fflu e n t households at high income le v e ls, 2/ A p rerequ isite fo r a v ia b le housing finance system is the development o f an in s titu tio n a l structure spanning the en tire country. As public resources through e x is tin g fin a n c ia l in s titu tio n s are lim ite d, i t is necessary that the system should be b u ilt through an expanding number o f in s titu tio n s at the region al le v e l that m obilise resources s p e c ific a lly fo r housing d ir e c tly from households, jta in s titu tio n a l set-up which depends unduly on government a llo ca tio n s tends to rap id ly lo se i t s dynamism and f l e x i b i l i t y. Thus, in the f i r s t p lace, a n a tio n a l-le v e l in s titu tio n should be established to promote and b u ild independent region al in s titu tio n s. The lo c a l in s titu tio n s would gradually have to develop the d elivery system housing finance to a l l groups o f people in the country and spread th e ir operations p ro gressively to low-income and other le s s credit-w orthy b e n e fic ia rie s. o f in s titu tio n a l development, th ere fo re, has to have a long-term perspective, o f The process However, a short-term perspective in the context o f the impending Sevent'ii Plan would be jof iimiiedlata-importancg a ls o, 20/ No system o f housing finan cc, with the re q u is ite monetary c e ilin g s on loans, would be able to meet any s ig n ific a n t proportion o f housing finance needs o f very high income groups. A vailable evidence also suggests that they are not r e a lly in terested in in s titu tio n a l interm ediation.

148 The v ia b ilit y o f any housing finance system has to be ensured and w i l l depend not only on it s capacity to m ob ilise household savings at re g io n a l le v e ls and to provide * home loans, but also on the a v a ila b ility o f support f a c i l i t i e s to home loan o rigin a to rs to spread th e ir risk and to have an access to some form o f refin an cin g. At the same time, i t is essen tia l to establish a forum which would contribute towards developing appropriate housing and housing finance p o lic ie s. b. Proposed housing finance system. A th r e e -tie r system is proposed, apart from some support f a c i l i t i e s, to develop a healthy and v ia b le housing fin an ce system. ( i ) Housing Advisory Board (HAB). The HAB w i l l form the top t i e r o f the proposed housing finance system. I t w ill b-3 b a s ic a lly an advisory body to provide p o lit ic a l guidance ard also help in evolvin g appropriate housing p o lic ie s, suggest annual housing sector a llo ca tio n s and promote broad guidelines relevan t to development o f the housing sector. The HAB w ill be constituted o f the Council o f Central and State Housing M in isters, under the Chairmanship of the Union M inister o f Works and Housing. I t w i l l comprise both o f f i c i a l and n o n -o ffic ia l members. ( i i ) N ation al Housing Finance Corporation (HHFC). The second t i e r o f the p ropped hovsing finance systorr v ou?.d be a nation al le v e l sp ecia lised housing finance in s titu tio n, to be ca lled the National Housing Finance Corporation (NHFC). The NHFC may be set up under the Indian Companies Act, T'h v;; 11 be desirable not to designate the nation al le v e l in s t it u t io n as an * authority* or a bank1, as the form er

149 144 - nomenclature gen erally suggests a bureaucratic n onfin a n c ia l function, and the la t t e r may be misconstrued by the banking au th orities and misunderstood by the p eop le. The NHFC should represent a ll in tere s ts that are concerned with the development o f a healthy housing finance system. Its Board of D irectors should, th ere fo re, include represen tatives o f the Central government (e. g., M inistry o f Works and Housing, Planning Commission and M inistry o f Finance), State governments, nation al and region al in s titu tio n s engaged in housing finance a c t i v i tie s and in d ivid u al experts. The s ize of the Board should be r e s tr ic te d to a manageable number, say, 10 to 12 members, so that i t does not develop into a debating s o c ie ty but operates as an e ffe c t iv e p o licy making body. While the Board should be responsive to n ation al p o lic ie s formulated by the government, care should be taken to ensure that i t is not unduly exposed to p o lit ic a l in te r vention and to bureaucratic p ra ctices. The members o f the Board should be p rofession als, with a good knowledge and/or experience o f the in tric a c ie s o f n ation al and in tern a tion a l finances, capita l markets, housing problems, housing economics, housing p o lic y, etc. I t would be d esirable to also ensure that n eith er the nominees o f the public sector in s titu tio n s nor the p rivate sector in s t i tutions have a d ire c t m a je s ty on +he Board. I t would be desirable to have as the Chairman of the Board o f D irectors o f the NKFC, a distinguished person o f proven merit,- in te g r ity and p rofession al competence. The p osition may not n ecessa rily be a f u l l time one. Some o f the D irecto rs may be fu ll--tim e members.

150 The main fu n ctio n s o f the NHFC should be; (a ) to. promote and develop independent, autonomous and fin a n c ia lly v ia b le housing finance corporations, serving region al housing markets 5 (b ) to m ob ilise resources; ( c ) to develop manpower development programmes; (&) to build a management inform ation system, monitoring and evaluatory system, data bank, e tc.; and (e ) to a ssist the HAB in form ulating housing p o lic y. In i t s promotional and developmental- r o le, the NHFC should help the region al housing finance in s titu tio n in designing the rig h t borrowing and lending instruments and providing in the i n i t i a l years, at the request -'of the region al in s titu tio n s, tech n ica l, fin a n c ia l and adm inistrative support to bring to l i f e region al in s titu tio n s which lo c a l in it ia t iv e and lo c a l in vestors might want Jr-o create. However, the NHFC should examine thoroughly the n ecessity, p o te n tia l and v ia b ilit y of the proposed region al in s titu tio n s which may seek i t s support The NHFC should not get d ire c tly involved in any lcau processing and disbursement a c tiv ity at the region al le v e l. I t may hoy;over, have, to monitor the a c t iv it ie s of the region al in s titu tio n s as they would be the depository o f household savings and public funds which they may have been able to m o b ilise,p a rtly or mainly, through the d ire c t and in d ire c t support provided to them by the NHFC.

151 The resource m obilisation function should be r e s tr ic te d to la rg e -s c a le m obilisation from the nation al and in tern a tion a l c a p ita l markets. A national, le v e l in s titu tio n, a p r io r i, can n egotiate the flow o f resources on com petitive basis and on s o ft terras as regards in te re s t ra te, repayment period, e tc., and the b e n e fits that flow from these economies could then go to the b e n e fic ia r y. In fa c t, i t is f e l t that many o f the region al in s titu tio n s may not have the expertise end standing to ra is e resources on th e ir own from the nation al and in tern a tion a l c a p ita l markets and th e ir resource m obilisation e ffo r ts would have to be r e s tr ic te d to the region al le v e l. In view of the phenomenon o f resource-surplus and re s o u rc e -d e fic it regions in a la rg e country lik e India, i t would be desirable to provide a channel fo r tra n sfer o f resources from surplus areas to d e fic it areas. In order to promote the growth and development o f a region al housing finance d elivery system, the fin a n c ia l support of NHFC to the region a l in s titu tio n s may be in the form o f equity c a p i t a l, and in the i n i t i a l years, some fin a n c ia l support in the form o f loans and subscriptions to debentures that may be flo a te d by the region al in s titu tio n s. The investment o f the NHFC in the region a l in s titu tio n s may be fo r a lim ited period and the loan assistance should be gradually phased out so that the region a l in s titu tio n s are able, over a period o f time, to m obilise resources la rg e ly through th e ir own e ffo r ts and from in s titu tio n s and the c a p ita l market w ithin the region. The r e a l te s t o f the p o te n tia l growth o f the n ation al housing finance system is how fa s t the lo c a l region a l in s titu tio n s can m obilise resources themselves.

152 - 147 Tlie NHPC should not become merely an agency to ra ise resources and provide them to the region al in s titu tio n s, as such a p ra ctice w ill discourage lo c a l in it ia t iv e and enterprise and would develop into a scheme sim ila r to government cred it a llo ca tio n s. The support o f the NHPC to the region al in s titu tio n s should be purely promotional and, in case o f need, as a lender o f the la s t resort. The NHPC should provide some assistance on sp ecial terms to region al home loan in s titu tio n s in order to undertake financing o f conventionally less-favou red schemes in the economy, including socia l housing, rural housing, slum upgradation, etc. But such a c t iv it ie s should not become the main area o f operations o f the NHPC. The NHPC should develop a strong research exp ertise in p ro jectio n o f demand and supply o f housing stock, housing finance needs of d iffe r e n t sectors o f the society and a continuous assessment o f short-term and long-term needs o f the housing finance sector. I t should continuously monitor the trends in in te re s t ra tes, cred it terms, e tc., in the important c a p ita l markets a l l over the world, study the trends in the flow o f funds within the economy,. build up a strong data bank and management informatj on system and. be a rep ository and dissemination agency o f inform ation and data on the la te s t developments (in clu d in g te c h n ic a l developments) in the housing s ecto r. F in a lly, the NHPC should strengthen the manpower base o f the region al in s titu tio n s bjr developing and conducting appropriate manpower development programmes at the nation al and region al le v e ls. These programmes should

153 not only impart knowledge and s k ills to o f f ic ia ls in the housing finance in s titu tio n s but should also fa m ilia ris e them with the national p ersp ective, region al s p e c ia litie s and at the national l e v e l, the form ulation o f appropriate housing and housing finance p o lic ie s. The proposed sources o f funds o f the NHFC are; ( i ) Equity cap ita l to be contributed by the Central government, the Reserve Bank o f In dia, and banking and fin a n c ia l in s titu tio n s ; ( i i ) Resources to be m obilised from contractual savings in s titu tio n s ; and ( i i i ) Loans. The NHFC may also develop sp ecial saving instruments lik e housing bonds and housing bearer bonds to m obilise household savings on a nation al b asis, to be used exclu sively by the housing sector. Such savings instruments are examined in section 6 o f th is chapter. ( i i i ) Housing savings and loan banks(hslb). The th ird t i e r of the proposed housing finance system is constituted o f the r e g io n a l-le v e l housing finance in s titu tion s,. which may be c a lled Housing and Savings Loan Bank (HSLB). The HSLBs would be the operational window of. the nation al housing finance system, fo r they would b a sic a lly m obilise household savings and provide home loans to in d ivid u als within th e ir ju ris d ic tio n. The in it ia t iv e to ;set up HSLBs should normally come from in divid u als and in s titu tio n s at the region al le v e l. In only very sp ecial cases, when fo r example, the n ation al p o lic y would li k e to develop housing finan ce in term ed iation in s p e c ific

154 areas, the in it ia t iv e to set up HSLBs in s p e c ific location s may be taken up by the NHFC. lim ite d in number. However, the NEFC-sponsored HSLBs should be The main fu nctions o f the HSLBs should be: ( i ) to m obilise household savings at the lo c a l le v e ls ; ( i i ) to develop, and flo a t savings schemes, keeping in p ers p e ctive lo c a l conditions and habits?, and ( i i i ) to provide home loans at the lo c a l le v e l. The HSLBs would, thus, be prim ary--level m o b ilisers o f household savings and primary m ortgage-originating in s titu tio n s. The suggested sources o f funds o f the HSLBs are; ( i ) equity c a p ita l to be-contributed by the promoters, members, NHFC and others who may be in te r e s te d ; ( i i ) savings to be m ob ilised from the household s e c to r; ( i i i ) resources to be m obilised from the c a p ita l market; and ( i v ) assistance from the NHPC. The assistance from the NHFC may be matched to the resource m obilisation e ffo r ts o f the b e n e fic ia rie s (by income groups and areas). HSLB and i t s group o f ta rget Special assistance on s o ft terms may be provided to encourage the flow o f home loans to s o c ia l housing schemas, low income groups, ru ra l housing, etc. NHFC may also provide guarantee to the debentures that may be flo a te d by the HSLB. I t should be the endeavour o f the housing finance system to ensure that the HSLBs do not depend unduly on the NHFC fo r fin a n c ia l assistance, fo r the success of the nation al housing finance system w ill u ltim ately depend on the capability and success o f the HSLBs tc m obilise resources through th e ir own e ffo r ts. I t may be mentioned that the th r e e -tie r housing finance system that has been proposed in th is report is, in i t s struct~ u ra l form, s im ila r to that which was proposed by the Mukharjee Group. The

155 In view o f the d iffic u lt ie s that are lik e ly to arise when region al in s titu tio n s have to maintain a continuous rela tion sh ip wixh a natir a l- le v e l in s titu tio n, i t would be desirable to have a S ta te -le v e l co-ordinating agency, which w i l l represent the in tere s ts o f lo c a l in s titu tio n s within the State. In the case o f Union T e r r ito r ie s, a sin gle co-ordinating agency may be set up. A fe a r is, however, expressed in some quarters, that a S ta te -le v e l in s titu tio n may introduce bureaucratic p ra ctices, which may hamper the development o f independent housing finance in s titu tio n s at the grass-roots le v e l. The two contrasting views have to be considered, b efore deciding the exact form o f co-ordination between the lo c a l in s titu tio n s and the n ation al in s titu tio n at the State le v e l. 4. Support In s titu tio n s and Instruments The v ia b ilit y o f a housing finance system cannot be ensured only by the development o f in s titu tio n s and in s tr u ments to m obilise region al and nation al savings and in te r n ation al resources, and by making available in s titu tio n a l finances to in d ivid u als a l l over the country. In order to develop the housing finance system in to a wide-based r e a lit y, certain measures are needed to be taken up simultaneously to maintain the economic and fin a n c ia l v ia b ilit y and independence o f the region al housing -;finance in s titu tio n s. Several p o s s ib ilit ie s have been suggested from time to time regarding mortgage insurance and a secondary mortgage market in the housing finan ce s e c t o r.^ / The d e s ir a b ility o f s e ttin g up such in s titu tio n s is now examined. 21/ For example, see the Reports o f several o f f i c i a l Committees, choired by, namely, D*Souza, (1977) Shah, (1978) and Mukharjji,( 1981). A lso, see L a l l, (1982).

156 151 a. Mortgage, insurance. The primary function o f mortgage insurance is to spread risk so that m ortgage-originating in s titu tio n s are encoura^d to take ris k against defau lt and extend th e ir operations to small, under-developed and, h ith e rto, uns'erviced areas, and to low-income in dividuals who may not be e lig ib le to receive in s titu tio n a l support in terms o f conventional norms. Mortgage insurance provides a p ro te c tiv e umbrella to maintain the v ia b ilit y o f the Liortgage-originating in s titu tio n s when they attempt to widen the scope o f t h e ir op eration s. The cru cia l issues which have to be examined in the Indian context ares i. i i. i i i. Extent o f insurance cover; Incidence o f insurance premium; and Linkage between premium amount and outstanding loan. In countries where mortgage insurance has become a composite featu re o f the housing finance system, the insurance cover i s never f o r the f u l l amount o f th e loan. In the USA, fo r example, mortgage insurance covers about 20 per cent -o f the home loan. P u ll coverage is not considered necessary as the fin a n c ia l in s titu tio n has assessed the borrower to be 3!credit~w orth y5! to a substant i a l extent. Further, the extent o f cover may be, a p r io r i 8 rela te d to the income or lo catio n o f the borrower, The two issues that would, th ere fo re, a rise in any examination o f the f e a s ib ilit y and need o f a mortgage insurance system are, the extent of cover and the c r it e r ia th at determine the cover. In some coun tries lik e the

157 P h ilip p in es, mortgage insurance has been confused with l i f e insurance 5 such an anomaly needs to he eschewed. In tern ation al experience on mortgage insurance reveals that the incidence o f the premium is always on the ultim ate b e n e fic ia ry, the home owner. A p r io r i ; th is seems lo g ic a l as fin a n c ia l in s titu tio n s can s h ift forward the burden. Cn grounds o f equity, however, a l l b e n e fic ia rie s should bear a part o f the burden o f the mortgage insurance premium. The fin a n c ia l in s titu tio n, on the one hand, can extend i t s operations, have a la rg e r turnover and earn la rg e r p r o fit s, and on the other hand, the home owner gets access to in s titu tio n a l finance, which o rd in a rily may not have been forthcoming. The mortga,ge insurance system would also help to ra is e the home-loan to home-valup r a tio and extend the am ortisation p eriod, i f required, so that the EMI can be fix e d at a le v e l which a home owner might fin d appropriate at h is current l e v e l o f income. In In d ia, p o te n tia l home-loan aspirants con be c la s s ifie d in to three categoriess As Bs Cs High-income in d ivid u a ls, who can provide adequate c o lla te ra l? Middle-income in d ivid u a ls, with fix e d income, mainly from salary and investment, who cannot provide ~dequate c o lla t e r a l; and Low-income in d ivid u a ls, who would o rd in a rily not be considered e lig ib le fo r in s titu tio n a l finance and who* at best, con provide only marginal c o lla te r a l*

158 The experience o f in s titu tio n s providin g home loans in India has shown that Category B in divid u als are keen to repay th e ir debts at the e a r lie s t, as there is some stigma attached to debt. A simple way to f a c ilit a t e recovery o f debt, in- case o f d e fa u lt, osp ecia lly in the case o f the salary income class, may be to intim ate to the re fe re e s or to the employer. A lte rn a tiv e ly, in the case o f employees in the organised sector, the M I may be deducted d ire c tly at source by the employer and forwarded to the fin a n c ia l in s titu tio n in the same way as provident fund contribution, LIC premium, s t a ff loan repayment, income-tax, e t c., is deducted at source and placed/forwarded appropria t e ly. As such, i t may be undesirable to burden such category o f p o te n tia l home owners w ith on insurance premium. Category A borrowers would be able to provide adequate secu rity o f fix e d assets and, o rd in a rily, a mortgage insurance cover may be superfluous, though the burden may not be heavy fo r th is category o f p o te n tia l home owners. I t is in the case o f Category C borrowers that in s titu tio n a l ris k may be the maximum, and mortgage insurance may make on otherwise unviable home owner, a v ia b le proposition. However, th is is the category which is most unfavourably placed to bear any addition al cost on a home loan. One p o s s ib ilit y might be to introduce a d iffe re n t i a l premium ra te, linked to amount o f loan and/or income o f the b en e ficia ry. The rate would be maximum fo r Category A( who can a ffo rd to pay) and lowest fo r Category B (who may fin d i t d ifiic u lt to bear but whose repayment can be in s titu tio n a lis e d to reduce the cost o f c o lle c tio n, and the b en efit th ereof passed on to the borrow er). The

159 ~ premium has to be moderate fo r Category C (who w i l l fin d i t a la rge burden in any case, but without such an addition al burden, the access to ir; titu tio n a l finance may not be forth com in g). Some element o f su b sid isation may be con sidered f o r Category C home-loan asp iran ts. The o b je c tiv e o f mortgage insurance in India would be to spread the ris k o f m ortgage-originating in s titu tio n s by passing a part or whole o f i t to others, so that in case o f d efa u lt, they could recoup th e ir investment. This purpose can also be served by fa c ilit a t in g the sale o f mortgaged property. At present, foreclosu re o f mortgages under the Indian le g a l system is time-consuming and complicated, often in volvin g le g a l tangles extending upto ten years. S im p lificatio n o f foreclosu re procedures and quick ju d ic ia l decisions may be a more p ra c tic a l approach than a system of mortgage insurance. Further, i f the th reat o f foreclosu re is la rg e, then even mox-tgage incur*- ance may become an unworkable proposition fo r, at a reasonable cost to thv? b e n e fic ia ry, i t would be v ia b le only when the le v e l and p o s s ib ility o f foreclosu re is low. F in a lly, in a country, where e v ic tio n of unauthorised squatters can become a hot p o lit ic a l issue and that of tenants almost im possible, i t is feared that e v ic tio n of le g a l home owners from th e ir own houses, in case of d e fa u lt, may not be a p ra c tic a l proposition even i f the foreclo su re system is ra tio n a lis e d. In case a decision is taken in favour o f in tro ducing mortgage insurance in to the housing finance system, the main issue woul" be, whether the function should be undertaken by a new in s titu tio n or by an e x is tin g in s titu tio n. In order to r e s t r ic t operation al cost and to

160 enable the services to be immediately a v a ila b le, there is some merit in not s e ttin g up a new mortgage insurance in s titu tio n. The GIG, w-uth it s proven exp ertise, ca p a b ility and operational network a l l over the country, can be entrusted with the task o f providin g an insurance cover to m ortgage-originating in s titu tio n s. A ltern a tive schemes may be formulated, taking in to account the d iffe r e n t ia l im p lic it ris k o f category A, B and C home loan aspirants, th e ir a b ilit y to bear the premium burden, the in s titu tio n a l share o f the premium cost, etc. In th is connection, i t may be desirable to examine also the fe a s ib ilit y o f extending the services o f the Deposit and C redit Guarantee Corporation in to the area o f mortgage insurance o f home loan s. to# Secondary mortgage market in s titu tio n. While mortgage insurance would spread risk of the m ortgage-origi^ nating in s titu tio n s, there would s t i l l remain the problem of increasing the liq u id ity o f the m ortgage-originating sector. The liq u id it y problem becomes cru cia l as no resource m obilisation scheme would provide a l l the resources required fo r the f u l l loan-am ortization period. The need fo r some form o f refin an cin g mechanism to strengthen a v ia b le housing finance system becomes c le a r. The main function o f a secondary mortgage market in s titu tio n is to increase the liq u id it y o f the primary m ortgage-originating in s titu tio n s. The primary in s titu tion s would s e ll o f f th e ir mortgages, p a r tia lly or w holly, in the secondary mortgage market. In tern ation al experience, however, shows thao in many countries with an organised housing fin an ce system and alsc a developed mortgage

161 insurance system, a secondary mortgage market in s titu tio n has not been introduced} mainly because the refin an cin g function fo r the primary m ortgage-originating sector is performed by e x is tin g fin a n c ia l in s titu tio n s. Hence, two issues should be examined when contexpiating the in tro d u ction o f a secondary mortgage market system; ( i ) The sta te o f the primary mortgage market, that is whether i t is la rg e enough to support a sp ecia l secondary mortgage market; and ( i i ) Whether in s titu tio n s do not e x is t which can refin ance the primary mortgage sector. The secondary mortgage market earns i t s income through spread between the p rices fo r buying and s e llin g o f the mortgages, and in the process i t con+ributes to the liq u id ity o f the m ortgage-originating in s titu tio n s. The v ia b ilit y o f the secondary mortgage market and the extent o f the services that i t can o ffe r would, th ere fo re, d ir e c tly depend upon the s ize o f the primary mortgageo rig in a tin g sector. The secondary mortgage market can serve a u sefu l purpose only i f i t can generate long-term lending, but i f the problem is to m obilise household savings only, then there is no a p r io r i case fo r a secondary mortgage market in s titu tio n. In In d ia, the state o f the primary mortgage market suggests that i t is too early to introduce a sp ecia lised secondary mortgage in s titu tio n. The fo llo w in g reasons may be ascribed;

162 ( i ) The annual a c tiv ity o f organised primary m ortgage-originating sector is estimated at around 's 100 crore j ( i i ) substantial funds are a v a ila b le 'w ith many e x is tin g in s titu tio n s fo r p ossib le investment in the primary mortgage sector, e.g., 1IC, G-IC, Provident Funds, UTI, e tc.; ( i i i ) Once housing is given the status o f on industry, the IDBI may refinance housing loans in th e' urban sector and the NABARD may refin ance housing loans in the ru ral sector; and ( i v ) With the s e ttin g up o f the NHFC, B o r n e degree o f refin ancing support would be a v a ila b le. An important issue that has to be considered in the context o f a secondary mortgage market and a refin an cin g mechanism to the primary mortgage market, is the treatment of mortgage paper. In order to g ive to the mortgage paper a degree o f liq u id it y, i t may be desirable to accord to i t the same le g a l status as is presently g r a t e d to shares, debentures and bonds. Such a p ra ctice would allow fo r contractual savings to be d iverted.into the refin an cin g o f the primary mortgage sector. Two points need to be in d icated. In the f i r s t p lace, i t may be d esirable fo r primary mort gage~ori gin at ing in s titu tio n s to maintain the mortgage paper fo r at le a s t a s p e c ifie d proportion o f the am ortization period (say, one-fourth or o n e-th ird ). Secondlys, contractual savings in s titu tio n s lik e the provident fund and g ra tu ity fund may be perm itted to buy the mortgage paper in the same way as government s e c u r itie s. c. Second mortgage cn p roperty. The analysis in Chapter I I I has sx. >wn that a home owner has to tap m ultiple sources to m obilise the req u is ite volume o f finances fo r his house. Very o fte n, he also has to borrow from more than

163 158 one fin a n c ia l in s titu tio n. Such a recourse is lim ite d in the absence o f adequate c o lla te r a l assets? other than the house. I t would, there^ure, be desirable to develop a system that w i l l f a c ilit a t e m u ltiple mortgages, that is, a home owner can mortgage the same property to two or three organised-sector fin a n c ia l in s titu tio n s. As each in s titu tio n would desire to have the f i r s t claim on the mortgaged property in case o f d efa u lt, the mortgage insurance mechanism would have to be adapted to insure the property-lin ked losan amount to fu lly cover equally the ris k o f each o f the in s titu tio n a l lenders. A lte r - n a te v e ly, the consortium approach to house loan operations may be considered. 5. Ma.jor Stimulants to M o b ilis e Resources Even i f long-term in s titu tio n a l finances are made a vaila b le to a p o te n tia l home owner at a reasonable and afford ab le rate o f in te r e s t, some supplementary measures are desirable to induce him to approach fin a n c ia l in s titu tio n s, take a home loan and acquire a house,. At the same tim e, given the resources con strain t in a developing economy and the la rg e p o te n tia l demand fo r housing loans, i t would be necessary to have some contribution by the home owner in the financing o f his house. Household savings have to be generated also to provide resources to the housing fin an ce system. The bulk o f household savings in the country today is m obilised in non***financial forms. The prospect of home ownership c c i d stim ulate the tra n sfer o f n on -fin an cial savings assets in to fin a n c ia l savings assets. To a c tivate th is tra n sfer process and to allow also fo r some

164 rea llo c a tio n o f the e x is tin g le v e l of fin a n c ia l savings, sp ecial fin a n c ia l savings instruments would have to be developed. a* F is c a l measures. In several countries, the tax system has been e ffe c t iv e ly used to provide a stimulus to investment in the housing sector by acceleratin g the rate o f flow o f household savings. This has been done p rin c ip a lly in two ways; ( i ) Deductions in computation o f personal income tax base and income tax l i a b i l i t y ; and ( i i ) p re fe re n tia l tax treatment o f investment income. The deductions from the personal income tax base are allowed fo r in te re s t paid on home loans, lo c a l taxes lik e property ta x, lo c a l charges l i k e ground ren t and depreciatio n on ren ta l property. P re fe re n tia l tax treatment is granted to ren ta l income, in te re s t income on deposits kept w ith housing finance in s titu tio n s, dividends on equity shares and in te re s t on debentures o f housing finance in s titu tio n s. ( i ) E xistin g p ro visio n s. Under the Indian Income-tax la?/, the major f is c a l r e lie f s that are provided to the housing s e c to r ares a. Section 80L o f the Income Tax Act, 1961, permits dividend income on investment in equity share c a p ita l o f the HDFC and in te re s t income on deposits with housing finance in s titu tio n s to be exempted^ubjeet to an o v e ra ll monetary c e ilin g o f Rs 7?000, a vailable to income from s p e c ifie d monetary assets.

165 b. Section 24 allows fo r f u l l deduction o f in te re s t paid on home loans in the case o f "both self-occu p ied property (SOP) and rer-lm property. The deduction was allowed, upto the assessment year , only fo r a house already constructed and not fo r a house under construction. The scope o f Section 24 was extended through the Finance Act 1983, e ffe c t iv e from the assessment year Nov/ the f u l l in te re s t paid on home loans during construction period is allowed to be deducted in f iv e equated annual instalm ents, commencing from the year o f occupation. c. Section 24 also permits deduction o f several other items o f expenditure in computing the personal income tax base. A tw o -tie r system is follow ed under which, in the f i r s t p lace, the net annual value (NAV) is computed fo r a newly-constructed house by deduction of a l l municipal taxes borne by the owner from h is r e n ta l income. The NAV upto Rs 3600 per annum per re s id e n tia l unit -is exempt from personal income tax in case the construction o f the house was completed a fte r March 31, The monetary c e ilin g is Rs 2400 fo r a house costructed between A p ril 1, 1978 and March 31, 1982, and i t is Rs 1200 fo r a house constructed between A p r il 1, 1970 and March 31, In the case o f self-occu p ied property, one-half o f the NAV ( i. e., rent n o tio n a lly receiv a b le, le s s municipal taxes borne by the owner) or Rs 3600, whichever is lower i s deductible, subject to the condition that such n otion al income w i l l not in any case exceed 10 per cent o f the income from a l l sources other than SOP, In other words, under no circuit-tances can income from SOP exceed one-tenth o f the income from a l l oth er sources.

166 The Bonafide Annual Value (BAV) fo r purposes o f fu rther deductions under the income tax law is NAV less exempt ren ta l income. The fo llo w in g deductions are then perm issible from, the BAV f o r purposes o f computing the tax bases ( i ) Insurance premium 100 p er cent ( i i ) Annual charges 100 p er cent ( i i i ) Ground rent 100 per cent ( i v ) Vacancy allowance 100 per cent (v ) Land revenue 100 per cent ( v i ) In te rest on borrowed ca p ita l 100 p er cent ( v i i ) Repairs l/6th o f BAV ( \ i i i ) C ollection charges 6 per cent o f BAV ( i x ) Unrealised rent in respect of e a r lie r years Lim ited to income from property otherwise comput ed No evidence has to be provided fo r deduction fo r rep a irs, but evidence would have to be provided fo r deductions under oth er heads. Thus? the tax base fo r ren ta l income is ; Rental income le s s n P m c i p a l taxes less exempt ren ta l income le s s sp ecified deductions, d. Section 54 allows exemption from c a p ita l gains tax fo r long-term gains that accrue from sale o f a house i f these gains are invested in another house w ithin a year, irre s p e c tiv e o f whether the house is self-cccu p ied or le t out. However, upto 31st March 19&3? the exemption was a vaila b le only i f the house was self-occu p ied.

167 ~ e. Section 197(A) allows small-income in d ivid u al/ household not subject to personal income tax, to claim exemption from deduct!uu o f tax at source on the savings with housing finance in s titu tio n s. f. Depreciation at the ra te of 5.per cent per annum is perm itted fo r re s id e n tia l units which are rented out, but th is deduction is not perm itted fo r a s e lf Occupied hous o. g. The W ealth-tax Act (sectio n 5) provides fo r exemption to on owner-occupied house upto a value o f Rs 2 lakh (th e monetary c e ilin g was Rs 1 lakh p rio r to the Finance A ct, 1984). h. Section 80 CC r e l i e f was a vaila b le fo r in v e s t- ments in equity shares o f HDFC u n til i t was withdrawn through the Finance Act This section provided f o r deduction o f investment in equity shares o f p r io r ity companies fromthe personal income-tax base, subject to a s p e c ifie d monetary c e ilin g. I t may be desirable to r e s t r ic t the number o f fis c a l in cen tives fo r housing as also fo r other sectors in the economy. One or two major f is c a l in cen tives should be adequate, but they need to be so designed that th e ir e ffe c t on m obilisation o f savings and in stim ulating housing sector investments would be substantial without adding to the already voluminous tax laws.

168 ( i i ) Proposed fis c a l in cen tives at home ow ners l e v e l. a. Housing i r restment allowance. In the in d u stria l sector, a major f is c a l in cen tive which accounts fo r over one-half o f the to ta l fis c a l in cen tives availed o f by corporate assessees (L a ll, 1983a) and which 'has been found to be easy to implement, is the investment allowance (Section 32A). A corporate assessee is allowed to deduct 25 per cent or 35 per cent o f the investment in new plant and machinery (th e higher ra te, i f the plant machinery is developed with indigenous tech n ical know-how' ) over the f i r s t eight assessment years. The advantage o f th is in cen tive is that an assessee with otherwise substantial taxable income, can claim the f u l l r e l i e f in the very f i r s t year and thereby the value o f the f is c a l r e l i e f in re a l terms is su bstan tially higher than i f i t s a v a ila b ility is spread over a period o f years. The cash-flow o f the assessee improves and there is a d e fin ite improvement in the rate o f return. As th is in cen tive has a p r io r ity over a l l other in cen tives, i t has become the most successful and popular f is c a l in cen tive used by corporate assessees. There is no reason why a s im ila r r e l i e f may not be granted fo r investment in housing. On grounds o f equity, such an in cen tive would be desirable fo r i t would elim inate the discrim ination agpinst housing sector investment as compared to investment in the.industry and services sectors, the la t t e r including h o tels, transport, etc. I t is recommended, th ere fo re, that a Housing Investment Allowance (HIA) may be incorporated into the income tax law finder which a s p e c ifie d proportion o f the investment in a house is deductible from the personal income-tax base o f the assessee over the f i r s t eight assessment years, A monetary c e ilin g

169 may be prescribed on the to t a l deductions so that the scheme does not discrim inate su b stan tially in favour o f higher income-tax assessees, fo r example, those whose annual income exceeds Rs 1 lakh. Further, a monetary c e ilin g may be placed on deductions in each assessment year, so that revenue lo s s in any p a r tic u la r year may not be too high. In case the n ation al housing p o lic y is to encourage owner~ occupied.housing, a p re fe re n tia l rate o f deduction may be granted fo r investment in owner-occupied houses or, a lte r n a tiv e ly, a lower rate may be allowed on investment in ren ta l houses. The case fo r a HIA w i l l be fu rth er rein forced once housing* is c la s s ifie d as an ^industry* and given a p r io r ity status fo r purposes o f resource a llo c a tio n. A sp ecial advantage o f a HIA is that the f u l l value of the house property would have to be declared to claim the maximum HIA, and to that exten t, the p ra c tic e o f undervaluation of house property and o f the r o le o f black money w ill be re s tr ic te d. b. D epreciation allowance. T i l l the time a HIA becomes a part o f the income-tax system, depreciation should be perm itted at the rate o f 10 per cent per annum ( i. e., the value o f the house should be fu lly depreciated in 10 y e a rs ), irre s p e c tiv e o f whether the house is self-occu p ied or rented out. At present, depreciation is r e s tr ic te d to ren ta l property at the rate o f 5 per cent, c. Ex is tin g in c e n tiv e s. The deduction o f in te re s t on home loans (Section 24) should be continued, but some monetary c e ilin g may be imposed. A lso, the tax b e n e fit

170 ~ should he r e s tr ic te d to in te re s t deduction on home loans fo r the f i r s t house owned by the assessee. The other perm itted deductions.r.&er Section 24 should be continued in th e ir present form, ( i i i ) F is c a l, in cen tives at in s titu tio n a l l e v e l. The ultim ate success o f a housing finance system would depend on the capacity o f region a l in s titu tio n s to m obilise households savings. In th is lig h t, i t would be desirable to extend the scope o f r e l i e f under Section 80L which grants a p re fe re n tia l tax treatment to income from investment in housing finance in s titu tio n s subject to the monetary c e ilin g o f Rs 7,000. A separate monetary c e ilin g o f Rs 2,000 may be s p e c ific a lly granted fo r income from investment in housing finance in s titu tio n s fo r an i n i t i a l period o f fiv e years. The matter may be reviewed th e re a fte r. The scope o f Section 54 should be extended to permit c a p ita l gains from the sale o f a house to be exempt from the c a p ita l gains tax i f they are invested with a housing finance in s titu tio n ' as a fix e d deposit fo r a minimum s p e c ifie d period, say f iv e years. (i-v) F is c a l p o lic y at corporate l e v e l. At present, the contribution o f the corporate sector to the national housing e ffo r t is minimal. A few la rge corporate units bu ild houses fo r thexr employees to a lim ite d extent in major towns and to a la rg e r extent in areas which are under-developed and which do not have adequate housing f a c i l i t i e s for p o te n tia l s t a f f. Some o f the major corporate units also provide home loans to th e ir s t a ff to purchase or bu ild th eir own house. Data are not a vailab le on the t o t a l contribution o f the corporate.sector, both public and p r iv a t e, to investment in housing.

171 - 166 Iii the housing strategy fo r the Seventh Plan, i t would be desirable to u t ilis e the f u l l p o te n tia l o f the corporate sector to provide finances fo r housing. This may be p ossible through providin g to i t su itable f is c a l in cen tives to undertake housing investment, at le a s t fo r th e ir own s t a ff. Expenditure on house construction fo r s t a ff should be e n title d to the proposed HIA r e l i e f in the same way; as the e x is tin g investment allowance In the case o f home loans given to s t a ff members by corporate u n its, 40 per cent o f the loan amount is presently deductible as an expenditure item in the year o f disbursement, under Section 3 2 ( l ) ( i v ), e ffe c t iv e from A p ril 1? The extent o f deduction may be raised to 60 per cent. The f is c a l in cen tives suggested above would stim ulate corporate sector financing o f housing programmes. However, as the housing problem, esp e c ia lly in urban areas, is also accentuated by the growth in corporate sector operations, i t seems reasonable that the s e cto r should also con trib u te mandatory to the n ation al resource m obilisation e ffo r ts fo r housing. Some scheme should be developed f o r th is purpose. to* Government regu latory measures. Two regulatory measures at the State le v e l are major constraints on new housing a c t iv it ie s. They are the rent con trol le g is la tio n and the urban land c e ilin g le g is la tio n. I t would be d esirable to ra tio n a lis e these le g is la tio n s to stim ulate investment in the housing s e c to r. Apart from such ra tio n a lis a tio n * i t is also desirable to sim p lify the procedures fo r foreclosu res o f mortgages and the development o f home mortgages in to a convenient marketable and le g a l instrum ent.

172 ( i ) Rent con trol regu la tio n. In a, situ ation of r is in g ren tals and uncertainty o f tenure o f tenants, State governments have int: oduced rent control le g is la tio n s to provide p rotection to tenants so that they have secu rity o f tenure and are able to obtain re s id e n tia l accommodation at a reasonable cost. The inherent m erits o f both these o b jectives are s t i l l relevan t. Most o f the rent con trol le g is la tio n s wer~ enacted by State governments during the s ix tie s (Andhra Pradesh, Assam, Goa, Daman & Diu, Jammu & Kashmir, Karnataka, K erala, Orissa, Pondicherry and Tamil Nadu) or.uhe seventies (Punjab, Haryana, Himachal Pradesh, Meghalaya, and U ttar Pradesh). An important stru ctu ral change has, however, occurred during the la s t decade in the r e la tiv e composition o f tenants and landlords. An increasing proportion of tenants is now constituted o f corporate bodies and in d ivid u als belonging to high income groups and an increasing proportion o f landlords belong to the middle-income group, including r e tir e d in d ivid u als.and others who have a need fo r th e ir own cc ^.^iodation a fte r retirem ent and/o: f o r a reasonable return on t h e ir housing investm ent. Very often, in the ease o f such, landlords, the investment in th e ir house property might have exhausted the bulk o f th e ir life - t im e savings. The e x is tin g rent con trol le g is la tio n s have become in equ itable in the case o f such weaker1 tenants and landlords..another consequence o f the present rent control le g is la tio n is that while i t protects the tenants o f the past, i t is inequ itable to future tenants who w i l l, because o f the le g is la tio n, be deprived o f reasonable ren ta l accommodation. The r e s tric tio n s on ren tals and

173 d iffic u lt ie s in e v ic tin g the tenants under the e x is tin g rent con trol acts have contributed to the depression in the investment c lim a x fo r ren ta l housing a c t iv it y. With lim ited ren ta l income and increasing statutory l i a b i l i t i e s ( e. g., property tax, water tax, ssavenging tax, f i r e tax, education cess, income tax on ren ta l income, e t c. ), the net rate o f return on ren ta l housing inv stment has become uneconomic. A rela xation in the rent con trol laws would certa in ly serve as a stimulus to house construction fo r ren ta l purposes. While the in te re s ts o f the tenant should be protected, consistent with that o b je c tiv e, some f l e x i b i l i t y could be introduced in the rent con trol laws. This is the view shared by several o f f i c i a l committees. The Task Force 011 Financing o f Urban Development (1983) appointed by the Planning Commission has discussed th is issue in d e ta il. Action broadly on the lin e s suggested by the Task Force may be considered. ( i i ) Urban l^ :a c e ilin g regu la tio n. As regards Ihe urban land c e ilin g regu lation, namely, the Urban Land C eilin g Act, 1976 (ULCA), the primary purpose is to achieve a more equitable d istrib u tio n of land to subserve the common good. In e ffe c t, the scarce urban land was to be frozen and made a vaila b le fo r public use, p a rtic u la rly to public housing fo r economically weaker sections o f the popu lation. The ULCA has, however, achieved very l i t t l e. As the Task Force on Shelter fo r the Urban Poor and Slum Improvement, Planning Commission (1983) points out, "The Act ran in to a lo t o f d iffic u lt ie s. Out o f the 3.50 lakh hectares o f land declared surplus, hardly 500 hectares have been token over. The nunber o f housing units constructed on surplus land is in s ig n ific a n t (p. x x i).

174 - 169 In e ffe c t, new land is p ra c tic a lly not a v a ila b le fo r p rivate sector housing programmes. urban land fo r housi 'g is very irre g u la r. The release of At tim es, the frozen urban land is released by public sector agencies at exorbitant rates, often through public auctions. These pu b lic auctions have le d to s p ir a llin g urban land 00/ p rices a l l o v e r,-^ As a resu lt, p rivate sector housinc a c tiv ity is now possible only on very h igh -cost, periodi*- c a lly -re leased new lend, reclaim ed land and land a va ila b le through dem olition o f exis tin g structures. I t needs to be stressed that acqu isition o f land is the f i r s t step in the series o f int.cr~rels.ted economic a c t iv it ie s which u ltim ately provide a home to the in d i vid u al. I t is essen tia l, th erefo re, to make a v a ila b le land on a more lib e r a l basis. Safeguards would have to be made to ensure that the bulk o f the land is not co'merred by a few to construct resid e n tia l units fo r exclusive groups o f in d ivid u a ls. 22/ The Task Force on Shelter fo r the Urban Poor and Slum Improvement? Planning Commission (1983), has presented an in te re s tin g illu s tr a tio n o f the situ ation in D elhi. V/hile the DDA acquired land at a rate between Rs 5 and Rs 10 per s q.y d., i t sold i t to housing a llo tte e s on a gross area, basis at Rs 62 per sq. metre and the pre-determined rate fo r re s id e n tia l land (land cost + development cost) was between Rs 260 and Rs 418 per sq. metre. The DDA auction rate fo r land fo r commercial purposes in 1980 and 1981 worked out to as high as Rs 5000 to Rs 6000 per sq. metre in some cases. Therefore, the Task Force recommended 55A very carefu l evaluation w ill have to be done o f Delhi experience in la rge scale land acqu isition and disposal as an instrument of planned urban growth with p a rtic u la r referen ce to the needs o f the urban poor b efore we con reach any d e fin ite conclusions''' (p. x x i).

175 170 In a land development and d istrib u tio n programme, i t would be desirable to develop within the master plan appropriate zonal h using plans and depending on the composition o f population, land space should be a llo ca ted w ith a long-term p ersp ective. While an element o f subsidy in land p rices may be o ffe re d to the economically weaker section s, moderately priced land should be made a v a ila b le fo r the MIG group. A high p ric e, with appropriate margin (fo r cross-subsidisation o f the low er-priced la n d }, could be charged from high-income in divid u als and la rge in s titu tio n a l and corporate units fo r th e ir group housing programmes. 6. Resource M o b ilis a tio n and Savings Instrum ents. While f is c a l in cen tives may contribute to improving the ra te o f return on investments in housing and with housing finance in s titu tio n s, appropriate savings and resource m obilisation instruments would have to be developed to make a va ila b le a lte rn a tiv e fin a n c ia l assets fo r m obilisation o f households savings. Some o f such instrume.ts are now examined. a. Contractual losaa-linked savings scheme, A loanlin ked savings scheme has become a popular instrument to m obilise household savings in several countries. The HDFC is experimenting with two schemes, namely, the Loanlinked Deposit Scheme (LLD Scheme), and the C e r tific a te Deposit Scheme (CDS). The CDS is not linked to a home loan, but preference is given to such depositors in grant o f a home loan.

176 - 171 Under a contractual savings scheme, a home loan aspir.uo enters in to a savings contract with a housing finance in s titu tio n to save a s p e c ifie d amount as a fix e d deposit in the housing finance in s titu tio n, e ith e r on a p erio d ic.basis or in a lump sum. In return, the housing finance in s titu tio n undertakes to provide, at the end o f the s p e c ifie d saving period, a loan which w i l l be a m ultiple o f the amount saved. The m u ltiple may vary from 1s3 to 1,:6, In the case o f the HDFC scheme, the m ultiple is 1:4. Very often, a monetary c e ilin g and other r e s t r ic t iv e conditions operate in such schemes. In the case o f the HDFC scheme, the maximum acceptable deposit is Rs 30,000 and the maximum deposit-lin k ed home loan is Rs 1,20,00u, granted a fte r a minimum savings period o f 18. months. While a loan-linked savings scheme would ensure fin a n c ia l assistance to the depositor a fte r a s p e c ifie d period, i t has several lim ita tio n s : ( i ) The scheme is r ig id, the monthly savings deposit has to be uniform over the "savings p eriod5'. There is no f l e x i b i l i t y in the amount o f the monthly deposit in accordance with va ria tion s in the d e p o s ito r s income over the savings p erio d; ( i i ) No withdrawal, even o f a temporary nature is perm itted, unlike in the savings scheme o f a post o ffic e or a commercial bank; and ( i i i ) Veiy often, the m ultiple loan may be inadequate, i f the cost o f the house has esca lated substant i a l l y during the savings period.

177 172 While the above lim ita tio n s o f a contractual if**. m~-- scheme may make i t r e la t iv e ly r e s t r ic t iv e in nafcu.ro, the r e s t r ic t iv e elements can' he somewhat lib e r a lis e d to take in to acocuut the m aterial v a ria tio n s in ij.i'roiiio o f the depositor. Some p a r tia l temporary withdrawal arrangements may also be incorporated in to the scheme cn payment o f a predetermined rate o f in te r e s t, A more s ig n ific a n t problem i s, however, lik e ly to a ris e at the in s titu tio n a l le v e l. As was shown in Chapter IV, the cor-trcictaal savings-linked loan scheme may re s u lt in a liq u id ity problem at the in s titu tio n a l le v e l as the flow o f savings is only a temporary flow o f resources and would bo follow ed up- by a demand fo r loan which would be a m ultiple amount o f the savings deposited. Thus a ffi-jdirm-*erm deposit gives r is e to a long-term loan, and or. a m u ltiple basis. In such a situ a tio n, unless the rate of growth o f saving deposits is higher than the rate o f growth o f home-loan demand, there would be a not c v i- fio w o f funds on saving deposit home-loan account, Unlers the housing finance in s titu tio n has other resources too, including savings deposits o f individuals/households who wou7d not want a home-loan, the resources constraints may make a contractual savings-linked home loan scheme unworkable. I t, thus, follow s that the housing finance in s titu tio n s have to a ttra c t the deposits o f in d ivid u als/ households who would in vest fo r the sake o f investment per se, This has been made p ossible in several bu ildin g s o c io tie s in countries lik e the UK and A u stralia by p.^o'/iding a ra te o f in t e r e s t on deposits maintained w ith which is higher than what is a va ila b le in commercial bar'/3, p o s t-o ffic e accounts and other a lte rn a tiv e investment

178 - 173 o u tle ts. The e ffe c t iv e rate o f return is fu rther in c r e -r,cd by p re fe re n tia l tax treatment o f income from such investments. F in a lly, lim ite d withdrawal f a c i l i t y is also provided to the depositor so thau there is no long-term blocking o f savings. b. Inform al s e cto r sm all-savings schemes. In most o f the developing world, e sp ecia lly in low-income countries, a popular savings scheme operates fo r a s p e c ific purpose (e. g., to acquire a consumer durable^ or to provide fo r a forthcoming expenditure, foreseen or unforeseen). Under such a scheme, a group o f people who axe c lo s e ly associated w ith each other through occupation, blood or class t ie s, regu la rly save a p re-stip u la ted amount and each o f them receives a lump-sum amount, the tim ing o f the re c e ip t being decided by lo tte r y or by ro ta tio n. In In d ia, such a scheme is known as a chit fund". An adaptation o f such an inform al savings scheme could form the nucleus o f a savings system that might be developed at the le v e l o f the lo c a l housing finance in s titu tio n s. c. Indexation o f savings/income. In any savings scheme, whether o f a mandatory or a voluntary nature, i t is desirable to maintain the r e a l value o f the investment and the return on such investments. This o b je c tiv e can be attained through su itable indexation instruments which w i l l preserve the r e a l value o f the loan. d. Housing bearer bonds. I t is well-known that in In dia a la rg e proportion o f housing finance comes from the p a r a lle l economy. Various measures have been introduced from time to time to bring out the money, that is generated through unrecorded a c t iv it ie s in the economy. The bearer

179 bonds and c a p ita l investment bonds have been introduced in re c e i': '-ars to m obilise such unrecorded funds and bring them in to the mains cream of economic a c t iv it ie s. I t i s proposed th at, as the p a r a lle l economy plays a major r o le in the housing s e cto rf a housing bearer bond or a housing investment bond may be flo a te d and the proceeds may be deposited with the NHPC, As in the case o f the bearer bond scheme, no questions should be asked o f the depositor as to the source of his deposited funds. There should be no monetary c e ilin g on the purchase o f bonds and, as in the case o f c a p ita l investment bonds, the f u l l investment should be exempted from wealth tax and the income from i t should be exempt from the personal income-tax, without any lim it. scheme. F in a lly, the highly successful lo t te r y schemes o f the State governments and selected recognised organisations, could provide a model fo r a new housing lo tte r y scheme. The lo tte r y tic k e t maybe o f three denominations, say Rs 5, Rs 20 and Rs 100. Appropriate p riz e money and number o f p ri zes may be fix e d a fte r v.orking out the operation al lo g is t ic s. The amount o f p r iz e money should be adequate to meet a lo.rge proportio n o f the cost o f a moderate house (say, 60 per cent to 70 per c e n t). In order to ensure th at the t o t a l amount o f the p rize is invested in a house, i t should be fu lly exempt from income-tax i f invested in a house within one year of rcceip t o f the p riz e. The p rie e money should, however, be subject to the same tax treatment as applicable to p rize money in existin g lo tte r y schemes, i f i t is not invested in a house within the stip u lated time period.

180 On operational grounds, i t would be advisable to operate the housing lo tte ry scheme at the State le v e l. The proceeds should b^ uhen channelised to the region al housing finance in s titu tio n s operating within the State. There should, however, be no condition governing the lo catio n o f a house acquird through the lo tte r y p rize*

181 V I. POTENTIAL FOR ADDITIONAL RESOURCE MOBILISATION IN HOUSING 1 Iiitr o ducti on The fin a n c ia l flow s into the housing sector can be increased through both addition al flows o f e x is tin g savings in the economy and through m obilisation o f fresh savings. Thus, a rea llo c a tio n o f the e x is tin g le v e l o f m obilised savings can be e ffe c te d, with the p o s s ib ility o f i t s increased e ffic ie n c y. I t is f e l t that many fin a n c ia l in s titu tio n s such as the LIC, the GIC, the UTI and the providen t fund orga n isa tio n s, among others have surplus funds, esp ecia lly at certain periods, and they could be induced to d ire c t an increasing proportion o f th e ir in v e s tib le resources in to housing on a short-term or medium-term basis.. Fresh savings* which would be more import an would have to be m obilised from the p r i m a r y source, namely, the household sector and fis c a l instruments can play an important ro le in stim ulating th is flow o f savings.. P re fe re n tia l tax treatment o f investment in housing and o f income from housing would improve the net rate o f return, and these fa c to rs, together with the prospect o f owning one s own home, may provide the necessary impetus to saving and investment in housing. While some suggestions have been made on the appropriate f is c a l in cen tives that may be developed fo r th is purpose in Chapter V, the present chapter examines the resource m obilisation p o te n tia l of the housing sector, and id e n tifie s some o f the presently under-exploited avenues f o r resource m o b ilisa tio n and also some new sources.

182 2* In s titu tio n a l. Resources a. The insurance, sect o r, The insurance sector, comprising the L ife Insurance Corporation of In d ia (L ie ) and the General Insurance Corporation (G IC ), makes investment in housing not p rim arily fo r the purpose o f housing per se, The LIC is d irected to in vest 25 per cent o f the annual accretion to i t s cen tral funds in s o c ia lly -o rie n te d sectors lik e housing, e le c t r ific a t io n and water supply schemes o f m u n icip alities and other lo c a l "bodies, and the GIC is expected to s ta tu to rily in vest 35 per cent o f it s incremental funds in housing and development o f f i r e fig h tin g s e rv ic e s. Discussion with o f f ic ia ls in the LIC and the GIC have rev e a le d that they do not intend to in crea se, in any "big way, t h e ir investment in housing, becauso on the one hand, the return on such investment i s not a t t r a c t iv e and on the other hand they have to keep p rim arily the in te re s ts of the main b e n e ficia rie s / 23/ in vestors in mind. * 23/ There are two important reasons fo r the d is in c lin a tio n o f general fin a n c ia l in s titu tio n s lik e insurance companies and commercial banks to invest la rge amounts in housing. In the f i r s t p lace, the p o te n tia l rate of return in housing is not considered a ttra c tiv e as the housing sector is conventionally b elieved to require low -cost funds on long-term basis, whereas these in s titu tio n s can provide mainly short-term funds on a r e la t iv e ly higher rate o f in te re s t than what the housing sector is supposed to be able to a ffo rd. Secondly, the investment r is k in housing is considered to be on the high sid e fo r encouraging any la rg e -s c a le operations in view o f the absence of any f a c i l i t y to spread the investment ris k. I t is relevant here to point out the observation of the Reserve Bank o f India Working Group on '"Role of the Banking Sector in Providing Finance fo r the Housing Schemes" (1973). What i t has noted in respect o f the LIC is equally applicable to the GIC and the commercial banks (p. 44)% the "forem ost accou n tability is to it s p o licy-h o ld ers, whose in te re s ts need not n ecessa rily coincide with the requirements o f the solution to the housing problem in India. Further, the Working Group had stated that LIC s "investment in housing is in cid en ta l to i t s o v e ra ll investment p o lic y and i t s in te re s t rate p o lic y is attuned towards obtainin g a f a i r return on i t s investment and subserving the in t e r ests o f i t s p o lic y holders, which do not n ecessa rily coincide w ith those o f housing sector. Also, i t can ra is e it s share o f housing investment only by depriving funds to other s o c ia lly - orien ted schemes." I t needs to be, however, pointed out that except fo r financing s o c ia l housing schemes, the housing sector need not n ecessa rily be provided funds at uneconomic* rates o f in te r e s t. There are two d is tin c t groups o f p o te n tia l borrowers, the EWS (who may need some subsidy in in te re s t ra te s ) and the non EWS, who should be provided home loan at a rate of in te re s t consistent with it s cost to the fin a n c ia l in s titu tio n.

183 - 178 ~ However, in case housing could be granted an industry statu s*, i t was f e l t that both the LIC and the GIC g'.'oup could le g itim a te ly increase th e ir contributions in lin e with th e ir p o lic y o f financing * p r io r it y T sectors. At present, the annual contribution o f the LIC to housing is about 15 per cent to '{S per cent o f i t s t o t a l investments (Table A.V I.1). I f a new thrust can be generated by g ivin g appropriate p r io r ity to housing and by developing in s titu tio n s to reduce the ris k in housing sector investment, a la rg e r proportion o f LIC*s annual investment can be d ire c te d towards the housing, s e c to r. On the assumption that the annual rate o f growth o f the LICf s investment, in lin e with the past trend, would be at le a s t 12 per cent and fu rth er i f 25 per cent o f the LIC*s annual investment would be made in housing, the annual resources that the housing sector w ill obtain from the LIC would be in the region of Rs 2,900 crore. I f, however, a lower proportionate a llo ca tio n o f the LIC*s annual investment, say 20 per cent, were made in housing, the investment would amount tc about Rs 2,300 crore (T a b le V T.1). The GIC has invested, as on December 31, 1982, an amount o f Rs 35.7 crore in housing, which is 11.9 per cent o f i t s outstanding investment o f Rs crore. During the la s t two years, the annual investment in housing has increased from Rs 9.43 crore in to Rs crore in , the la t t e r being 24.1 per cent o f the to ta l GIC annual investment in that year. Assuming that the GIC in vests 35 per cent o f i t s incremental funds in housing, which i t is s ta tu to rily expected to do, the annual

184 - 179 TABLE V I. 1 LIC Proj e cted Flo\v of Insurance, Sector Investnient in to ^Housing (Jto crore) (a ctu a ls) a. T o ta l investment--/ b. Housing investm en t^ c. Housing investment GIC a. T o ta l investm ent-/ b. Housing investment-^/ Notes? 1/ P rojection s at an annual rate o f growth o f 12 per cent. 2/ Actual share in to t a l investment is 15.6 per cent, and p ro jection s are made at a share o f 20 per cent under b* and o f 25 per cent under *ot, 3/ P rojection s at an annual ra te o f growth o f 16 per cent. 4/ Actual share in is 24.1 per cent o f t o t a l incremental investment and th is proportion is taken at 35 per cent in the p rojection s fo r the subsequent yea rs.

185 investment at the present le v e l of operations would be ±ts - 5 c ro re. However, assuming th at the annual ra te o f growth o f i t s operations would be 16 p er cent (as i t was between and ) and also assuming that 35 per ccnt o f the accretion to the in v e s tib le funds would be inves*'ed in housing, the GICTs annual flow o f funds in to housi; g would be about Rs 20 crore (Tables V I. 1 and A.V I.2 ). Further, the range o f in v e s tib le s e c u ritie s in which the GIC is s ta tu to rily expected to in vest 30 per cent o f the accretion o f it s in v e s tib le funds may be expanded to include shares, debentures and deposits o f housing finance companies. I f th is is done, i t can then be expected that the to t a l annual investment o f the GIC in housing may be about Rs 30 cro re. b. UTI, IDBI and banks. The UTI does not in vest in housing as housing is not stip u lated as an area o f operation f o r the UTI and also because housing is not considered as an in d u stry. I f appropriate changes are made in the status o f housing and in the charter o f a c t iv it ie s fo r the UTI, a substantial proportion of i t s la rge in v e s tib le funds, estimated at Rs 1,000 crore in 198^-84, could be d irected towards th is sector. Even i f 15 per cent o f the UTI*s in v e s tib le resources can be earmarked fo r housing, the housing sector would receive annually about Rs 150 crore. S im ila rly, i f housing is given Tindustry* statu s, the IDBI might provide d ire c t financing to housing schemes o f in d u s tria l p ro jects to which i t may provide long-term industry loons, or finance in d ir e c tly such schemes through refin an cin g other in s titu tio n s that might provide housing finance to the p ro je c ts, -undertaken e ith e r by the company or i t s employees as a co-operative housing s o c ie ty. The burden o f providing in s titu tio n a l finance by sp ecia lised

186 - 181 ' -sing finance in s titu tio n s would be reduced to that extent. As at the end o f June 30, 1983? the IDBI had provided refinance assistance to the extent o f Rs 4,356.5 crore, the annual amount o f refinance being Rs 772 crore in 198i :-82 and Rs 1,084 crore in (an increase o f 40.3 per cen t). Even i f 10 per cent o f IDBI*s annual refinancing is earmarked fo r the housing component o f in d u stria l p ro je c ts, about Rs 110 crore would be a va ila b le annually fo r housing. S im ila rly, the NABARD may finance d ire c tly, or in d ir e c tly through refin an cin g housing prograjmies in the ru ra l sector. An i n i t i a l annual investment o f Rs 50 crore i s suggested f o r th is purpose. The commercial banking sector has been directed by the Reserve Bank o f In dia (RBI) in November, 1982, to ra is e it s annual a llo ca tio n to housing from Rs 100 crore (fix e d in 198*1) to Rs 150 crore which is, "about 0.5 per cent o f to ta l bank c re d it" and th is ta rg e t was to be achieved by the end o f The RBI d ire c tiv e to the commercial banks stipulated that Rs 65 crore should be in the nature o f d ire c t finance and granted to scheduled castes, scheduled trib e s and the EWS in d ivid u als and groups (Rs 30 cro re), the LIC (Rs 20 crore) and others (Rs 15 c ro re ). In d irect finance, to the extent o f Rs 85 crore, should be provided through the banking sector investment in guaranteed bonds and debentures o f the HUDCO, State housing boards, $tc. (Rs 75 crore ) and loan to the HDFC (Rs 10 c ro re). The RBI p o lic y has stip u lated a monetary c e ilin g o f Rs 50,000 per borrower to be imposed by the HDFC on homo loans through the funds that are a llo ca ted to i t, tand fu rth er that the home loan sh all not exceed 50 per cent o f the cost o f the house.

187 The actual amount sanctioned during the years 1981 to 1983, as can be seen from the RBI data (Table A#VI. J. ), are, however, much lower them the targeted a llo ca tio n s. I t is desirable not only to step up actual sanc^im s but, in the context o f the Seventh Plan, to also a llo c a te a la rg e r bank finance to housing. The inclusion o f I >using in the, industry* category and a stip u la tio n that at le a s t four per cent o f commercial bapk cre d it may be a llo ca ted to the housing sector, e ith e r through d ire c t or in d ire c t finan ce, would ra is e the annual resources from the banking s ecto r to about Rs 1,200 cro re. Thus, i t is estimated that the UTI, IDBI, NABARD and the commercial banks con annually provide about Rs 1500 crore to the housing sector, as against only Rs 150 crore provided at present by the commercial banks and no finance being provided by the IDBI, NABARD and the UTI. 3. Household Sayings a. Mandatory savings. Apart from budgetary transfers, household savings con be mobilised to finance developmental activ itie s through mandatory and voluntary savings schemes. While government transfers through the fis c a l system need not necessarily benefit individuals/households who have to forgo a part of their income, mandatory and voluntary savings schemes are expected to benefit them. In In d ia, th ere are three major kinds o f mandatory savings schemes: compulsory deposit scheme (CDS), provident fund scheme (PPS) and superannuation and g ra tu ity fund scheme (SGFS). While the CDS is r e s tr ic te d to in d ivid u als lia b le to pay the personal income ta x, the PFS and SGF8 are

188 183 - applicable to employees in the organised sector and they arc b a s ic a lly w elfare oriented schemes to provide secu rity to the in d ivid u al a fte r the end o f the normal "e a r n in g -life. In view o f the o b je c tiv e of the PFS and SG-FS to provida s o c ia l secu rity to the in d ivid u a l, i t is f e l t that poss.bly the most relevan t a c tiv ity in which these savings can >e invested may be housing. In terms o f secu rity to the in d ivid u a l, an investment in housing is u n iversally recognised as having the highest p r io r ity because i t provides a secured home when the income-generating capacity is lim ite d and there may be no access to "em ployer-supplied" accommodation. Further, in times o f in fla tio n, the re a l value o f investment in fin a n c ia l assets tends to be eroded in the absence o f any indexation scheme, but the rea l value o f investment in home property tends to r is e. The annual accretion to a l l provident funds (S tate provident fund, public provident fund and non-government provident funds) is estimated at Rs 1,298 crore in and i t is expected to be Rs 1,453 crore in ^ / (Table A.V I.4 ). to permit investment o f a annual I f the PFS investment p o lic y is amended s p e c ifie d proportion o f the net accretion in deposits/bonds with housing finance in s titu tio n s,.not only w ill the y ie ld to the PFS members improve, but the resource m obilisation e ffo r ts fo r housing w i l l receiv e substantial support. I f 30 per cent o f the annual PFS accumulations is so invested, the annual in v e s tib le resources in housing would be about Rs 435 rore as compared to aboutrrs 125 crore at presen t. 24/ The Task Force on Financing o f Urban Development, Planning Commission (1983) has under-estim ated the annual accumulatio n o f provident fund organisations at Rs 700 crore and i t s in v e s tib le surplus at Rs 600 crore.

189 ~ 18 4 The withdrawal o f P i Z -' unds fo r housing has been recen tly lib e r a lis e d to some extent so that provident fund members are able to withdraw th e ir PFS accumulation at an early stage in th e ir career and in vest them in housing. 25/ The jgdnomic and fin a n c ia l b en e fits that such investment w ill provide to PFS members w i l l be many times what can be c jriv e d at a subsequent point o f time on re c e ip t o f accumulated PFS savings. needs to be fu rth e r extended. The procoss o f lib e r a lis a tio n Another major source o f contractual savings that can be m obilised fo r housing is savings in superannuation and g ra tu ity funds. At present, the income tax ru les governing investment o f recognised superannuation and gratu ity funds do not permit investment in housing, xc is d esirab le, in order to improve the rate o f return on these funds and also to servb one o f th e ir basic purposes, that i s, to provide s o c ia l secu rity to the members, to include deposits/bonds w ith housing finance in s titu tio n s as an e lig ib le o u tlet fo r investment under Rules 85 and 101 o f the Income Tax Rules, Under the e x is tin g Payment o f G ratuity Act, 1972 no sp ecia l fund has to be separately created to meet the commitment, as under the provident fund laws. However, i t has been estim ated that 4 per cent o f the wages b i l l 25/ Under the Employees Providen t Fund Scheme, n o t if ie d under the Employees Provident Fund Act, 1952 (Para 68BB), a member i s now perm itted to withdraw from h is c o n tr i bution to repay home loans even i f he has not completed the minimum q u a lify in g period to a v a il o f th is b e n e fit. Further, such withdrawl can be used to repay home loans to the employer, the LIC, banks, State housing boards, housing finance s o c ie tie s and since re c e n tly, the HDFC also.

190 iu^- be set aside to meet the lik e ly l i a b i l i t y under the Act. I f 25 per cent o f the annual., accretion to a future gratu ity fund can be placed with housing finance in s titu tio n s on a long^tsrm basis, the net accretion o f resources fo r housing coul 1 be qu ite substantial. b. Voluntary savings. While accumulated household savings in provident funds and superannuation and gratu ity funds might be re a d ily a v a ila b le, subject to changes in investment p o lic y o f the resp ective funds, a s t i l l la rg e r volume o f savings can be m obilised d ir e c tly from the primary source o f o i l savings, namely, the household sector. The m ob ilisation o f such savings has to be on a voluntary basis. A two-pronged approach may be developed to tap such sa/ings: the o ffe r o f the prospect o f home ownership and an a ttra c tiv e rate o f return, the la t t e r by ra is in g the present le v e l o f in te re s t rates and also'b y providin g fis c a l in cen tives which would fu rth er increase the e ffe c t iv e y ie ld on savings. The annual gross savings o f the household sector in fin a n c ia l assets is estimated to be Rs 11,470 crore in 1982~83, including savings in the form o f currency, bank deposits, investments in corporate sector and in the UTI, claims on the government and in other miscellaneous forms (Tables A.V I.5 and A.V I.6), I f the ob ject is to rea llo c a te in to housing only a small proportion (say, 5 per c e n t):o f the savings held in the form o f currency and bank deposits, (which added upto Rs 8,666 crore in ), the annual investment flow in housing would be about Rs 430 crore and, i f we assume that 20 per cent o f such savings are already being u ltim a te ly in vested in housing, the net a ccretio n to

191 - 186 housing sector resourcec would be about Rs 350 crore. In e d i t i o n,. the number o f depositors can be expected to increase su b stan tially as more people reach the earnings threshold. A second issue re la te s to m obilisation o f savings in : on -fin an cial forms, such as, property, je w e lle ry, e tc. Even i f 3 per cent o f n on -fin an cial or physical assets (t o t a l estimated at Rs 8,304 crore in ) are converted in to fin a n c ia l savings, earmarked fo r housing, i t is estimated that an ad d ition al Rs 250 crore can be generated. Thus, the p o te n tia l to re a llo c a te fo r housing the e x is tin g le v e l o f household savings held in the form o f fin a n c ia l and physical assets, is estimated to be about Rs 600 crore (Table A. V I. 6 ). These savings could be expected to flow in to housing over a period o f tim e, say f iv e years, at a rate o f Rs 120 crore per onnum. A th ird issue r e la te s to the savings p o te n tia l o f households having on irre g u la r ond u n v e rifia b le income flow. In the absence o f any su itable saving instruments to tap such income flow s, these incomes are la r g e ly d issipated in consumption and a small proportion may be invested in n on -fin ancial assets. The housing finance in s titu tio n s, by o ffe r in g the prospect o f home ownership under a savings home-loan scheme, can su ccessfu lly m otivate a la rg e flow o f such p erio d ica lly-gen era ted savin gs.in to the organised fin a n c ia l assets sector. As a recent World Bank study (Renaud 1982) has pointed out, in d ivid u als w ith irre g u la r earnings "tend to have high marginal savings rates which are not c a p ita lize d upon by fin a n c ia l in s titu tio n s (p. 53).

192 187 - The above observation seems to be relevan t in In d ia as in mother developin g, low-incone cou n tries. The analysis in Chapter I I I, which indicated a high proportion o f self-gen erated funds employed in housing, provided im p lic it evidence on th is p o s s ib ilit y. Several sur-'eys undertaken by the HUDCO on it s p ro ject b e n e fic i a ries have also provided evidence that when proper savings schemes are available and the in cen tive o f home ownership is provided, then even low-income households are able to make substantial savings e ffo r ts. The p o lic y im plications o f such evidence are that the housing finance system should develop proper instruments which can f i t in with the income/savings flow o f individuals/households having irre g u la r and u n verifia b le income flow s, parti'-".- la r ly through economic a c t iv it ie s in the inform al sector. The development o f such savings instruments, together with the prospect o f home ownership in the fu tu re, would stim ulate the flow o f savings in to housing, and which would have be.on otherwise lo s t to the economy. The m obilisation o f such p o te n tia l, but otherwise untappable, savings, is another reason why there is a need to strengthen the organised housing finance market. I t would be d esirable, as a f i r s t step, to make an estimate o f such untapped and untappable p o te n tia l savings in the economy th at are being la r g e ly consumed at presen t. 4 The Corporate Secto r The corporate sector also generates substantial annual savings, estimated at Rs 879 crore in (Table A.VI. 6). In view o f the demand fo r housinggenerated by in d iv id u a ls employed and/or associated w ith

193 .-/^porate sector operations, i t is desirable that the corporate sector is encouraged to d iv ert a proportion of it s savings into housing. However, in view o f the general fe e lin g that the corporate sector savings are not adequate to meet i t s own growth needs, i t may be d esirabl to 'jrovide fo r 5 per cent o f the annual corporate sector savings to be directed towards housing. The annual accretion to in v e s tib le resources fo r housing w i l l be about Rs 50 cro re. The corporate sector can also in vest in housing through i t s own housing programme fo r s t a ff, through g ivin g home loans to s t a ff and through in vestin g in bonds and in fix e d deposit schenes o f housing finance in s titu tion s. Appropriate fis c a l in cen tives would stim ulate the volu n tary flo w o f corporate funds in to housing. F in a lly, i t would be desirable to examine ways and means to use a part o f the la rge resources o f public and p riv a te charitable tru sts fo r housing. I t has been recen tly estimated (Srinivasan, 1983) that p rivate ch aritable tru sts have accumulated funds o f Rs 500 crore and that public ch aritable tru sts and re lig io u s tru sts may also have accumulated fund o f at le a s t Rs 1,000 crore 5. Some Estimates on Resource M ob ilisation P o te n tia l The foregoin g analysis has id e n tifie d some sources o f addition al finances fo r housing and estimates on the annual addition al resource m obilisation p o te n tia l o f these sources are presented in Table V I. 2.

194 TABLE VI 2 Addition a l Resou r c e ^ P o te n tia l fo r Kousing ( Rs crore). LIC 1, GIC UTI IDBI NABRD Banks 1, Providen t fund organ isation s Household savings a. Financial assets 70 b. P h ysica l assets Corporate sector*-^ 50 TOTAL-2/ " " 3,060 Notes; i_/ A d d itio n a l resources can be raobilised through. taxation and stim ulation o f expenditure in housing through provision o f fis c a l in cen tives, 2/ In addition to these, there is a p o s s ib ility household savings that are now being consumed or are untappable, and of savings kept in charitable tru sts and superannuation and gra tu ity funds. The m obilisation o f these savings would have to be undertaken through e x is tin g and new saving instruments.

195 - 190 ~ I t has "been estimated that the LIC, the GIC, the ii'i Tp the IDBI, NABARD and the commercial banks can provide annually an addition al amotmt o f Rs 2,580 crore to housing, the provident fund organisations Rs 310 crore, the corporate sector Rs 50 crore and the household sector Rs ;20 crore. Thus, i t has "been estimated that addition al annual resource m obilisation fo r housing from id e n tifie d sources would be about Rs 3,060 crore. Apart from th is id e n tifie d p o te n tia l fo r addition al resources fo r housing, the HUDCO and the HDFC would be able to m obilise funds from the in tern a tion a l c a p ita l market, the domestic c a p ita l market and the household sector d ir e c tly. P rovision has not been made fo r the resources that can be m obilised fo r housing from charitable tru sts and superannuation and g ra tu ity funds and the new savings from the household sector that are presently la r g e ly consumed and/or unaccounted in the n a tio n a l accounts. The t o t a l annual flow o f in s titu tio n a l finan ces, in housing, given the appropriate in s titu tio n a l development, would thus increase from around Rs 600 crore to around Rs 3,500 crore, i. e., more than a f iv e - f o ld increase.

196 V II. CONCLUSIONS 1 Introciu c ti on The n ation al plan programmes in India have focussed atten tion on the removal o f poverty by attempting to ra ise the proportion o f population above some 'sp ecified poverty lin e 7, through employment-generating a ctiviu x es. P a rtly fo r th is reason, the flow of funds in to the s o c ia l consumption sector has not been to the extent that amy have been d esirable. The t o t a l investment in housing, fo r example, during the f i r s t s ix 'fiv e year plans adds ugto Rs 11,400 crore, or 14.3 per cent o f the t o t a l plan investment. As a proportion o f to t a l plan investment, the investment in housing is targeted at 7.5 per cent in the Sixth Plan as against 34.2 per cent in the F irs t Plan. The annual investment in housing is estimated to be around 1.5 per cent o f the GDP, as against tiie UN ta rget o f 5 per cen t, The lack o f fin a n c ia l resources has become a cru cia l constraint on housing a c tiv ity in the country. The Working Group on P riv a te Housing (Mukhoxjee Group, 1981), Government o f In d ia, had th ere fo re, emphasised the need to strengthen the organised housing finance system in the country. From the point o f view o f the ordinary in d ivid u a l, the major con strain t, in fa c t, is the nona v a ila b ilit y o f adequate finances. Other constraints, lik e the sca rcity o f land and bu ilding m aterials,are no le s s severe, whether the prospective house-owner builds h is own house or acquires one in a co-operative society ' or from a public or p riva te sector builder/ agency.

197 I t is, however, not just the lack o f fin a n c ia l resources that is the rea l.problem but the absence o f any g ra s s -ro o ts -le v e l in s titu tio n a l system that would m obilise the exis tin g houbehold savings in the e< onomy fo r in v e s t ment in housing, stim ulate a s h ift from consumption to savings fo r investment in housing, provide in s titu tio n a l fin a n c ia l interm ediation cn a mass basis, and encourage in d ivid u als to in vest in housing at an early stage i th eir earning l i f e. I t is s ig n ific a n t to note that a few yeeii's ago there hardly existed any semblance o f an organised housing finance system in the country and, even today, i t is f e l t that the in s titu tio n a lly -m o b ilis e d fin a n c ia l flow s in to housing make only a token contribution. The approach o f the Seventh Plan to the housing sector would, t? e re fo re, have to be directed towards the development o f an appropriate housing finance system and aim at mass-scale m obilisation o f fin a n c ia l resources fo r housing. The Muk.La.rjee Group had recommended several measures to promote housing a c tiv ity in the country, including the grant o f fis c a l in cen tives to m obilise savings fo r investment in housing and the strengthening and/or creation of new in s titu tio n s. The Central Council o f State M in isters fo r Housing subsequently urged the Central government to adopt the major recommendations o f the Mukharjee Group, but fo r a considerable period o f tim e, no progress was made in th is d ire c tio n. Subsequently, "In pursuance o f the recommendations (o f the Mukharjee Group) the M in istry has entrusted a study o f housing finance to the N ational In s titu te o f Public Finance and P o lic y (M in is try o f Works and Housing, Annual Report , page 5-6.) The present Report

198 has been prepared.' in pursuance o f the assignment given by thp M in is try o f Works and Housing (MWH). fo r the study. The MWH had s p e c ifie d the fo llo w in g ob jectives i. i i. i i i. iv. v. v i. Examination o f the lacunae in the exis tin g system of financing o f housing; Analysis o f the existin g c a p ita l market in housing; Recommendation o f methods fo r improving the flo w o f resources in to the housing s e c to r; Examination o f the m odalities fo r s e ttin g up a sp ecia lised fin a n c ia l in s titu tio n ; Study o f the scope f o r s e ttin g up decentralis e d fin a n c ia l in term ediaries, such as savings and loans association s, to promote ad d ition al savings; and Examination o f the p o s s ib ilit y o f introducing mortgage insurance in the housing s e c to r. The empiijcal work on the resource m obilisation e ffo r ts o f home owners is r e s tr ic te d to the urban housing sector as per discussions between the o f f ic ia ls o f the MWH and the NIPFP. I t was f e l t that the fin a n c ia l needs o f the ru ral sector, the methods o f assessment fo r fin a n c ia l assistance, and o f the disbursement and monitoring mechanism fo r ru ral housing finance would have to be d iffe r e n t from those fo r urban housing end cannot be dealt w ith in th is study, given the constraints o f time end resources.

199 Resource M obilipat ion E ffo rts o f Home.Owners In order to obtain first-h a n d inform ation on the pattern o f resource m obilisation o f horre om ers in the country and o f.th e major problems they encounter in m ob ilisin g resources, a housing finance survey o f home owners was conducted in fiv e urban agglomerates, namely, D elhi, Lucknow, Cuttack, Arabala and Quilon. The surveys covered 720 houses having a to t a l covered area o f 5.89 lakh s q. f t., and b u ilt at an estimated cost o f Rs 477 lakh. About one-sixth o f the surveyed houses were constructed in the inform al housing sector and included slum and squatter settlem ents, unauthorised permanent structures and constructions on n on -resid en tia l and public lands. The average ooverea area o f a house va ries from town to town and there are d ifferen ces w ithin a town in the s ize o f a house in the formal and the inform al housing sectors. D elhi, a formal sector house is four times la r g e r than an inform al sector house and in Lucknow i t is 2.6 times la rg e r but in r e la t iv e ly poor and le s s urbanised places, the d ifferen ces are not su bstan tial. One reason fo r th is s it ation may be that the resp ective d ifferen ces in the incomes o f households in the formal and the inform al housing sectors, is le s s g la rin g in the towns than in c it io s and m etropolises. In The occupancy r a tio fo r the survey towns works out to 5.9 persons per unit in the formal housing sector and 5.7 persons per unit in the inform al housing sector, almost id e n tic a l to the a ll-in d ia r a tio o f 5.7 persons, as per the 1981 Census. From the point o f view o f housing p o lic y, an even more important aspect is the average l i v i n g space per res id e n t. The survey data show th at in

200 the formal housing sector a resident has over three times the liv in g space than -a resident in the inform al sector. This is gen erally true in the c it ie s but in a town lik e Cuttack, perhaps rep resen tative o f housing in a low-income underdeveloped town, the d iffe r e n c e s are* however, m arginal. The data that were obtained on the age pattern o f new home owners in the survey towns bring out c le a riy that home ownership commences at a f a ir ly la te age, the average age o f the new home owner surveyed being around 40 years. Less than 1 per cent o f the home, owners who were surveyed were below the age o f 25 years, about tw o -fifth were in the age bracket years and t h r e e - fift h o f the home owners were above 40 years o f age. The average cost o f a house is su b stan tially higher in the formal housing sector (Rs 77,610?) than in the inform al housing sector (Rs 11,100). More important than the to ta l cost o f a house is the cost per s q. f t. ; in the formal housing sector, the cost varies su b stan tially from Rs c 9 per s q.ft. in Delhi to Rs 63 in some o f the sm aller towns and in the inform al sector i t ranges from Rs 63 in Delhi to as low as Rs 1C in Cuttack and Quilon, The empirical), evidence on the pattern o f resource m obilisation of home owners in the selected to m s brings out c le a rly the s ig n ific a n t r o le o f the inform al housing finance market, both in the formal housing sector and the inform al housing sector, providing fo u r - fift h and n in e- tenth o f the to t a l resources, re s p e c tiv e ly, required fo r acquiring a house. The ro le o f th e extended fa m ililie s is very cru cial in the resource m obilisation e ffo r ts o f home owners. Among the other su p p liers ox housing finan ce

201 ~ 196 in the inform al housing finance market are frien d s and indigenous money-lenders. The formal housing finance market makes a small contribution, esp e c ia lly in the inform al housing bector and in small and r e la t iv e ly less urban lo ca tio n s. The access to sp ecia lised housing finance in s titu tio n is n e g lig ib le and the main fin a n c ia l interm ediation comes from the insurance companies and employment-linked suppliers o f funds, such as provj^ent fund organ isation s and the employers o f the home owners. The employer provides mainly short-term and medium-term loans and the support from the employer depends la rg e ly on in d ivid u al employee-employer rela tion sh ip. Finan cial support from the insurance companies is obtained on the basis o f l i f e insurance p o lic ie s and from the commercial banks mainly in the form o f general-purpose loans. The provident fund organisations provide loons fo r housing and often, a part o f withdrawals fo r general purposes are also used to finance a house acqu isition a c t iv it y. This scenario i s, thus, sim ila r to that found in many developing countries. The sp ecia lised housing finance in s titu tio n s lik e the HDFC and the co-operative housing finance s o c ie tie s which provide home loons, do not make a substantial impact on the housing finance market in the survey towns. The em pirical evidence, thus, brings out the high ly underdeveloped state o f the housing finance system in the country. In fa c t, i t is seen from the disaggregated data that in d ividuals and households in the lower income brackets and also r e la t iv e ly young in age and resident in small and le s s urban towns, face greater hardships in m obilisin g resources fo r housing than those who have some access to in s t it u t io n a l support. The data also show that

202 such, people undertake housing a c tiv ity at a la te r stage of tv ~ ir career than those in the higher income groups and c ity dw ellers who have access to some form of in s titu tio n a l support. The need fo r a developed system o f in s titu tio n a l financing fo r housing is also strengthened by the em pirical fin d in g that a home owner requires about three tinu,o his gross annual income to acquire a house. I f we assume that a home owner is able to save about 20 per cent o f his annual income to be subsequently invested in a house, the period o f savings would have to extend to at le a s t 15 years fo r the accumulation o f the re q u is ite resources, assuming that there is no cost escalation during the period o f savings. Disaggregated data on the le v e l o f household income and the investment needs o f home owners fu rth er h ig h lig h t the seriousness of the problem because the period o f savings would be longer at the lower income le v e ls due to the low er marginal propensity to save. The survey on housing finance also brought out some of the reasons f o r the u n d d o v & e v e l o p e d nature o f t h e housing finance system and i t s in a c c e s s ib ility to the masses. In the f i r s t place, adequate inform ation about the a v a ila b ilit y of fin a n c ia l interm ediation is not a v a ila b le, esp e c ia lly in the small towns. Secondly, many o f the home owners are unable to f u l f i l the stringent e l i g i b i l i t y norms required by con ven tion ally-orien ted fin a n c ia l interm ediatio n. T h ird ly, the complexity and time-consuming procedures in volved in obtaining in s titu tio n a l fin a n c ia l support deter many home owners. The higher : income in d ivid u als often f e e l i t not worth th e ir time and e ffo r t tc go in fo r in s titu tio n a l assistance in view o f the

203 monetary c e ilin g s imposed on" amount o f home loan, w h ile the V jw income in d ivid u al is often found in e lig ib le to get a loan. In some cases, i t was f e l t that the rate o f in te re s t was _ on the high sid e. F in a lly, problems o f providing appropriate s e c u ritie s and guarantees make i t op eration ally d iffic u lt fo r a large proportion o f the home owners to seek in s titu tio n a l fin a n c ia l support. 3?ke,Jfodi m Housing Finance Market The Indian housing finance market has two d is tin c t, and quite -unconnected sectors, namely, the formal housing finance market and the inform al housing fin an ce market. The formal sector includes organised in s titu tio n a l fin a n c ia l agencies and the inform al sector covers a l l unorganised and n o n -in stitu tio n a l suppliers o f finance. The la t t e r, in the absence o f a w e ll developed in s titu tio n a l set up, has become the main catalyst o f housing sector a c t iv it ie s. Indigenous money lenders and bankers ( i. e., who deal in hundis) are an important component o f the inform al finance market in India. They suppj./ mainly short-term and medium-term c re d it, which may often develop, in e ffe c t, in to a long-term involvement. The s a lie n t operational ch a ra cteristics o f th is cred it market are; easy a c c e s s ib ility, quick p ro cessin g, fle x ib le c o lla te r a l, unequal bargaining power, high ra te o f in te r e s t, excellen t monitoring system and good recovery record. The n otion al ra te o f in te re s t may range from 15 per cent to 36 per cent, but the e ffe c t iv e rate may be higher, depending on the period o f am ortisation, in view o f the p ra ctice o f deducting the f u l l in te re s t charges at the time o f disbursement. Apart from the indigenous money lenders

204 199 and bankers, the inform al housing finance market includes extended fam ily members, r e la tiv e s, business associates and employers. The formal housing finance market includes general fin a n c ia l in stitu tion s/organ isation s (GFI) lik e the LIC, the GI.C and the provident fund organisations and sp ecia lised housing finance in s titu tio n s (SHPI) lx^e the HUDCO, the HDFC, State housing boards and co-operative housing finance s o c ie tie s, The GFI p a rtic ip a te in housing finance a c t iv it ie s eith er because some proportion o f th e ir funds have to be invested in s p e c ific p r io r ity sectors, which include housing, or to p a rtly meet the housing finance needs o f th e ir employees, m em bers,beneficiaries and associates. The main o b je c tiv e o f th e ir investment p o lic y is to safeguard the savings o f th eir members and to earn a reasonable rate o f return on these savings. The SHPI, however, provide finances fo r housing e ith e r d ire c tly to xiome owners or to in s titu tio n s which implement a housing programme or p rovide home loans to in d iv id u a te. As in s titu tio n a l interm ediation in housing has several advantages, including stim ulation o f household savings, there is a need to strengthen the in s titu tio n a l framework fo r housing fin a n ce. I t is, however, desirable to understand the major inadequacies and weaknesses in the exis tin g system o f fin a n c ia l interm ediation in housing. These inadequacies can be c la s s ifie d broadly under two categories?

205 , In s titu tio n a l inadequacies, stemming from the terms o f cred it, which are inherent in eny conventional fin a n cin g system; a. Adequate income le v e l fo r e l i g i b i l i t y fo r Ioann b. Regulai and v e r ifia b le flow of income; and c. Acceptable c o lla te r a l. 2. Operational inadequacies o f an underdeveloped housing fin an ce system, which can be traced to the follo w in g fa c to rs : a. Loan amount linked to income o f home owner and minimum contribution of home owner subject to monetary c e ilin g on loan amount; b. Large i n i t i a l contribution o f home owners c. Home-loan to home-cost r a t io ; d. Low standard am ortisation schedule? e. Computation o f M I without taking into account p o te n tia l income le v e ls o f the borrower; f. High rate o f in t e r e s t 5 g. Complicated procedures; and h. Ir r a tio n a l a ffo r d a b ility _ n t e r ia fo r low income Housing programme. The lim ita tio n s id e n tifie d above could be removed through a package programme which would, in t e r - a lia ; i. Develop, strengthen and extend the housing finance system through provision o f support services to spread ris k and increase liq u id it y ; i i. Develop in n o va tive and non-conventional approaches, operational norms and d elivery mechanisms to provide housing finance services to h ith erto "n o n -e lig ib le segments o f home-loan-seeking popu lation; and

206 * 201 i i i. Develop savings and resource m obilisation instruments and mechanisms to channelise a growing proportion o f n ation al savings into housing soctor a c t iv it ie s, and yet minimise the risk s o f lenders an5 depositors. In short, th erefo re, what is required is the creation o f new in s titu tio n s that w ill m obilise savings fo r housing ana g ive home loans to in d ivid u a ls, w e ll as spread ris k of home-loan o rig in a to rs. The development o f a sp ecia lised in s titu tio n a l framework would also help in bringing about a closer in tera ctio n between the c a p ita l market and the housing s e c to r. 4. A N ation al Housing Finance System A n ation al housing finance system should, th e re fo re, have the fo llo w in g functions; i. i i. i i i. To m obilise, on an in s titu tio n a l basis, an increasing volume o f household savings (through p rovision of a ttra c tiv e savings schemes), so that a la rg e r proportion o f nation al income, than at present, is d irected towards the n ation al savings e ffo r ts, ojtic*. t growing proportion o f the increased volume o f savings flow s as investments in to.th e housing s e c to r5 To m obilise n ation al resources through the n ation al capita l market (th e p riv a te corporate sector and the public secto r) and from domestic contractual savings organisa~ tions and the in tern a tion a l c a p ita l market To attain a more e ffic ie n t a llo ca tio n of funds and, in p a rtic u la r, a rea llo c a tio n o f funds from surplus areas to d e f i c i t areas; iv. To attain a c l o s e r in tera c tio n between the formal and the inform al housing finance markets

207 v. To develop an«d strengthen the primary m ortgage-originating market so that it s services may spread to h ith erto underserviced/unserviced sectors, and y e t i t rnuy maintain it s v ia b ilit y f and v i, To attain a greater v e lo c ity o f circu la tio n o f a va ila b le fin a n c ia l resources within ttu housing sector, through refinancing' operations. A p re -re q u is ite fo r a v ia b le housing f ia n c e system is the development o f on in s titu tio n a l structure spanning the en tire country. As public resources through e x is tin g fin a n c ia l in s titu tio n s are lim ite d, i t is necessary that the system should be b u ilt through an expanding number o f in s titu tio n s at the region a l and lo c a l le v e l that m obilise resources s p e c ific a lly fo r housing, d ir e c tly from households. An in s titu tio n a l set-up which depends unduly on government a llo ca tio n s tends to rap id ly lo se i t s dynamism and f l e x i b i l i t y. In the f i r s t p lace, a n a tio n a l-le v e l in s titu tio n should be established to promote and b u ild independent lo c a l in s titu tio n s. The lo c a l in s titu tio n s would gradually have to develop the d e liv e ry sys= era o f housing finance to a l l groups o f people in the country and spread th e ir operations p ro gressively to low-income and other le s s credit-w orthy b e n e fic ia r ie s. The process o f in s titu tio n a l development, th e re fo re, has n ecessa rily to have a long-term p ersp ective. However, a short-term p ersp ective in the context o f the impending Seventh Plan would be o f immediate im portance. The v ia b ilit y o f any housing finance system has to be ensured and w i l l depend not only on i t s capacity to m obilise household savings at region a l le v e ls and to

208 provide home loans, but also on the a v a ila b ility o f support f a c i l i t i e s to home loan origin ato rs to spread t h e ir r is k and to have an access to some form o f refin a n cing. At the same tim e, i t is essent'.al to establish a forum which would contribute towards developing appropriate housing and housing finan ce p o lic ie s, A th r e e -tie r system is proposed, apart ^om some support f a c i l i t i e s, to develop a healthy and via b le housing finan ce system. i. i i. i i i. Housing Advisory Board (HAB) N ation al Housing Finance Corporation (NHFC) Housing Savings and Loan Banks (HSLB). In view o f the d iffic u lt ie s that are lik e ly to a ris e when region a l in s titu tio n s have to maintain a continuous rela tion sh ip with a n a tio n a l-le v e l in s titu tio n, i t would be desirable to have a S ta te -le v e l co-ordinating agency, which w i l l represent the in te re s ts o f lo c a l in s titu tio n s w ithin the State. In the care o f Union T e r r ito r ie s, a sin gle co-ordinating agency may be set-up. However, a fe a r is expressed in some quarters that a S ta te -le v e l in s titu tio n may introduce bureaucratic p r a c tic e s, which may hamper the development o f independent housing finance in s titu tio n s at the lo c a l le v e l. The exact form o f co-ordination between the lo c a l in s titu tio n s and the nation al in s titu tio n is a d e ta il which would have to be worked out c a r e fu lly.

209 204 *"* 5 * Support In s titu tio n s In order to develop the housing finance system in to a wide-based r e a lit y, certain measures are needed to be taken up simultaneously to maintain the economic and fin a n c ia l v ia b ilit y and independence of the lo c a l housing finance in s titu tio n s. Several suggestions have been made from time to time regarding mortgage insurance and a secondary mortgage market in the housing unance sector. The primary function o f mortgage insurance is to spread ris k so that m ortgage-originating in s titu tio n s are encouraged to take ris k against defau lt and extend th e ir operations to sm all,under-developed, and,, h ith e rto, unserviced areas, and to low-incoine in d ividuals who may not be e lig ib le to receiv e in s titu tio n a l support in terms o f conventional norms. Mortgage insurance provides a p ro te c tiv e umbrella to maintain the v ia b ilit y of the m ortgage-origin atin g in s titu tio n s when they attempt to widen the scope o f t h e ir op eration s. An a lte rn a tiv e to mortgage insurance can be a, system which fa c ilit a t e s the sale of mortgaged property. At present, foreclosu re o f mortgages under the Indian le g a l system is time-consuming and complicated, often in volvin g le g a l tangles extending upto ten years. S im p lific a tio n o f foreclosu re procedures and quick ju d ic ia l decisions may be a more p ra c tic a l approach than a system o f mortgage insurance. However, in a country where e v ic tio n of unauthorised squatters can become a hot p o lit ic a l issue and that o f tenants almost im possible, i t is feared that e v ic tio n o f le g a l* home owners from t h e ir own houses, in case o f d e fa u lt, may not

210 205 - be a p ra c tic a l proposition even i f the foreclosu re system is ra tio n a lis e d. I t, th erefo re, seems that introduction ct mortgage insurance into t h. 3 housing finance system is important. The main issue that arises is whether the function should be undertaken by a new in s titu tio n or by an existing, in s titu tio n. In order to r e s t r ic t operational cost and to enable' thr services to be immediately a v a ila b le, there is some m erit in not s e ttin g uj* a new mortgage insurance In s titu tio n. The QIC, -with i t s proven exp ertise, capability and operation al network a l l over the country, can be entrusted with the task o f providing an insurance cover to m ortgage-originating in s titu tio n s. While mortgage insurance would spread ris k o f the m ortgage-originating in s titu tio n s, there would s t i l l remain the problem o f increasing th e ir liq u id it y, as no resource m obilisation scheme would provide a l l the resources required fo r the f u l l loan-am ortization period. The need fo r some form o f refin ancing mechanism to strengthen a v ia b le housing finance system is c le a r. The main function o f a secondary mortgage market in s titu tio n is to increase the liq u id it y o f the primary m ortgage-origin atin g in s titu tio n s. The primary in s titu tions would s e ll th e ir mortgages, p a r tia lly or w holly, in the secondary mortgage market. In tern ation al experience, however, shows that in jnany countries with an organised housing finance system and also a developed mortgage insurance system, a secondary mortgage market in s titu tio n has not been introduced, mainly because the refin ancing function fo r the primary m ortgage-originating sector is performed by e x is tin g fin a n c ia l in s titu tio n s.

211 In In d ia, i t is too early to introduce a sp ecia lised secondary mortgage in s titu tio n fo r the fo llo w in g reasons; ( i ) The annual a c tiv ity of organised primary niortgage*h>riginating sector is small, p re s e n tly estimated, at around Rs 100 cro re; ( i i ) Substantial! funds are' a va ila b le with many e x is tin g in s titu tio n s fo r p ossible investment in the primary mortgage o rig in a tin g sector, e.g., LIC, GIC, Provident Funds, UTI, etc.? ( i i i ) Cnee housing is given the status o f an in d u stry, the IDBI may refinance housing loans in the urban sector and the NABARD may refinance housing loans in the ru ra l sector 5 and ( i v ) With the s e ttin g up o f a NHFC, some degree o f refin an cin g support would be a v a ila b le. An important issue that has to be considered in the context o f a secondary mortgage market and a refin an cin g mechanism to the primary mortgage market, is the treatment o f mortgage paper. In order to give to the mortgage paper a degree o f liq u id it y, i t may be desirable to accord to i t the same le g a l status as is p re s en tly granted to shares, debentures and bonds. Such a p ra c tic e would allow fo r contractual savings to be d iverted in to the refin an cin g o f the primary m ortgage-originating sector. Two points need to be in dicated. In the f i r s t p lace, i t may be desirable fo r primary m ortgage-originating in s titu tio n s to maintain the mortgage paper fo r at le a s t a s p e c ifie d proportion of the am ortisation period (say, one-fourth or on e-th ird ). Secondary, contractual savings in s titu tio n s lik e the provident fund and g ra tu ity fund may be perm itted to buy the mortgage paper in the same way as government s e c u r it ie s.

212 207 I t would be desirable to also develop a system that w ill f a c ilit a t e m ultiple mortgages, that is, a home owner can mortgage the same property to two or three c^'an ised -sector fin a n c ia l in s titu tio n s. As each in s titu tion would desire to have the f i r s t claim on the mortgaged property in case of d efa u lt, the mortgage insurance mechanism would have to be adopted to insure the propertylin k ed loan amount to fu lly cover equally the risk of each of the in s titu tio n a l agencies. A lte rn a tiv e ly, the consortium approach to home loan operations may be considered. 7. Ma,jor Stimulants^ to M o b ilise Resources f o r Housing Even i f long-term in s titu tio n a l finances are made a vaila b le to a, p o te n tia l home owner at a reasonable and afford able rate o f in te re s t, some supplementary measures may be needed to induce him to approach fin a n c ia l in s titu tion s, take a home loan and acquire a house. At the same time, given the resources constraint in a developing economy and the la rg e p o te n tia l demand fo r housing loans, i t would be necessary to have some contribution by the home owner in the financing of his house. Household savings have to be generated also to provide resources to the housing finance system. The bulk o f household savings in the country today is m obilised in n on -fin on cial forms. The prospect o f home ownership might stim ulate the tra n sfe r o f nonfin a n c ia l savings assets in to fin a n c ia l savings assets. To a ctivate th is tra n sfer process and to allow also fo r some rea llo c a tio n o f the existin g le v e l o f fin a n c ia l savings, sp ecial fin a n c ia l savings instruments would have to be- developed.

213 208 - The tax system can play an important r o le in stim ulating investment in housing, p rin c ip a lly by perm itting deductions in computation ox personal income tax base and income tax l i a b i l i t y, and granting p re fe re n tia l tax tr e a t ment to income fron investment in housing. Thus, in te re s t paid on home loons, lo c a l taxes lik e property tax, charges lik e ground rent and depreciation on ren ta l property are deductible, while ren ta l income, in te re s t income from d eposits, and debentures and dividend income on ^uity share investment in housing finance in s titu tio n s.get p re fe re n tia l tax treatment,- The fo llo w in g f is c a l in cen tives are proposed at the home owners* and in s titu tio n a l le v e l; i. Housing investment allowance f o r home owners 5 i i. i i i. Depreciation allowance on non-rental property fo r home owners^ and Scope o f Section 80L o f Income Tax Act, 1961, to be extended by providing a separate monetary c e ilin g o f Rs 2,000 fo r income from investments in housing finance in s titu tio n s over and above the Rs 7,000 now a v a ila b le fo r income from investments in s p e c ifie d monetary assets. In addition to providin g f is c a l stim ulants, i t is necessary to ra tio n a lis e rent con trol and urban land c e ilin g le g is la t io n s to stim ulate investment in housing. While f is c a l in cen tives may contribute to improving the rate o f return on investments in housing and with housing finance in s titu tio n s, appropriate savings and resource m ob ilisation instruments would have to be developed to make a vaila b le fin a n c ia l assets fo r m obilisation o f household savings.

214 The fo llo w in g savings instruments and schemes are proposed! i. Contractual loan-linked savings schemes 5 i i. Inform al s e cto r small -savings schemes 5 i i i. Indexation o f savings a r l income' schemes; i v. Housing bearer bonds5 and v. Housing lo tte r y scheme. 8. P o te n tia l fo r Addition al Resource Mobilisat-! fo r Housing I t has been estimated that about Rs 3,060 crore o f ad d ition al resources can be m obilised annually from e x is tin g fin a n c ia l in s titu tio n s and the household and corporate savings in the economy fo r investment in housing. Thus, the LIG, the GIC, the UTI, the IDBI, the NABARD and the commercial banks can provide annually an addition al amount o f Rs 2,580 crore to housing, the provident fund organisations Rs 310 crore, the corporate sector Rs 50 crore and the household sector Rs 120 crore. Apart from these id e n tifie d p o te n tia l fo r addition al resources fo r housing, the HUDCO and the HDFC would be able to m obilise funds from the in tern a tion a l c a p ita l market, the domestic cap ita l market and the household sector d ir e c tly. P ro v is io n has not been made fo r the resources th at can be ^ m obilised fo r housing from ch aritable tru sts and superannuation and g ra tu ity funds and the new savings from the household sector that are now la r g e ly consumed and/or unaccounted in the nation al accounts. The t o t a l annual flow o f in s titu tio n a l finances in housing, given the appropriate in s titu tio n a l development, would thus increase more than f iv e tim esf from around Rs 600 crore to around Rs 3,500 c ro re.

215 Annexure I SELECT BIBLIOGRAPHY 1. Bannister, 'J.BT, (1971). Urban Development and Housing the Urban P'-'or % Tbe Cage o f In d ia, World Bank, Washington,' D.C,', ( Mimeo) 2. B oleat, M., ( 1.982), Housing Finance; An In te rn a tio n a l Study, "The W ild in g 'Societies Assoc iai'ioh','"' London, ( Mimeo) 3. Brady, E.A., (1982). A lte r n a tiv e Mortgage Instruments f o r Developing C oun tries. 4. Cana-da Mortgage and Housing Corporation, (1 979* Financing Housing in Canada, Canada Mortgage and Ho'u s ing Corpor'at ion' '(Mimeo ). 5. Carroh, A. S., (1 983) 9 The Rescue o f the T h r ift Indu stry, The Brookings In s titu tio n, Washington, D.O (1 982 The P lig h t o f the T h ir ft In s titu tions'! Tho Brookings' In s titu tio n, Washington, D.C. 7. C h ristia n, J.W., (1980), Housing Finance fo r Developing Countries, In tern ation al Union' o Building Soc ie iie s and Savings Associations, Chicago. 8. C hurchill, A,A., e t. a l., (1980), S h elter, World Bank, Washington, D.C. 9. Cohen, D. and F r e ie r, R., (1980), The Federal Home Loan Bank System, Federal Home Loan Bank, Washington, D.C. 10. Congress o f the United S tates, Congressional Budget O ffic e, (1983), Federal Subsidies fo r Public Housing Issues and Options, C.B.O., Washington, D.C. 11. ( ), The Tax Treatment o f.home Ownership : Issues' and Options? C.B.Q~ Washington, D.C. 12. r (T977)» Real Estate Tax Shelter Subsidies and D irect Subsidy A lte r n a tives, C. B.0. s Washington, D.C. 13. Congressional Research S ervice, lib r a r y o f Congress, (1 983). Housing - A Reader, U.S. Governemct, Washington.

216 t 14. Dholakia, B.H., (1902). The Economics o f Housing in In d ia, nation al Buildings Organisations, New Delhi, Economic Commission f o r Asia and the Far East, (1973)? Financing of Housing and Urban Development in Asia".and the Far E ast,' United N rtio n s, New York. 16. Federal Home loan Bank Board,..(1982). The Secondary Mortgage Market, FHLBB, Washingi^r, D.C. 17. Federal Home loan Mortgage Corporation, (1983). The Secondary Market in R e s id e n tia l Mortgages, ra rcr;..t f e i n g to n r T O -: Goodman, R.J.B., (1980). Savings and Loan A ssociatio n Taxation? H istory, Issues and A lte rn a tiv e s, F e d e r a l"horn- "Loan Bank' Board, Washington, D Gupta, D.B., (1982), Some Aspects o f Urban Housing in Ind ia., J fo r ld Bank, Washington" ( Mimeo). 20. Her M ajesty's Station ery O ffic e, (1977). Housing P o lic y Technical Volumes, P arts I, I I and I I I, HMSO, U.K. 21. Kaplan, D.M., (1977)9 A lte rn a tiv e Mortgage Instruments Research Study, Volumes I, I I and I I I, Federal Home Loan Bank Board, Washington, D.C. 22. Khurana, M.L. and Sisupalan, P., (1981). A Study o f D istrib u tion o f Loans Among Various Income Groups Provided by Apex C o-operative Housing F inane e Soc ie t ie s, Na t ional C o-operat iv e Housing F ederation, New D elh i. 23. L a l l, V.D. s (1982). Some Aspects o f Economics o f Housing in In d ia,' National'1Inst itu te o f Public Finance and P o lic y, New D elhi. ( Mimeo). 24. L eigh, W,A., (1983). The Housing Finance System and Federal P o lic y ; Recent Changes and Options fo r the Future, Congress ^f the U.S., Congressional Budget O ffic e, Washington, D.C. 25. Maclennan, D., (1982). Housing Economics, Longman inc. New York. 26. Mayo-, S.K., et. a l., <1983). Housing Demand in Developing Countries, World Bank, Washington (Mimeo).

217 ~ Melton, C.R., (1980), Saving and Lending for Home Ownership, Internati'onal Union o f Building Socieiies and Savings Associations, Chicago ( 197 8)V Ho u s ing F in a no e a n d H- me Ownership: Public Pol icy In itia tives- in Selected Countries, International Union ~f Building Societies and Savings Assoc iations, Chicago. 29. Ministry of Works and Housing, Government of India, (1981), Report of the Working Group on Private Housing, (Chairman; Mu.kha.rjiV H.K.j, Few Delhi. 30. _ (1978), Report of the Co-operative House Building S o c ieties Enquiry Committee, (Chairman: l «u r, B.N. ), ( Mime.o).~ 31. Mortgage C red it A sso cia tio n, Dermar.k, (1981), Mortgage F ina nc ing: A va llabl ' Typ es of Mortgage C red i t, M.C.A., Copenhagen. 32. Munjee, N.M., (1982). P ro file on Housing', Artha- Ji.jnasa, Economic Research and Training Foundation, Bombay. 33. Organisation of American States, (1974). Contractual Savings in Latin America : A Case Study of Colombia, Peru and Venezuela, O.A.S., Washington, D.C. 34. Planning Commission, Government of India, (1983), Reports of Task Forces on Housing and Urban Development, Parts I-IV, (Mimeo). I I I I I IV PI/nnlng o f Urban Development, (Chairmans MitraV Asoko) F in a nc _in of Urban Dev el op men t, (Chairman? Chelliah, Raja );'.Management o f Urban Development, (Chairman: Sivaramakrishnan, K.C.), ( Mimeo). Shelter for, the Urban.P.-.pr and,.slum.improvement, (Chairman: Meneges, L.M.), New Delhi 35. R eai.kreditradet, (1 982). Mortgage Financing in Denmark, Copenhagen.

218 Renaud, B. (1982), Housing and F in an cia l In s titu tio n s in Developing C ou n tries, World Bank, Washington, D.C. 37. Reeerve Bank o f m d ia, (1978). Finance f~~r Housing Schemes, Report, o f the Working Group oh Role o f the Banking System, (Chairman; Shah, R.C. ) T)TD T H -. ^ u j X 9 j-/ j m 38. Srinivasan K, (1983), Tax Treatment o f P r iv a te T ru sts, National In s titu te o f public Finance and p o lic y, New Delhi. 39. St-^w, R. s (1979). Mortgage Finance, in the 1980s. The Building S o cieties Association, London, (Mimeo) U.S. Government (1982), The Report o f the P resid e n t's Cofflmission on Housing,( dhafrmnat McKenna, W illiam, f /) Wasnmgton, D.C. 41. United Nations, (1978), Non-Co, >, ^ I Financing o f Housing for Low-Income Households, United Nations, New York. 42. (1975), N on-profit Housing A ssociation s, United Nations, New York. 43. United Nations Centre f o r Human Settlem ents (H a b ita t), (1982), Survey o f Slum and Squatter Setti.emerrts., Tyoooly International Publishing L t d., Dublin. '1-4. United States Agency fo r In te rn a tio n a l Development, (1 981 ). Proceed ing a o f Ah tan Conference on Low Income Shelter and. Housing Finance, Government Housing Bank of Thailand, Bangkok. 45. World Bank, (1982), The P h ilip p in e s Housing Finance, World Bank, Washington, D.C. 46. (1975), Housing Sector P o lic y Paper; World Bank, Washington, D.tf. A 7. Yen, S.H.K. and Laquian, A.A.,( ). Housing A s ia 's M illio n s, In te rn a tio n a l Development Research C entre, Ottawa.

219 Armerare I I L is t o f in d ivid u a ls/ In sti tut i ons with, whom discus_sions_ were held A. Government o f In d ia 1. Dr. A.M, Khusro, Member, Planning Commission, New D elhi. 2. Mr. Louis M. Menezes, Joint Secretary (Urban Development), M in istry o f Works and Housing, New D elhi. 3. Mr. I.K, Choudhary, Joint SecretaryfHousing- and Human S ettlem en t), M in istry o f Works and'' Housing, New D elh i. 4. Mr. Naresh Narad, D irecto ' T *" g and Human S ettlem en ts), M inistry o f Works and Housing, New D elhi. 5. Mr. G,C> Mathur, D irecto r, N ational Buildings O rganisation, M in istry o f Works and Housing, New D elhi. 6. Dr. J.N. Mongia, Joint D irecto r, N ational Buildings Organisation, M inistry o f Works and Housing, New D elh i. 7. Mr. Edgar F.N. R ib eiro, Chief Planner to Government o f In d ia, Town & Country Planning O rganisation, M in istry o f Works and Housing, New D elhi. 8. Mr. M ihir K. M oitra, Joint Secretary, Sarkaria Commission (form erly? D irector Housing, M inistry o f Works and Housing), New D elh i. B. State Governments 9. Mr. S,S«Tin aikar, Secretary Housing and Special A ssistance Department, Government o f Maharashtra, Bombay. 0..Mr, P*S.A«Sundaram, Vice-Chairman, Maharashtra Housing and Area Development Authority^Bombay(formerlys D irector, Urban Development, M inistry of Works and Housing, Government o f In d ia ),

220 Mr. R,B. P^thak, Special Secretary HousingsGovernment o f K era la, Trivandrum. 12. Mr. K. Thomas Poulose, Housing Commissionor and S ecretary, K erala S tate Housing Board, Trivandrum 13. Mr. D. Ravi, Secretary, Greater Cochin Development. A u th ority, Co chin. 14. Mr. G.D, Panickar, Chief Planner, Government o f K era la, Trivandrum. 15. Mr. S. Parameswaran N a ir, M unicipal Commissioner, Quilon, 16. Mr. C. Ramachcaidran, Secretary Housing, Government of.tam il Nadu, Madras. 17. lit. H,M# Singh, Vice-Chairman, Madras M etropolitan Development A u th o rity, Madras. 18. Mrs. May George, Chief Engi-^w-, ' i ^ i l Nadu Housing Board, Madras. 19. Mr. S. Kumaresan, Superintendent Engineer, Tamil- Nadu Housing Board, Madras. 20. Mr. A. Ravindra, Secretary, Housing and Urban Development, Government o f Karnataka, Bangalore, 21. Miss Sujatha, Deputy Secretary, Housing and Urban Development, Government o f Karnataka, Bangalore. 22. Mr. J. Vasudevan, Housing Commissioner, Karnataka State Housing Board, Bangalore. 23. Mr. P.V.B hatt, Secretary Housing, Government o f G ujarat, Ahmedabad. 24. Mr, B.P, Meena, D irector (Housing), Government o f Gu j a ra t, Ahme dab ad. 25. Mr. Vakharia, Housing Commissioner, Gujarat State Housing Board, Ahmedabad 26,. Mr. A.T* Doshi, Housing Commissioner, Gujarat Rural Housing Board. 27. Mr. R an jit Issa r, Chief Adm inistrator, Haryana Housing Board, Chandigarh. 28. Mr. R.M, Senapathi, Secretary Housing and Urban Development, Government o f O rissa, Bhubaneshwar. 29. Mr. Khurana, Vice-Chairman, Cuttack Development A u th ority, Cutt ack

221 Mr. Sven Sandstrom, C h ief, Urban and Water Supply D ivisio n, South Asia P ro jects Department, The World Bank, Washington, D.C. 48. Mr. Bertrand Renaud, Urban Development Department, The World Bank, Washington, D.C. 49. Dr. Rakesh Mohan, The World Bank, Washington D.C. 50. Mr. W. Ronald Haynie, Federal Home Loan Mortgage C orporation, Washington D.C. 51. Dr. Dennis E. Gale, Associate.Professor,Urban Planning George Washington U n iv e r s ity, Washington, D.C. 52. Mr. Steven P. D oeh ler,v ice P resid en t,mortgage Insurance Companies o f America, Washington, D.C. 53. Mr. P h ilip Michael Gary, Assistant D irector fo r Asia, O ffic e o f Housing, USAID, Bangkok, Thailand. 54. Mr. Viviann G, Pettersson, Regional Housing and Urban Development O ffic e, USAID,Bank ok* Thailand. 55. Mr. John T u c illo, C h ief, Economic Advisor, N ational Savings and Loan Leaque, Washington D*C. 56. Mr. James Goodman, Urban In s t it u t e, Washington D.C. 57. Mr. Larry Ozanne, Congressional Budget O ffic e, USA, Washington D.C. ' 58. Mr. Donald A. Gardner, Vice P residen t, National Savings and Loan League, Washington, D.C. 59. Dr. W illi- D ie te r Osterbrauck, P resid en t, Internatio n a l Union o f Building S o c ieties and Savings A ssociation, Koln, West Germany. 60. Mr. Jin Ho Kim, Managing D ire c to r, The Korea Housing Bank, So 1, Korea. ; 61. Mr. An-Jae Kim, Associate P ro fe s s o rt "Department o f Urban and Regional Planning, Seoul National U n iversity, S eou ll, Korea. 62. Mr. Owen X. Smith, Managing D irecto r, Jamaica Mortgage Bank, Kingston, Jamaica. 63. Mr. Sean Walsh. A ssistan t D ire c to r. O ffoce o f Housing,... USAID, Washington, D.C. 7 ' Others *! 64. Dr. Debendra Gupta, P rofessor, In s titu te o f Economic Growth, D elh i. 65. Mr. Michael. Slingsby, Tamil Nadu Anna U n iversity, Centre f o r Human Settlem ent, Madras. 66. Mr. Laurie Baker, Trivandrum.

222 Mr. N.P, P an igrah i, A ssistan t Planner, D irectorate o f Torn Planning, Government o f O rissa, Bhubaneshwar. 31. Mr. R*S* Mathur, Housing Commissioner, Housing Development Board, Lucknow. 32. Mr. Kalyan Biswas, S ecretary, In d u s tr ia l Reconstruction Department, (Form erly:" Calcutta M etropolitan Development A u th o rity), C alcutta. C. Financial. In stitu tio n s 33. Mr, H.U, B ijla n i, Chairman and Managing D irector, HUDCO, New D elh i. 34. Mr. Mulkh R aj, F in a n cia l A d viser, HUDCO, New D elhi. 35. Mr, H,T, Parekh, Chairman, HDFC L t d., Bombay. 36. Mr. Deepak Parekh,"Managing D irector, HDFC L td., Bombay, Mr.. S.T. Venkatachalam, F in a n cia l A d viser, HD3?C Ltd. 1 ^NeW '.Delhi, Mr, N assir Munjee, Economist, HDFC L td., Bombay. 39. Dr. C. Rangarajan, Deputy Governor, Reserve Bank o f In d ia, Bombay. 40. Mr, R.C. Modi, C hief O ffic e r, RBI, Bombay. 41. Mr. S,G. Subramaniam, Managing D irecto r, L ife Insurance Corporation, Bombay (form erlysexecutive D irector Investments, L IC ). 42. Mr,. G,C. Pat e l, Chairman, Unit Trust o f In d ia, Bombay. 43. Mr, M,J. Pherwani, General Manager, General Insurance Corporation o f In dia (p resen tly: Chairman, U TI), D, In tern ation al ^encie.s 44, Mr, Stephen Mayo, Water Supply and Urban Development Department', The World Bank, Washington D»C. 45, Mr, Inder K, Sud, Chief, Urban and Water Supply D ivisio n, East Asia and P a c ific Region, The World Bank, Washington D.C. 46, Mr, Janes W right, South Asia D ivisio n, Urban P r o je c ts Department, The World Bank, Washington,D.C,

223 Mr. K r it e e Shah, Ahmedabad Study Action Group, Ahmedabad. 6'<3. Dr. Maker, Managing D ire c to r, Maker Constructions P riv a te Lim ited, Bombay. 6'9. Mr. K.M, Goenka, D irecto r, Conwood Construction Co. P vt. L td., Bombay. 70. Mr. A. Rahman, ACME construction Co. P vt. L td., Calcutta Mr. Arvind Shah, P artn er, M/s M ayfair Housing, Bombay Mr. Hasmukh Shah, M/s Hasmukh Shah, Real Estate D evelopers, Ahmedabad. 73. Mr. K.M, T a la ti, Manager, The Gujarat State C o-operative Housing Finance S o ciety L td., Ahmedabad. 74. Mr. S.D, Deshmukh Parwekar, Chairman, The Maharashtra Co-op. Housing Finance S ociety L td., Bombay Dr. M.P. Mahajan, Economist, The Maharashtra Co-op. Housing Finance Society Ltd. Bombay. 7 C. Mr. U.V, Unnikrishna Panikkar, Managing D ire c to r, K erala State Housing Federation L td., Cochin. 77. Mr. T.V. Ramachandrau,Director, Deptt. o f Economic Analysis and P o lic y, Reserve Bank o f In dia, New Delhi 73. Mr. Jaganathan, Manager, Tamil Nadu Cooperative Housing Finance S ociety L td., Madras Mr. Sanat Kaul, Managing D ire c to r, Delhi C ooperative Housing Finance S ociety L td., D elh i. 80. Mr. Thomas Abraham, Partner, M/s Southern Investm ents, Madras.

224 219 - A N H EXURE III S T A T I S T I C A L T A B L E S

225 TABLE A Period of Rrs-8- ' y' ' ' on Resale of Leasehold Land Resale restrictio n period (Number of ye ars) Delhi T oun Luc know T ot al CiT (2) (3) TOTAL

226 TABLE A ria.jor Reasons for Renting Out Houses in Selected Towns T own Re as ons Add it ional Repayment Recovery of Pay me nt Others inoome of loan invest ment of taxes Y es >. No Yes Wo Y es N o Yes No V es' No V ) (2) (3) (4) (5) (6) (?) (8) (9) (10) 1. D elhi _ * Lucknow Cutt ack Qu il on Ambala TOTAL Note: The number of respondents giving the various answers are more than that the number of those owners who rented out th eir houses (72) because of multiple reasons given by respondents.

227 - 224 ~ TABLE A -II I. 5 Ma.ior Reasons for Rentinq Out in Spit c of Rent Control Legislations (Number o f f a s pendents) Delhi Lucknou A'mbal a T at al (i) (2) (3) (4) 1. Capital appreciation 9 (11.39) 6 (12.24) - 15 (1 1.63) 2. Safe investment 25 (31.65) 15 (30.61) 1 (100.00) 41 (31.78) 3. Status value 36 (45.57) 9 (1 8.37) - 45 (34.88) 4. U n o fficia l rental income Pugr i/advance Any other rfeason 9 (11.39) 19 (38.78) 28 (21.71) T OT AL 79 (100.00) > 49 (100.00) 1 (100.00) 129 (100.00) Note; Figures in parentheses arc the per cent to to ta l.

228 T A B L E A - I I I. 8 Type o f H g u a ln a a to c k o f H<m» Oune r * I n 0 1 f f r «n t I n c o» G roups I n S e le c t e d Touna ( N u m b e r ) I n c o w a c r o u c s ( f c ) : Q a l h i L u c k n o w " C u t t a c k - u i l o n n n b a l a ~ 3 a l h l L u c k n o u. C y t * o c k j u l l o n m i b ' p l a T y p e o f F o r m a l I n f o ' r ' i i 3 F o r m a l I n f o r m a l F o r m a l I n f o r m a l f o r ^ a i. l n f o r n a i F o m a l ^ o r. - i d i i n f o r m a l K o n d I n f o r m a l f o n a l I n f o r m a l F o r - i a l l n r o f» a l T o r - ; 1 c o n s t r u c t i o n s e c t o r s e c t o r s a c t o r s e c t o r s e c t o r s e c t o r s e c t o r s e c t o r s e c t o r s e c t o r s e c t c r s e c t o r s e c t o r s e c t c r s e c t o r s e c t o r s e c t o r s e c t c r (ij 1 2 ) " (3) U i ' " ts) '" Ls'j 17) IB) C9 J (10) tnj C12J CT3 J 11AJ H S) H6J U 7J tltt 1 P u c c a ( 1» 2 3 ) ( ) ( ) ( ) ( )»w* CO M ( ) ( ) 2 * S a «i - p u c c a ( ) ( ) ( ) ( ) ( ) ( ) ( 3 «8 5 ) ( ) ( ) ( ) ( 3 3 * 3 3 ) ( ) ( ) ( ) ( ) ( ) ( «] ( ) ( ) ( ) ( 1 1 * 5 4 ) ( ) ( ) ( ) ( 3 * 8 5 ) * _ e - - ( 3 * K u t c h a ( 2 2 * 6 4 ) ( ) ( 1 S r l O ) ( 1 1 * 3 2 ) 4 * H u t ( 2 4 * 4 9 ) ( ) * ( ) ( ) ( ) 5. S» * i - p e r n a - 1 * _ ' n» n t i r, i c - ( ) ( 2 2 * 8 5 ) ( ) ( ) ( ) t v '» ( ) - ( 5 * 6 6 ) - ( ) - ( 1 d M ) * ( ) - ( 4 * 0 9 ) ( ) ( 2 * 0 4 ) - ( ) m 4 ( ) - ( ) ( ) - ( ) ( ) - ( 3 #. 2 7 ; 6. f l a t * 7 s 2 3 ( ) ( 5 * «3 ) - ( ) (so.o o ) m - < ) ( ) ( ) - ( ) m «m - 7 * B u n g a l o w ( ) ( ) * - ( ) ( S ) ( 4 * 5 4 ) ( ) / m 2 3 ( ) ( ) ( 2 9 * 4 1 ) ( 2 * 4 9 ) ( 5 * 8 8 ) ( ) ( 8 * 8 2 ) ( ) m ( ! T o t a l ( l u o o f 1 t o 3 ( ) ( ) ( 1 # 3 4 ) ( 1 4 * 5 1 ) ( 2. * 1 8 ) ( ) ( 3, 6 9 ) ( 1 1 * 2 9 ) o r 4 t o 7 ) ( 1 * 0 1 ) ( 9 * 0 6 ) ( 2 4 # 1 9 ) ( ) ( ) ( ) ( ) ( ) ( ) ( N o t e : ^iqures in p a r * n t h e * l«at* p«rc«n t to to ta l* ( Contd )

229 228 1 * P u c e a «' o r m a l T n K» «</. s a c. t o r _ s!33tnrli _ CuU^s.K F o r «. ; _ l -2».i.L ZliJi 1- i f f i :.Liil T A B L E A -III.e C o n t d * Income groups ( h ) C 00Q t u -. t a c K - m i l o n " H b a l a. O a l h l l u c k n o w C. j t t ^ c ^. Fo rm a l In f o r m a l Fo rm a l Fo rm a l F o rm a l F o rm a l F o rm a l 3fSt9, s a c t c r 127) 1 26 J s e c t o r AZIZ s e c to r s e c t o r. u i ), ^26t aegi-iacaoo. Oalhl g'-n r.." Fo r jf»al Mar raa i l F o rm o i F o rw a l r 8fCU u?t. ua a ea c tto o r 2 -g.c_ t3.r_ m m n r -t s w «IQQOOQ Delhi (? r» f o r m a l I n t e r a s t at;ir?rsir 8 4 « * ( ) ( 1 0 * 2 5 ) ( ) ( ) ( ) ( 1. 5 B ) ( 2» «o ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( l ) ( l * S a a d - p u c c a 3 * K u t c h a ( S ) (icc.oc)i^:^x ; 4. H u t S * S * r f l i» p r r - n o n t s t ; t a r * (ioo.oox ioo.cn (too.ooxloo'uo 6. F l a t s 1? (? : / 27 * ( 0 * 7 0 ) ( 2 * 8 2 ) - ( 0» 7 0 ) ( ), ( X V* B u n g a l: 71 (IS * " 2 f l > ( V I r * ) ( ? { ) ( S. 8 8 ) ( ) ( 3 * 6 3 ) ( ) ( V 3 6 ) ( ) ( 4 «3 l ) ( 0.22) ( 0.22) ( )(ic o.o r ;)(i!:o - o c l o t a l ( s u m o f 1 t ^ 3 o r 4 t o 7 ) B (, * ^ 0 ) ( ) ( ) ( ) ( 1, 6 l ) ( 1, S l ) ( ) ( ) ( 1 ^ 6 8 ) ( 0 ^ 5 0 ) ( 3 ^ 1 9 ) ( ) ( O. i? ) ( ) ( o i l? ) ( O O? ) ( 1 O o! o o ) ( l

230 TABLE A Annu al Expend it u r e n 5 r:r vicing of Hous inq Loan and Hous inq St oc k (Rs *000} Tiun s lze Responde nts Seru ic ing of loans Annual expenditure Phys ic al T axes L e as e maintenance charhouse of ges T ot al (2) (3) (4) (5); _ (6) (7).. 1. Delhi Lucknow Cuttack Quilon B. Ambala TOTAL Note: \J Excludes slum and squattered settlement components in informal housing sector.

231 - 230 f a n *. *. A P a t t e r n a n d S t r u c t u r e o f H o u s i n g F l n a n c * o f H o n e O u n a r * I n t h e F o r e a l «d I n f o r m a l H o u a l n o S a c t o r I n O e l h l F o r m a l s e c t o r 1. K o, J i \ P e r c e n t I n f o r n a i s «= S 2. d * l _ V ^ P e r c e n t L i J ' L l ) \ ( U i I n f o r m s ^. c t o r ( b J P e r c e n t V ( S J. l i ) f t i i t P e r c e n t. L 7 J, - I. F o r a a l H o u s i n o F i n a n c * " a T J s e t 4 9 * * O O , 8 7 S o e c i a l i s e d h o u s i n o f i n a n c e >i n s t i t u t i o n * , , H O F C «3 5 0 * * S t a t e h o u a i n g b o a r d. \ 1 * 3 2 p * * C o o p e r a t i v e h o u s i n g f i n a n e a / b u i l d i n g s o c i e t i e s 2 * \ > 2 8 ' * 1 2 b. O t h e r f i n a n c i a l i n s t i t u t i o n * > * L I C » P * * B a n k s \ 2 * * 1 2 \ V * 2 4-7, c * O t h e r s *1, * 1 8 T P r o v i d e n t f o n d * E m p l o y e r 1 2 * 9 0, , , 4, * O t h e r s , , I I. I n f o r e a l H o u s i n n F i n a n c e M a r k e t \, , ' 9 6, a. i e l f - o e n e r a t e d $ , « , S ' » C e e h * S o \ , B a n k d e p o s i t s , * S a v i n g s d u r i n g c o n s t r u c t i o n 1 « * O t h s r s - r » % * 0 1 b. 0 4 s p o s a l o f 1 4 * , , S h a r e s > 2 5 i * * e u e l l e r y * , 2 5 * * * L a n d e n d b u i l d i n g ' r 7 * * * A g r i c u l t u r e ( S o p e r t y 2 * * 0 1 U U 3 S m 2. 8 S , O t h e r s , * 6 7 C i. 2 5 c * &. t t F J u L 3 a u c a i Z « * R s l a t i v e e 2 4 * * * * * F r i e n d e S * * I n d i g e n o u s b a n k e r s > * 6 9 _ 0 * * O t h e r s # * T o t e l *. * 2 5 B * No t a i l 1 * F i g u r a s i n p a r e n t h e e i e & * n u m b e r o f h o m e o w n e r * i n e a c h c a t e g o r y * 2 * ' i n c l u d e * p e r a e n e n t b u t u n a u t h o r i s e d h o u s i n g u n i t s a n d ' B * i n c l u d e * s l u n a n d s q u a t t e r e d s e t t l e a n n t a *

232 X f c B L K A - X H. 1 1 P a t t e r n a n d S t m c t n a o f l t e u, l n n F i n a n c e o W o r n O t p c r a A n D i f f e r e n t I n c o m e G r o u p s i n P a l h i I. ftonnal Housing Finance Martet «. Saeciglised housing finance Institutions b. 1. H D F C 2. S t a t e h o u s i n g b o a r d 3. Qxjperatiw housing finance/building societies ether financial Institutions 1. UC 2. B a n k s O t h e r s 2. E c p l o y e r 3. O t h e r s 1. Provident fm d a _ i ^ A b o v e I b t a l ( 8 4 ) ( 8 8 ) ( 3 2 ) ( 1 9 J " T I T ' " ( ) P e r c e n t P e r c e n t P e r c e n t P e r c e n t P e r c e n t P e r c e n t P e r c e n t 1 1 } ( 2 7 ( 3 ) 1 4 ) ( S ) ( 6 ) ( 7 ) ( 8 ) ) ) l l 2 ) m r T l 4 T >. _ _ mm * X I. I n f o r m a l H o u s i n g F i n a n c e M a r i e t 1. fcsh 2. B o n k d e p o s i t s 3. S a v i n g s d u r i n g c o n s t r u c t i o n 4. O t h e r s b. D i s p o s a l o r a s s e t s U S h a r e s 2.. J e w e l l e r y 3. L a n d a n d b u i l d i n g 4. A g r i c u l t u r e p c b p e r t y. 5. O t h e r s * U _ ' _ m m « ? > * * i i * R e l a t i v e s 2. F r i e n d s 3. I n d i g e n o u s b a n k e r s 4. O t h e r s T b t a l m mm» mm Notei -Figures In parenthesis are ntnbsr o f boos otners In each category.