Budget 2013-14: Need for long term funding in housing sector

By Sandeep Wirkhare

Director
Vastu Housing Finance Corporation Ltd
The housing finance industry has come a long way in India and today it can boast of being one of the most professional segments with fair degree of technology usage, process standardization, optimal cost to customers relating the lending rates to that of better rated corporates. We believe after initial pre FY 2000 consumer loan cycle the second wave 2001 – 2010 clearly focused on above parameters resulting into better services at affordable cost to the customers in metro and mini metro towns. The impact is yet to percolate to tier 2 and tier 3 towns.
The budgets in the last decade focused mostly on regulating the demand and supply side of housing finance by interest subvention / tax deduction, allocation for rural housing, regulatory framework for securitization, long term capital through ECB, mortgage guarantee, reverse mortgage etc.
To take due care and catalyze the growth to be all inclusive, we feel following broad issues need to be addressed for next cycle of growth in present decade:
1. Availability of housing finance to unexplored customer segments in smaller towns at affordable cost.
2. Ensuring support to smaller Housing Finance Companies for better geographical penetration and specialized products.
3. Availability of long term capital to the housing finance institutions more specifically focused on such geographies and customer segments.
To achieve above we believe following measures may be useful for long term growth of housing finance industry.
1. ECB for HFCs: Given the need for specialized participants in housing finance focused on smaller towns and unexplored customer segments the norm of Rs 300 crore net owned funds may be brought down to Rs 100 crore (paid up capital may remain at Rs 50 crore as per circular dated December 17, 2012). This will ensure long term resources and affordable cost for mid level HFCs more focused on the target customer segments. Support to large number of players is also a need from a perspective of investment requirement for affordable housing at Rs 8.5 lac crores in 12th Five-Year plan.
2. Rental Housing: Given an extremely large deficit in housing units, current prices in urban centers and need for housing for ever urbanizing population it looks pertinent to channelize policy to ensure housing to mid income segment by recognizing this investment as important social infra and provide tax concession on rental income upto Rs 10,000/- per month and allow capital gains tax exemptions for investment in additional unit for rental purpose. 
3. Corporatization of rental housing: Apart from incentivizing individuals entry of corporates either in form of employers or otherwise will also help solve housing deficit problem in unban centers. This may be achieved by changes in taxation concept of attaching perquisite value in case corporate owned residential unit is rented to employee and additionally appropriate statutes enabling new set of corporate enterprises exclusively for rental purpose including hire purchase for transfer of properties after certain period.  This will not only channelize investments but will also ensure higher transactions resulting into higher revenue for the government. 
4. Increase in Deduction Limit on interest payment u/s 24 (a) of IT Act 1961: Interest exemption limit of Rs 1.5 lac is being continued for last 10 years which either basis indexation or basis priority sector classification of housing loan the limit may be increased to Rs 3 lac. This may be a boost to mid income affordable housing.
5. Provident and Pension funds as a source of long term capital: Housing Finance Companies, notwithstanding the role they can play, are currently starved of long term capital to fund their long term asset portfolio. Enabling securitization laws coupled with entry of long term capital resources like PF and pension funds through bond market may be a step in right direction for the housing needs of next decade.   
With steps above the revenue expectation may only increase with increase in large number of transaction and will also help shape up direction for the industry for the next decade.