Government should radically change housing finance in India
- Banks in India only consider the buyer when it comes to housing loans
- They do not consider the value of the property
- The US model of housing finance is better suited for India
- The country needs longer mortgages and lower down payments
Estimates of unsold flats and houses across India range widely and maybe in millions. Yet, a great number of people are still left without decent affordable housing.
At the same time, while the government has a plan of 'Housing for all' by 2020 -- in NCR Delhi, Noida, Gurgaon, Faridabad and elsewhere, there will easily be a million unsold flats.
In India, banks and financial institutions have housing finance schemes. But these schemes depend on the income and age of the applicant.
If you are above 60 and retired, you cannot avail of these schemes. If you have a job and age on your side, then usually there will be a loan plan, which will not exceed 7 years. Banks make the loan plans based on how much money you earn.
Banks in India do not take into account any factor except your age and actual income. At the most, they factor in any rental income, which the property might earn.
In effect, it is totally unimaginative and archaic because the rest of the developed world, particularly North America has a different take on property buying and housing economy.
Housing finance in developed economies
Income, age and other usual factors are taken into account before giving a loan to buy a house. But the critical factor is the value of the property in question and its value over time. Assessment will be made of the future value and the potential length of life of the property.
In India, banks give maximum importance to the potential lifespan and value of the loan-seeker. In contrast, in the USA, more importance is given to the potential life and value of the property.
That is why you have 25-30 year mortgages in the USA, whereby a purchaser can make a down-payment and pay the rest in instalments over 30 years.
The laws of seizure of houses are very strict if instalments are not paid. No endless stays are given by courts. A seizure is swift if the buyer fails to meet instalments.
Once seized, the property passes onto the creditor who can freely sell it to anyone else.
In short, there is a housing market abroad like a market for any other goods. We have in India an excellent used-car market. Cars are bought and sold freely. The same system prevails in the USA for housing. That is why the US economy depends greatly on the housing economy .
Ease of buying property
You can locate a house in the US easily and arrange for a loan within a few days. You must have the minimum requirements for getting any loan. But the most important aspect is the life and value of the targeted property.
On the other hand In India, the loan quantum is based more on the buyer and less on the property. Furthermore in India, the down-payment is very high.
Governments in India have not addressed the issue of housing finance.
When there are millions of empty new flats in every corner and an equal number of people who want housing, there has to be a change. Government should simply change the way housing finance is treated.
There should be new laws and policies which will allow the target property to be the central basis of loan assessment and not the age of the person.
Our banks place great emphasis on the 'guarantor'. In the USA, the guarantor is the property itself and its value and prospects.
The government should allow immediate seizure of houses and other laws which facilitate the growth of the housing market in India.
Right now, if you ask any professional, whether he wants to buy a house or even a second house, he will say -- "Yes! But if there are 30-year mortgages or at least significantly more than the present seven-year limit."
Usually, self-employed people are denied loans in India. Banks never consider the property but only the potential buyer. This is one area where all our governments have been asleep.
We hear a lot of the US-trained RBI Governor Raghuram Rajan. The Chief Economic Adviser and the NITI Aayog Vice Chairman are all USA-based experts. Yet, they have never addressed the development of the housing market and longer and easier mortgages for housing .
If there were 25 year-30 year mortgages, most of the millions of empty houses will be sold.
People will go for second houses rather than keep money in low-yield savings accounts.
Economy and employment will pick up and bad debts will fall as banks will no longer be stuck with loans given to developers.
The government only talks about FDI while most Indians dream of their own houses. Unless major reforms come in the housing sector, dreams will remain dreams and millions of houses will remain without no buyers.