Annual Report 2000-2001

The Housing Finance Scenario: 2000-2001

3.1.1 The housing finance disbursements by the primary lending institutions continued to witness significant growth during the year 2000-2001. The housing finance companies (HFCs) approved by NHB for its refinance assistance disbursed a sum of Rs. 12626.45 crores during the year as compared to Rs. 9812.03 crores disbursed during the previous year registering a growth of 28.68%. These approved HFCs account for nearly 98% of the housing loans disbursed by all the HFCs. The disbursement by these companies has witnessed an average growth rate of 28.5% over the last four year period.

3.1.2 The scheduled commercial banks are required to lend a minimum of 3% of their incremental deposits during the previous year towards the housing sector either directly or indirectly. The banks have been exceeding this allocation. The housing finance allocation for the year 1999-2000 for the banks was Rs.3051.52 crore whereas the banks registered a disbursement figure of Rs. 9911.35 crore during the same period. The allocation subsequently increased to Rs.3409.95 crore for 2000-01 which was also achieved with a huge margin as the disbursement by the banks during the year 2000-01 stood at Rs.9787.24 crore.

3.1.3 The third category of housing finance institutions is the apex cooperative housing federations (ACHFS). At present, there are 26 apex cooperative housing federations at the State level, which meet the financial requirement of primary housing cooperatives and also extend promotional support to them. During the first four years of the Ninth Five Year Plan, the state level apex cooperative housing federations had disbursed an amount of Rs. 2586.31 crores as loans to primary housing cooperatives for construction of 3.32 lakh housing units.

Housing in the backdrop of economic reforms

3.2.1 Despite the slow-down in the performance of the other sectors of the economy, the housing finance sector has been witnessing an impressive growth rate over the last four years. However, as per the figures released by the Central Statistical Organisation (CSO), the construction industry has recorded a lower growth rate of 5.5% during the year 2000-01 as compared with a growth rate of 8.8% witnessed during the previous year (1999-2000). Despite the lower growth rate witnessed in the construction industry, the housing finance sector is expected to witness a substantial growth rate in the coming years in view of the following reasons:

. Various fiscal concessions provided by the Government
. Lower interest rates on housing loans
. Fall in property prices
. Increase in disposable income of the people

3.2.2 The main constraint facing the housing sector presently is availability of long term finance. This in turn requires the institutions to have access to long term resources. The long-term market for resources is yet to develop in the country. In this context, the Government has to play a significant role in developing long-term debt market. One way of raising long term resources needed for the housing sector could be securitisation of mortgages. Securitisation offers a viable, sustainable and market oriented sourcing mechanism for funds. However, in order to make the instrument acceptable to the investors, a few measures are required. Government support in these measures will help the housing finance sector to raise the long-term resources.

Government as a Facilitator
3.3.1 The Government of India continued with its thrust to the housing and housing finance sector by means of various fiscal and budgetary concessions that featured in the Union Budget for the year 2001-02 as well. The measures provided in the Budget to encourage the housing sector are:
For individuals:

i) Amendment to Section 24 of the Income Tax Act, 1961:
a) Interest on capital borrowed:
Under the existing provisions contained in Section(24)(2) of the Income Tax Act, 1961, interest payable on capital borrowed on or after April 1, 1999 for acquiring or constructing one self-occupied house is deductible upto rupees one lakh where such acquisition or construction is completed before April 1, 2003. The limit under this section has been enhanced to Rs. 1.50 lakhs, other conditions remaining the same, from the assessment year 2002-2003.

b) Cumulative deductions allowable under this section:
The current provisions under Section 23 of the Income Tax Act, 1961 provide for determination of the annual value of the house property subject to certain deductions allowable under Section 24. Under the existing provisions of Section 24, the income chargeable under the head "Income from House property" is computed after deducting (i) one-fourth of the annual value in respect of repairs and collection charges, (ii) interest on capital borrowed and (iii) other deductions on account of insurance premium, ground rent, annual charges etc. The provisions of this section have been modified to provide for only two deductions viz., the amount of interest on capital borrowed as mentioned above and an amount equal to thirty percent of the annual value as against twenty five percent of the annual value towards repairs and collection charges.

ii) Amendment to Section 230A of the Income Tax act, 1961:
Under the existing provision of Section 230A of the Income Tax Act, 1961, any document purporting to transfer, assign, limit or extinguish the right, title or interest of any person to, or in a property valued at more than five lakh rupees, cannot be registered without the satisfactory certification of the Assessing officer about the tax liability of the person. The Union Budget 2001-2002 has sought to remove this section entirely. Therefore, in cases of transfer of property of the value above Rs. 5 lakhs, no clearance from the Income Tax Department is mandatorily required.

For the Corporates and the Housing Sector in general:

iii) Liberalisation of tax holiday provisions for Infrastructure:
Section 80 IA of the Income Tax Act, 1961, provides for a tax holiday for five years and deduction of 30% of the profits in the next five years in respect of those enterprises engaged in developing, operating or maintaining any infrastructure facility as defined under the section. In order to encourage the investment in infrastructure, the Union Budget 2001-2002 has removed the two tier fiscal concession and provided a ten year holiday for these companies which can be availed of consecutively within a block of twenty/fifteen years depending upon the kind of infrastructure facility the company is engaged in. The mandatory requirement of transferring such infrastructure facility to the Central/ State Government or local authority or statutory authority has also been done away with.

iv) Co-operative Banks to be eligible investors under Section 10(23G) of the Income Tax Act, 1961:
Under the existing provisions of Section 10(23G) of the Income Tax Act, 1961, any co-operative bank being neither a company nor a fund operating under the provisions of the Registration Act is not eligible for the fiscal concessions under the Section. The Union Budget has sought to amend Section 10(23G) of the Act, to provide that income of a Co-operative Bank by way of interest, dividends and long term capital gains from investments made by way of equity or long term finance in an approved enterprise will also be exempt from payment of income-tax.