Housing has long been identified as a social priority next only to food and clothing. Though a capital-intensive industry, the housing sector, ironically, has been the most capital-deficient. As a result, the unmet housing demand and the gap in supply have increased manifold over the years.

The housing sector in India is a study in contrasts. On one level, housing finance is considered a safe and attractive product by the financing institutions, while on the other, there is negligible credit flow to the vulnerable and needy segments of the society. Despite the continued expansion in the retail home loan market, there exist wide gaps on the supply (project) side, relating to construction and supply of housing units in different price bands affordable to the buyers and borrowers. The supply side issues need to be addressed.

Housing in India has come a long way in the past three decades or so. Earlier, home seekers had few options beyond self construction or purchasing from the public housing authorities; now there is a slew of options available to the prospective home buyers. Banks and financing institutions are now vying with each other for a piece of the ever-growing pie.

The demand side of the market, particularly that emanating from the middle and higher income segments, has taken off relatively well. The positive developments on the demand side are not, unfortunately, being mirrored on the supply side. There is still a very limited supply of housing projects catering to the lower, lower-middle, or even middle-middle income segments.

Facilitating flow of formal credit to the real sector promises to be a win-win situation for all the stakeholders in the form of improved access to credit at reasonable cost, enhanced transparency, improved understanding of the sector by the lenders and better oversight. All of this leads to improved investor confidence and better market sentiments, besides opening up a large, relatively untapped market segment to the lenders. Policy coordination between real and financial sectors will improve systemic stability, transparency, and all-round economic and social development. With an enabling credit environment for the housing projects, the psychology of scarcity would gradually ebb, making the system less susceptible to volatility and asset bubble phenomenon.

If the bankers’ lending for affordable housing projects could be included within the overall priority sector target, it would bring about improved supply, moderation in prices, and better integration between the real estate and the financial market. The vibrant capital and mortgage markets, good information channels in the form of credit bureaus, RESIDEX, risk mitigation tools such as mortgage credit guarantee, together will result in a more conducive environment for pushing the real sector growth. The recent RBI initiative of incentivising lenders in the form of reduced risk weight are welcome steps in this direction. Building on such initiatives by including affordable housing projects within the scope of priority sector will be an added incentive to the lenders.

The author is CMD, National Housing Bank.

Read also: Should developers’ loans get priority sector status? - NO

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