Policy for Low-Cost Housing Finance

The formal financial sector has been failing to provide adequate and affordable housing finance to a large segment of the population. The combined volume of outstanding housing finance from banks and the HBFCL stands at Rs. 92.4 billion as of Dec. 2018. The outstanding housing finance, including the staff housing loans of financial institutions, is currently equivalent to only 0.5 percent of GDP. This ratio (referred to as mortgage depth) is low in comparison, not only to advanced economies but also to the regional developing economies of India and Bangladesh.

The low-cost housing finance market has been marred by both supply and demand side challenges. Key supply side issues faced by the industry are lack of adequate foreclosure mechanism, uncertainty of title deeds, absence of innovative products, risk of maturity mismatch due to unavailability of long-term funding, and lack of skilled mortgaged bankers. Similarly, key issues related to the demand side are escalating property prices, a dearth of financing products, unavailability of formal financial services, and volatility in interest rates.

Also Read: Asia-Pacific: Regional Developments in Housing Finance