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Most of the existing housing stock in India has traditionally been privately owned, albeit with severe quality issues, overcrowding problems and shortages. Property rights are certainly less of an impediment in the Indian context. The inefficiencies in the Indian housing markets arise primarily from the inefficiencies of the housing finance system, which significantly under-serves the population. Until 1978, there was effectively no marketrate housing finance available. Today, the Indian housing finance sector is crowded with players of all sizes. A plethora of institutions provide longterm finance for housing: commercial banks, housing finance companies, cooperative banks andorganizations, regional rural banks, agricultural and rural development banks and cooperative housing finance societies. A number of financial institutions have been organizedfor the express purpose of mortgage lending: the Housing Development Finance Corporation, andthe National Housing Bank\.13 The latter is an apex institution that acts both as a regulatory agency andas a secondary mortgage market facility.14 New foreclosure laws have been passed, encouraging smaller banks to enter the market; the Urban LandCeiling Acts andthe Rent Control Acts are being repealed, or being severely diluted. The major impediment in developing a housing finance sector is still the non-availability of long-term resources andinad equate mobilization of dormant untapped funds. Mortgage securitization, one of the sources of long-term, decentralized finance for the housing sector, is still in the pilot stage in India. The National Housing Bank is confronted with regulatory constraints andsequencing issues. The critical task in the Indian context, therefore, is to develop an institutional, regulatory, and financial structure with a secondary market as a major objective. Another issue of concern is that, expectedly, originated mortgages cater to the upper and upper middleincome borrowers. Since the most important consideration for a bank is credit risk, banks are extremely reluctant to lend to individuals from the lower endof the economic stratum. This situation is aggravatedbecause banks face severe informational constraints, contributing to credit rationing for the mortgage market. However, consumer credit scoring is being developed, with borrowers andtheir economic-financial profiles scoredas in countries with a more advanced consumer credit culture. The lending institutions continue to err on the side of financial prudence, perhaps because of the very large segment of informal employment in the country, andrisk basedpricing is still in its infancy. The proportion of outstanding housing loans as percentage of GDP is estimatedto have increasedfrom 3.4% in 2001 to 7.25% by 2005 (See NHB Report, 2005). Among measures taken to boost mortgage demand is the raising of interest payment tax deductible limits. The combination of a fastgrowing middle-class, or more accurately upper-middle-class, availability of financing andpent-up demandd ue to regulatory backlog has generateda rapidincrease in the Indian housing stock, going from 148 million units in 1991 to 187 million units in 2001, andis expectedto reach 220 million units by 2007. The Indian mortgage market has grown at 35-40% per annum for the past 5 years; and industry sources predict the same growth rate to persist for at least the next decade, with both commercial banks and housing finance institutions playing a joint leading role. Although these data are impressive, the bulk of residential mortgage lending has occurred during the last 7 years, andthe outstanding volume of mortgage loans as a percentage of GDP is relatively small at just over 3%. The industry is nascent when compared to developed Western economies (outstanding mortgages represent about 51% of the US GDP, and 36% for the EU GDP) or even some of the South-East Asian economies (15-35% of GDP). The only countries among the OECD countries that appear to be comparable to India are Australia, Austria and Italy. The sheer size of India, with 30% (more than 300 million people, close to the total US population) of its people living in urban areas suggests that the housing finance market is neither extensive nor deep, and the potential for growth andd evelopment of housing finance is huge.
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