Apr 12, 1999|
Tax sops spur housing demand
The finance minister proposed a number of measures to perk up the activity in the housing sector. The measures having a direct impact on the cost and availability of housing finance included:
While presenting the budget for financial year 2000, the finance minister Yashwant Sinha brought to light one harsh reality that highlighted the low standards of living in rural India - the rural housing shortage had topped 14 million dwelling units. The finance minister took up the challenge to provide 'housing for all' and rightly made it a focus area for the budget. The results are for all to see.
The housing finance sector has been a direct beneficiary of the measures introduced to perk up activity in the housing sector. This is more than evident from the accompanying graph that reflects on the scorching rate at which business grew for these companies.
- The interest on loan taken for a self-occupied property was made exempt to the extent of Rs 75,000 (US$ 1,745) as against the earlier ceiling of Rs 30,000 (US$ 698)
- Interest rates for borrowers in smaller cities (where the Urban Land (Ceiling and Regulation) Act is not valid) (ULCR Act) were reduced
- The scheduled commercial banks were directed to invest three percent of their incremental deposits in the housing finance activities, and
- The interest income of housing finance companies was now to be taxed on actual basis as against the earlier method of taxation on accrual basis.
The government has taken care to ensure that both the demand for housing and supply for the same are adequately balanced. While on the one hand it has stimulated demand by providing access to affordable finance, it has ensured by repealing the ULCR Act that more land becomes available to provide for the growing demand for housing. The success of the measures is evident.
Although the numbers for the construction of new housing units are not yet available, it is generally accepted that one of the factor contributing to the surge in demand for cement and steel (the raw materials) is the step up in construction activity.
Meanwhile, the jump in demand for housing finance (estimated to be 35 percent for financial year 2000) has been phenomenal. The housing finance companies are having a field day with surging demand and relatively little competition. The lower property prices, mainly due to a sluggish economy, and the decline in interest rates has further boosted the demand for housing finance.
Housing Development Finance Corporation of India (HDFC), the industry leader, disbursed over US$ 349 m during the first half of the year. The other major players, Housing and Urban Development Corporation, LIC Housing Finance and PNB Housing Finance disbursed over US$ 163 m, US$ 151 m and US$ 12 m bn respectively during the same period. Another housing finance company, Shelter, a subsidiary of Citibank, is expected to register a rise of over 100 percent for the whole year.
The lure of the housing finance industry is attracting more players. One of the recent companies to jump into the fray is ICICI Ltd., a financial institution that is aiming to convert itself into a universal bank. A number of foreign companies too are eyeing the market. This increasing number of players is likely to put pressure on margins as companies compete to grab a larger pie of the market.
More Views on News
Aug 12, 2017
What is Equitymaster Insider Ankit Shah stealing from Berkshire's success?
Aug 10, 2017
HDFC starts FY18 on robust loan growth but asset quality slips on increased exposure to developer loans.
Jun 22, 2017
Demonetisation led slowdown coupled with shift to stringent bad loan norms keep Shriram Transport Finance on a slow wicket.
Jun 19, 2017
Should one subscribe to the IPO of CDSL Ltd?
Jun 14, 2017
Power Finance Corporation earnings hit by RBI mandated higher provision on state government power generation projects where the recovery continues to be 100%.
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407