Govt's new housing policy faces challenges: Report

The new government's 'housing for all by 2022' and liberalised FDI norms will boost the residential mortgage backed securities (RMBS) market, but challenges remain for development of the sector, says a report.
Rating agency Moody's Investors Service in the report said as the funding needs of the domestic mortgage lenders grow in step with the government vision to provide 'housing for all', the RMBS market has scope to develop into a larger funding source, particularly for niche lenders focused on affordable housing.
"Prime Minister Narendra Modi's 'housing for all by 2022' goal will boost the emerging RMBS market, though challenges remain for the development of the sector," it added.

In 2014, the RMBS issuances rose 75 per cent to Rs 5,300 crore, but the report notes that this growth was from a low base and the sector remains relatively small.
It is estimated that the country faces a housing shortage of about 18.78 million units in urban areas.
The government has liberalised the FDI regime for the low-cost housing sector by bringing down minimum investment to USD 10 million and removing the three-year lock-in period for exit.

Housing finance companies are expected to grow their loan books by 20-22 per cent in 2015 and will need a whopping Rs 2 trillion in incremental funding.

However, some key obstacles remain, warns the report which notes that new tax rules have led to lower post-tax returns for bank investors in RMBS, while tax-related legal uncertainty has prevented mutual fund investors from participating in the market.
In addition, the long tenor of RMBS combined with the country's lack of a liquid secondary market for the securities dampens investor appetite, it said.