Role of Banks and Housing Finance Companies in Real Estate

Roles and responsibilities of the National Housing Bank, RBI and Housing Finance Companies towards the real estate sector

By 2040, real estate market to grow to Rs 65,000 crore (US$ 9.30 billion) from Rs.12,000 crore (US$ 1.72 billion) in 2019. Real estate sector in India is expected to reach a market size of US$ 1 trillion by 2030 from US$ 120 billion in 2017 and contribute 13per cent of the country's GDP by 2025.

Housing Finance & Construction Finance therefore will have a very important contribution in the growth of the Sector.

BANK’s & HOUSING FINANCE COMPANIES (HFC’s) have contributed significantly to the growth of this sector and their role therefore is extremely important and critical to the sector and its growth.

It is therefore important that the Roles & responsibilities of BANKS & HFC’s si under stood clearly.

It is true that Housing Finance has played a very important role in the growth of the sector however it cannot be denied that BANK’s & HFC’s reckless lending to the sector has also contributed to the current mess & problems faced by the sector and specially Home Buyers.

So lets us try to under stand Housing Finance & The Roles & Responsibilities of BANK’s & HFC’s towards the sector and particularly home buyers.

The Reserve Bank of India (RBI) issues licenses to entities to carry on the business of banking and other businesses in which banking companies may engage, as defined and described in Sections 5(b) and 6(1) (a) to (o) of the Banking Regulation Act, 1949, respectively.

The National Housing Bank (NHB) issues a license to entities to Carry on the business of Housing Finance under sub-section (4) of Section 29A of the National Housing Bank Act, 1987 by a company,

With a view to address the housing Shortage in India and to provide housing for all National Housing Bank was established in1988 as a Subsidiary of the reserve Bank of India. The Critical Role of NHB is not only to register Housing Finance But also to regulate and supervise the Housing Finance Companies, and coordinates their activities with other regulators.

Among Various Objectives of NHB are also included:

§ To promote a sound, healthy, viable and cost effective housing finance system to cater to all segments of the population and to integrate the housing finance system with the overall financial system.

§ To regulate the activities of housing finance companies based on regulatory and supervisory authority derived under the Act.

RBI & NHB both therefore regulate the Housing Finance Activities of Banks & Housing Finance Companies with proper checks and balances and ensuring housing for Home buyers as the end goal of providing Housing Finance by regulating the activities safeguarding the interest of home buyers while ensuring securty for the loans.

Banks & Housing Finance Companies therefore play a very vital role in the Economy and specially that of of lending and borrowing for Housing as construction Finance to Builders and Housing Loans for Individual Home Buyers.

The most effective and efficient way of making funds available is to fulfil these purposes is borrowing. This is where the banks and Housing Finance Companies get their first entrance into the Real Estate Sector. Though a bank’s primary function is lending money to those who need it, they are also prescribed with a host of other functions such as financial assistance for projects, evaluation of projects and sanctioning of home laons along with proper due diligence and monitoring enusirng proper utilization of funds leading to completion of home.

The Common Goal providing Home Loans by Banks & HFC’s is asset creation which is security for the housing Loan Disbursed and home for home buyer.

Various Banks along with Housing Finance Companies such as HDFC, TATA Capital Housing Finance Limited , India Bulls Housing Finance , PNB Housing Finance, DHFL and others play an important role of providing loans to home buyers.

Many homebuyers prefer purchasing a property with a mortgage even though fully being capable of paying the entire sum themselves. To be sure of the legal & technical Aspects of the Property Since Builders Do not provide the approvals & title ownership records to Home Buyers and rather use the project approvals provided by the Banks & HFC’s to attract the home buyers to buy into their projects.

While processing loan is the primary job of the banks, they also have to look into various aspects of the projects and conduct a thorough due diligence.

While approving the project for housing Finance it is important that the banks & HFC’s make sure that the developer has the capabilty to complete the project, has a proper past track record and credibility and ha also acquired all important approvals, financing, licenses and other requisits to assure themselves that sanctioning the loan to homebuyer would be a safe investment.

Written By

Rakshit Patni

Student 4th Year BBA LLB

Amity Law School

Gautam Bugh Nagar Noida Uttar Pradesh

Under Guidance Of:

Mr. Manish Kumar Patni

Bsc LLB

Advocate Delhi Bar Council

Legal Consultant & Strategist