May 21, 2010

Real estate financing in India has changed significantly over the past 50 years for both developers and buyers. Real estate developers have seen the universe of funding agencies expanding from unorganized moneylenders to the entire gamut of funding sources, including loans from banks and housing finance institutions (HFIs), private equity, public equity offerings, bonds, and debentures. Buyers have seen the shift from own resource-funded home purchases to bank-funded mortgage finance.

This shift has helped the real estate sector match the fast-growing buyer demand on the one hand, and has boosted the financial flexibility of developers to provide adequate real estate supply on the other. Back in the 1960s, the real estate sector was largely unorganized and was perceived as a speculative and risky segment. Developers were funded mainly by moneylenders, who charged exorbitantly high interest rates - above 36 percent.

Buyers largely funded home purchases through household savings, loans from friends and relatives, sale of property and ornaments, and subsidized housing loans extended by some private and public-sector employers. The banks did not provide mortgage finance to the retail customers until the late 1970s. In the organized sector, the government was the sole provider of housing finance, through its various social housing schemes including low-cost housing. The government implemented its schemes through state housing boards, which were responsible for allotting plotted developments and built flats to individuals.