The finance ministry is considering a proposal to channelise pension, insurance and provident funds into the housing sector. Allowing long-term funds from such funding institutions is aimed at helping housing finance companies (HFCs) overcome the asset liability mis-matches.
These funds can be channelised to the housing sector either by allowing them to lend to HFCs, or permitting them to invest in Residential Mortgage Backed Securities (RMBS) issued by HFCs. This can be done by altering the investment guidelines of pension, insurance and provident funds and directing them to invest in or lend to the housing sector, according to official sources.
The HFCs, which get these funds, can then lend to individuals at a lower rate so that these borrowers can purchase affordable houses. The proposal was submitted to the ministry by the National Housing Bank (NHB) and the National Real Estate Development Council (NAREDCO).
In its pre-Budget memorandum to the finance ministry, NAREDCO said,"housing finance is a long-term investment and asset liability mis-match is a major problem for housing finance companies. Access to long-term funds such as provident, insurance and pension funds will ease the situation." Investment in HFCs should be an eligible investment for pension funds, insurance funds and provident funds, it added.
R V Verma, chairman and managing director, NHB, told FE that NHB's proposal on the matter is being considered by the ministry. "This is a practical suggestion as several countries have channelised long-term funds such as pension, insurance and provident funds to the infrastructure and housing sectors. The (finance) ministry has not raised any objections. We expect discussions with the (pension regulator) PFRDA, (insurance regulator) IRDA and (retirement fund body) EPFO," he added.
"As availability of funds increase due to such initiatives, it will ensure lower EMIs and reduce risks in the housing market," Verma said.
Naveen Raheja, chairman, NAREDCO and CMD, Raheja Developers, said, "The main reason for the acute housing shortage in the country is lack of funding. We have urged the government to unlock funds wherever it is feasible so that the liquidity issues are eased out and the sector can benefit from it."