Commercial Mortgage Financing

The commercial mortgage financing industry until recently was an unorganized sector in India. But today, the commercial mortgage financing sector in India is witnessing steady growth. The size of the commercial mortgage financing business in India is estimated to be US $ 18 billion industry. Huge real estate requirements and its subsequent development has fueled its growth. The predominant market leaders in organized Indian commercial mortgage sector are housing finance companies like LIC Housing Finance, HDFC, ICICI Home Finance etc.

Although, the estimated size of the organized commercial mortgage sector in India account only for 25% of the total housing investment in India (Source: LIC Housing finance). But commercial banks both National and Foreign Banks along with Cooperative banks and other non-banking financial companies (NBFCs) are also catching them up at a very fast pace. The commercial mortgage financing in India is consistently registering 20-50 % growth on year-on-year basis, from the year 2000 onwards. Low income groups communities are still ignorant and skeptical of about it. The main, bottlenecks that are hampering smooth growth of this industry are as follows -

• Affordability
• Accessibility

Previously, the activities of the sector involved with providing of commercial mortgage finance in India were confined to financing of housing and real estate properties only but today it has extended to all possible immovable property mortgage funding. The industry is heating up and there is a mad rush for credit and the market is estimated to grow at a lightening pace in few years to come. Although, investment in housing has grown steadily over the past years as the proportion of outstanding housing loans as percentage of GDP increased from 3.4 % in 2001 to 7.25 % by 2005.

Although, housing finance gives a measure of the socio–economic status of people and thus it is regarded as a critical sector in terms of policy initiatives and interventions. But this never gives the measure of the actual size of the property mortgage industry of India.

Financial allocations for mortgage industry in the 5 Year Plans and fiscal measures related to housing and other properties has been taken and implemented successfully.

To help it grow and fulfill its huge requirements the Indian mortgage industry needs indirect government participation, as a guardian and facilitator. Private funds and even FDI should be encouraged to see this industry grow further. Overall revamping of land laws, rental laws, fast mutation and registration process along with setting up of credit rating organization and mortgage insurance will only help India in realizing its dream. This will accelerate organized growth of commercial mortgage financing market in India.

Last Updated on 5/26/2011