Amid a prolonged slowdown within the assets market, the spotlight is now on how housing finance organizations (HFCs) price properties.
Housing finance regulator National Housing Bank (NHB) has seen that HFCs do now not follow a uniform coverage for valuation of homes and appointment of valuers for the purpose. The difficulty of correct and realistic valuation of properties or fixed belongings owned by way of HFCs assumes excessive importance, and NHB has directed housing finance corporations to put in a gadget for what it calls a “practical valuation” of residences. It has given HFCs time till December 2017 to have proper regulations in location and ensure strict compliance from 2018.
Properties serve as the underlying asset on which financing is given. Banks were the most important housing credit score creditors in India and accounted for 63% of the market as on March 31, 2015. However, their marketplace proportion has declined from 70% in March 2010 as HFCs have gained percentage. In the 365 days ended June 30, 2017, the housing area’s credit score grew 14% at Rs 14.6 lakh crore. Usually after a loan has been granted, HFCs do ordinary assets valuation to recognize how the belongings value is changing. If there’s a depreciation, they’re alleged to ask for greater margin from the borrowers.
“It has been found that distinct HFCs observe one of a kind guidelines for valuation of residences and appointment of valuers for the purpose. The difficulty of correct and sensible valuation of homes or fixed assets owned by HFCs and that accepted via them as security (primary or collateral) for a great element of their advances portfolio assumes importance in view of its implications for the proper measurement of capital adequacy function of HFCs. In this context, there is a want for installing location a gadget/procedure for practical valuation of houses/fixed assets and additionally for empanelment of valuers for the motive,” NHB advised all registered HFCs.
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For properties valued at Rs 1 crore or above, HFCs will attain minimal two independent valuation Reports. The maximum demand for housing in India has continually been in which property prices variety from Rs 15 lakh to Rs 50-60 lakh, whilst a huge wide variety of ready-to-pass tasks in cities like Mumbai and NCR have priced upwards of Rs 1 crore.
Among others, NHB has directed HFCs to have a board-approved policy in the vicinity for valuation of properties together with collaterals common for his or her exposures, valuation done by using professionally qualified unbiased valuers who’ve no direct or indirect hobby and valuation need to be accomplished at a proper frequency. “Further, where the price of the properties has been considerably impaired by using any event, these are to be immediately revalued and accurately factored into capital adequacy computation,” NHB said.
Rating enterprise Icra expects gross non-appearing property (NPAs) of HFCs to be between 0.9% and 1.Three% for FY18. Ravindra Sudhakar, ED & CEO, Reliance Home Finance, said he welcomes NHB’s circulate on the practical valuation of houses. “It will go a protracted manner in improving the quality of collateral evaluation throughout the housing finance region. Reliance Home Finance’s own regulations and method are also much like the proposed tips and can be effortlessly assimilated into the contemporary policy framework,” he said.
Anuj Puri, chairman, Anarock Property Consultants stated with a slow down inside the property market, belongings prices today can move either manner. “A few years in the past, a lender giving the mortgage for assets changed into nearly ensured of fee appreciation. Today, it may move both methods. I consider NHB is making sure that HFCs are doing the proper valuation in order that they seize the authentic rate of the belongings continually.”
While HFCs have been accepted to include revaluation reserves at a reduction of fifty-five% as a part of Tier II Capital, NHB stated it is vital that revaluation reserves constitute “authentic appreciation in the marketplace cost” of the homes and HFCs have in the vicinity a comprehensive coverage for evaluation of constant property owned via them. HFCs were directed have a board-permitted comprehensive coverage in area for valuation of its ‘own properties’ and this kind of policy ought to cowl method for identity of assets for evaluation, preservation of separate set of statistics for such property, the frequency of revaluation, depreciation coverage for such assets, policy on the market of such revalued assets, etc.