HOUSING LOANS: A COMPARIVE STUDY OF INSTITUTIONS

Introduction:

Traditionally, most people used to depend on the GPF or gratuity received after retirement for constructing or buying a house. The emergence of housing finance, has enabled many to go constructing own houses during the last decade. While number of housing loan options are now available, the present study is an attempt to provide a comparative picture of these loan products using the opinions of respondents in respect of interest, repayment schedules, etc. Such a study not only useful to the institutions to identify the factors but also provide a picture to the potential borrowers.

Objectives of the Study:

The present study is primarily intended:
• To examine the opinions of customers regarding housing loan offered by the institutions in the state of Punjab
• To suggest suitable marketing strategies and product design to the institutions engaged in housing loan products

Methodology:
Study has considered five major institutions involved in providing housing loans, viz., HDFC, LIC Housing Finance, PNB Housing Finance, SBI housing Finance and HOUSEFED in four districts of Punjab. About 250 respondents have been selected and opinions have been elicited by administering a questionnaire. Data Analysis:
The opinions of the respondents has been analysed across different Institutions involved in the housing finance in the study area. Cross tables are arranged in terms of purpose of loan, tenure of loan, cost of loan, repayment schedule, awareness about interest rates, Time taken for processing the application, procedural formalities, security provided for getting the loan, difficulties faced and satisfaction level of customers. These opinions have been arranged and percentages have been calculated to make a comparative presentation.

Major Findings:

The study observes the following based on the opinions of the borrowers of housing loans from select financial institutions:

• While a majority of the respondents (56.4%) have taken the loan for house construction, about 1/4th of the respondents (28%) have drawn the loan for purchase of a ready flat / house. While HDFC loans are used for purchase of flat, the loans of LIC, SBI are mostly used only for construction of house by the respondents
• Tenure of the loan in most cases ranged between 7 to 10 years. Cost of loan from the point of processing charges is found highest in case of HDFC compared to LIC Housing finance schemes. The repayment schedule in case of all the loans are EMIs
• Awareness of Rate of Interest is high in case of HDFC Loan (78%), the borrowers of LIC Housing Finance are not that clear as to the effective cost of interest. While a few knew about the floating interest rates, majority of the borrowers have borrowed only on fixed interest terms
• The time taken for processing and sanctioning the loans seems to be around 7 days in HDFC compared to 21 days in case of LIC housing loan. The security requirements of other bank based housing schemes is large compared to only an insurance policy in case LIC housing loan, only 18 percent of customers have provided other guarantees for getting loan from HDFC in addition to the mortgaging of the land
Conclusions:

Study observed that among different Housing Loan institutions, respondents had fewer difficulties with HDFC loans. However, majority opined that these housing loan organizations should not charge for processing, administration, conversion fees and other charges for pre payment penalty. Further, many opined that interest charges should be on daily reducing basis and should provide a flexibility to convert from fixed to floating or floating to fixed interest schedules.