Residential Mortgage Default at Housing Development Finance Corporation of Sri Lanka: EPF Security – A Review

Abstract

Housing is essential to man, and is recognized as one of the basic human needs. In current society it is offered at much higher standards than meeting the essential needs of humans, as a result of which many agencies have come to the field to work in this area. By now most governments accept that providing basic housing for all is often a priority for enhancing the social conditions of society. For an archetypal house-owner, the house is a foremost asset in his portfolio and for many households the purchase of a house represents the largest lifelong investment and a store of wealth. The provision of housing services depends mostly upon a well-functioning and affordable house financing system. Such financing systems however are often complicated and the beneficiary has to fulfill a set of criteria which are hard to meet as requirements for a housing loan. Further, the interest charged on the loan is exorbitant for the general working class of people, as it went up to 20% per annum as shown in industry reports. In this situation it can be seen that housing represents a large proportion of a household’s expenditure and takes up a substantial part of lifetime income. According to the Census of Population and Housing 2011 in Sri Lanka, individual housing units in the country in 1981 was 2,943,610 units which has grown to 5,773, 678 units by the year 2011 indicating a high growth of total houses in the country. Further the expansion of housing units in the last three decades from 1981 to 2011 is 96.1% while growth from 2001 to 2011 was 23.2 %. It is an appreciable growth but it is important to pay attention to how these housing units were financed. There are a number of banks and financial institutions playing a vital role in this area by providing mortgage loans for housing. Housing Development Finance Corporation (HDFC) is a listed company and the main share holder (51%) of the company is the government. Among the leading mortgage loan suppliers in Sri Lanka, HDFC is one of the market leaders in the country. Therefore, this study is focused on the HDFC loan portfolio repayment prototype for the sample period.