Low Cost Housing in India – Demand Up, Supply Limited!

During 2001-2011, the urban population of India grew at a CAGR of 2.8%, resulting in the increase in level of urbanization from 27.81% to 31.16%.

As per 2011 census, the country had a population of 1,210.98 million, out of which, 377.10 million (31.16%) lived in urban areas.

affordable housing shortage in india

The urban housing shortage in the country at the end of the 10th Five-Year Plan was estimated to be 24.71 million for 66.30 million households.

Urbanization has resulted in people increasingly living in slums and squatter settlements and has deteriorated the housing conditions of the economically weaker sections of the society.

Housing percentage shortage in EWS is 99.9 % which is double than the estimated number of households.

Where as in HIG and MIG it is so less 0.2% only.

There is no clear-cut definition of the term ‘affordable’, as it is relative concept and could have several implied meanings indifferent contexts.

According to a report on Making Urban Housing Work in India, affordability in the context of urban housing means provision of ‘adequate shelter’ on a sustained basis, ensuring security of tenure within the means of the common urban household. 

According to MHUPA in 2008, affordable housing for various segments is defined by size of the dwelling and housing affordability derived by the household income of the population.

What is clear cut message which comes out of the present situation of housing shortage in India is to work harder on increasing the supply of affordable housing or low cost housings. There should be a proper plan needed to be laid out in detail and on which execution needs to be carried out in best of best manner to tackle this huge gap between demand and supply of low cost housing in India.

India and its government needs to gear up on it.  As soon as it happens, best for country and its people.

Policy changes must for affordable housing in India

Affordable housing is the key to India’s realty industry being able to change lanes to the fast track but cost escalations due to delayed permissions, lack of access to cheap credit and shortage of building material are proving to be major hurdles. The solution: Policy changes covering land to lending.

Affordable Housing – Policy Change Needed!

The demand for affordable homes alone, in the range of Rs.1-5 million, is in the range of five million.

Over a third of new homes is in this category. According to industry statistics, out of 500,000 homes to be delivered this year, a large part will be the affordable housing segment.

But the affordability of home-buyers has been severely hit by cost escalations and high project cost is proving to be the main deterrent. The lack of sustained funds flow to the realty industry not only restricts supplies, leading to housing shortage (mostly in the affordable category), but also results in a spurt in property prices.

Amid this liquidity crisis, a large number of realty companies today find themselves in a debt trap. So much so that promoters of a few companies have pledged a major part of their holdings to seek debt. There is a need to ease bank funding and make foreign direct investment and external commercial borrowings more accessible to developers.

On the private equity front, statistics show that such investments in the residential property segment registered a 50 per cent decline compared to the office realty space, as these investors were more interested in income-generating assets.

In this context, speeding up the launch of real estate investment trusts, or listed companies that own and manage property on behalf of shareholders, on the bourses will help meet the large-scale fund requirement for mass housing.

It is, indeed, heartening that the National Housing Bank (NHB) is setting up an urban housing fund with Rs.2,000 crore ($360 million) to spur affordable housing. The Housing and Urban Development Corp, with a target to build 500,000 affordable homes, has in its first tranche raised about Rs.2,200 crore ($400 million).

Both these funds will work as a “pool fund” to incetivise cash-strapped developers aspiring to tap the high potential segment of affordable housing.

It is on the policy front that there is the lack of effective initiatives. This year’s budget sop of Rs.100,000 ($1,800) additional tax benefit on home loans will largely benefit tier II and tier III cities.

But given that the top six-seven cities constitute less than a fourth of the overall affordable-housing supply, there is a need to launch incentivised policies for developers to provide mass housing in the suburbs and satellite towns of metros and Tier I cities.

For developers, the tax exemption for low-income houses up to 60 square metre carpet area and extension of tax holidays for low-income housing under Sec 80 1B of the Income Tax Act could prove beneficial.

With urbanisation expected to grow at a compounded annual growth rate of more than two per cent over the next two decades, there is the need to liberalise obsolete development norms, rationalising floor area ratio and density. There should be policy initiatives in place to fast-track the public-private partnership route.

With a host of new private equity players and developers targeting mass housing, the coming months will witness increased traction on this segment of the realty industry. Increasing viability of affordable housing projects will be the way forward.

Source: The Economic Times

Factors that can make housing affordable

With a shortage of about 28m housing units, India needs to do something drastic to meet this huge shortfall quickly. Low-cost housing is one of the best options

India with a housing shortage of 30 million +  (for the current five-year plan), still has only three per cent of its houses made out of concrete, while close to 50 per cent houses are made of burnt brick.

Affordable housing is for the lower income group or even the lower middle class category and can prove to be a viable opportunity for private real estate players.

What is it that makes housing affordable? or unaffordable for that matter. Why do private builders choose to stay away from this segment and prefer to put their weight behind premium or luxury housing segment?

Lack of affordable housing is one of the biggest reasons why migrants choose to live in uninhabitable shanties in metros. They share living space with dozens and have no proper access to sanitation or drainage or clean water. They use public toilets or open grounds or even railway tracks for their daily ablution.

Here are some factors that (could) make housing (un)affordable:

Land

The raison d’etre as far as housing is concerned. While one may see humongous patches of green land from the air, which may seem available, the ground reality is much different.

India being an agrarian economy, with close to 70 per cent of it being agro-based, it is imperative that land is first and foremost available for the same purpose. Removing mangroves or reclaiming land for habitation purposes is not the solution.

The solution lies in use of land that is not of productive value or one whose removal will not harm the ecosystem in anyway.

While most metros may suffer from lack of available land in the centre of the city, suburbs provide a solution to this problem.

One of the most common issues migrants across India face is the construction of a house over land that is legally not theirs. They keep adding to the unit as per their needs only to be thrown out on the streets one day by a bulldozer.

Redeveloping slums, under the SRA scheme, will help build millions of both affordable and low-cost homes. Making slum areas more inhabitable will also attract civilization. This involves a lot of efforts from the state governments and local bodies apart from increasing awareness about sanitation and hygiene in slum dwellers.

Higher FSI

FSI is the ratio, which determines how much floor space you can have as a proportion of the land area. An FSI of 1 means the area of construction is equal to the area of the plot – i.e., a plot of 10,000 square feet will have a built-up area of 10,000 square feet.

Many builders add on FSI by buying transfer of development rights (TDR) from the market. This essentially means an owner whose land was reserved could surrender it to the municipal corporation and get an equal amount of space in the suburbs. FSI for SRA schemes is higher at 2.5.

Public private partnership

The affordable housing segment will receive a huge boost if there is a mutually beneficial relationship between the public and private sector for the same. While the governments involved, state or otherwise, can take care of the welfare part, the private players can take care of the economics of the project and provide valuable inputs on the design aspect of the projects.

Single window clearance

The biggest challenge one face as a developer is the amount of time it takes to get clearance for various aspects of construction. Whether it is conversion of agricultural land to non-agricultural, or getting clearance from the ministry of forests, or the water board or even the municipal corporation, a lot of time and valuable resources are wasted.

For a buyer too, this means additional costs for no fault of his. In the beginning when the buyer agrees to buy the house, it is affordable. The bigger question is: Does the same house continue to remain affordable by the time the buyer actually moves in?

Which brings us to the buyer.

 

Reduction in interest rates

For most homebuyers in the affordable housing segment, taking a home loan or microfinance is the easiest option available. While one might have been lured by the low interest rates during the financial crisis, for homebuyers on a floating rate scheme, this has spelt disaster. From a home loan rate in the bracket of 7 per cent and above to one that hovers anywhere above the 10 per cent mark, this is a considerable hike in his monthly instalments.

While the Reserve Bank of India has allowed bank customers to switch their home loan accounts to another bank and the prepayment options too have been relaxed, most Indian home owners tend to spend around 40 per cent of their income on EMIs. And that is not how affordability is described in the housing sector.

Easy availability of finance

The irony in buying a house lies in the fact that most banks ask homebuyers for formal documents, including a residence proof, while providing a home loan.

Developers, who also depend on these lenders, can help home buyers by tying-up with micro housing finance companies to make available easy home finance options to buyers coming from unorganised sectors.

For this very purpose, the Micro Housing Finance Corporation was brought into existence. Micro mortgages are provided to households with no formal documentation or credit history and at affordable interest rates. Many other such micro housing finance companies follow the strategy of not lending to the homebuyer directly, but to self -help groups (SHGs), who in turn lend to the end buyer. Most of these loans are small ticket and have a repayment period under five years.