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.

What Makes Housing Affordable or Unaffordable?

What makes Housing Affordable?

There is a shortage of about 30m housing units in India. Government of India needs to work very hard and earnestly to meet this huge shortfall. And to tackle this shortage of affordable housing or say urban housing in India, focus on Low-cost housing could be one of the best options.

Other countries like China and US have invested a great deal to construct affordable housing units for low-income groups. The US government has invested in the past 34 years about $350 billion (at 2002 rates) and China has invested 820 billion yuan ($129.4 billion). India, on the other hand, with a housing shortfall of approx 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.

And if we go by the figures as projected in fiver year plans of Government of China, then china has an aim to build 36 million units by 2015.  And when we compare this to the situation as it is in India, the picture is of complete contrast. Lot have been said and written over the acute shortage India is facing in terms of urban housing or affordable housing, but still we do not see the same level of vision, planning and efforts in India to tackle this problem.

But we need to know that when we talk about affordable housing and low-cost housing, both are altogether two different concepts. Low-cost housing is largely a government welfare initiative and developed for the economically weaker sections of society whereas when we talk of Affordable housing, it is for the lower income group or say lower middle class category. Affordable housing, in a way, is always a viable and good possibility for domestic realty players to tap and grow.

But the question which should come first over here is that what is it that makes housing affordable? What are those reasons which make affordable housing unviable for private builders and why they prefer to stay away from this segment and go after premium or luxury housing segment?
Following factors which make housing (un)affordable are:

Land

India being an agrarian economy, it is imperative that land is first and foremost available for the purpose of agriculture and farming. So the scarcity of land is also an issue. Moreover to identify and find the land within a city which can be used for the purpose of low cost housing is difficult as land prices within cities have shot up to altogether different and top level. So when it comes to make low cost housing,  Developers need to buy and find  land on the outskirts of the cities because it is cheaper there. Unfortunately, most metropolitan cities suffer from lack of available land in the centre of the city; suburbs provide a solution to this problem.

Also, Constraint is always there of arriving at piece of land and which is productive. That’s too not a way to go for to construct affordable housing using that piece of land. The solution lies in use of land that is not of productive value or one whose removal will not harm the ecosystem in anyway.

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.

This land shortage issue can be handled by looking into land areas where slums are built upon or developed. But in manner in which these slums are constructed and maintained, it does not present a pleasant picture. So one way of dealing with this factor can be  developing existing slums within the center of city under some well thought out scheme and that way it will surely result in development of both affordable and low-cost homes for number of people within a city. Making slum areas more inhabitable will help in meeting demand for low cost and affordable housing. But this whole way of doing it needs a lot of efforts  to come from the state governments and local bodies apart from increasing awareness about sanitation and hygiene in slum dwellers.
Partnership between State and Private Players

The affordable housing segment will get a fillip only if public and private sector plays a pivotal role and gets mutual benefits out of the whole exercise. Things can be worked out between governments involved and the private realty players and they can decide between themselves that how welfare part and economics of the project can be shared.

One area developers and state need to really work upon is that they have to ensure that construction activities is completed within agreed time span as it would help in keeping costing in check for the developer and simultaneously, keeping price low for end buyer.

By forging a partnership, private and public enterprise can ensure that they get to learn a lot from each other helping them to produce more affordable living projects and in time too. .
Clearance issues

The biggest challenge one faces as a real estate developer is the amount of time it takes to get clearance for various aspects of construction or development. Be it the case of getting clearance from municipal corporation for water-electricity supply or be it the case of land sanction from land authority or be it some other clearances issues, process drags on for long and too much of time is wasted.

At the end of the day, all these incurred costs generated during this clearance process is transferred to end buyer and eventually what was supposed to be an affordable housing for  buyer  do not remain as affordable with carrying costs.
Reduction in interest rates

For most homebuyers in the affordable housing segment, taking a home loan or micro finance is the easiest option available. Low interest rate is good for homebuyers but on a floating rate scheme, interest rate spell disaster for them. From a home loan rate in the bracket of 7 per cent and above to one that around 10 per cent mark, this can be called as a considerable hike in his monthly installments.

Most Indian home owners tend to spend around 40 per cent of their income on EMIs and that does not make things affordable for homebuyers.
Easy availability of finance

Easy home finance options are not available to buyers coming from unorganized sectors. To help them, the Micro Housing Finance Corporation was brought into existence. Micro mortgages are provided to households with no formal documentation or credit history at affordable interest rates. Many micro housing finance companies lend to self -help groups (SHGs), who in turn lend to the end buyer. Most of these loans are have a repayment period under five years and makes things easy for buyers.

An Affordable House – A Dream for Everyone

Everyone’s dream is to own a home. Regardless of geography or climate, everyone wants a place to be safe and call their own. Shelter is a basic human instinct. Unfortunately, this dream, this very basic necessity, is not a dream that everyone is capable of realizing.  We at Vianar Affordable Housing hope and work towards making this dream viable in India.

Given the high rate of inflation, there is an immense shortage of housing in India. Most real estate projects focus marketing and services to middle to higher income clientele. Lower income groups (LIG) and the economically weaker section (EWS) of society are often ignored in the quest of fulfilling the housing shortage.

Of late, the concept of “Affordable Housing” or “Low-incoming Housing” has emerged in India. Moreover, it has turned out to be a profitable venture for real estate companies.  The focus is a single-family unit between 4.5 and 6 lakhs.  A small EMI and low income family can now buy their dream house!  The conception of the concept of ‘Affordable Housing’ has really opened the doors for many Indians.

An Affordable House – A Dream for Everyone

The concept of Affordable housing system has been introduced for good.  Affordable Housing is a long overdue necessity of our society. Each development should hopefully aim to also provide primary schools, kindergartens, health clinics, general stores and a community center.

A proper channel and framework is required to properly transform the affordable housing situation in today’s world. We, at VAH, strive to make housing for all a pleasant reality!