India’s housing dilemma

Affordable Housing at fix price, says parliamentary panel

When it comes to providing homes to its citizenry, the government of India is showing genuine inclination. But good intentions can only take you so far!

Affordable housing is a difficult dream. India is lagging far behind when it comes to provide for basic amenities to its citizenry — with abject poverty and resulting homelessness being front-runner. In India, according to the 2011 Census, there were 1.77 million homeless people, or 0.15% of the country’s total population. There is a reported shortage of 18.78 million houses in the country. Although the 2011 census claims to see an upward trend in the number of houses (from 52.06 million to 78.48 million), the supply continues to greatly outpace the demand.

Coming up as a contrast to the prevailing backdrop is the Prime Minister’s dream of ‘Housing to All 2022’ under his flagship ‘Pradhan Mantri Awas Yojana (2015)’. The mission aims to deliver 2 crore housing units, to be developed in three phases, by 2022. The Narendra Modi government, under its guidelines for affordable housing segment, has given (and continues to give) incentives to both, buyers and suppliers. It provides for an interest subsidy of 6.5 % on housing loans to beneficiaries belonging to EWG (households that have an annual income up to Rs. 3,00,000) and LIG (annual income between Rs. 300,001 up to Rs. 600,000 ).  It also mandates house in the name of women and grants of tax exemption of an additional Rs 50,000 to first-time home-buyers. Additionally, it green-lits a provision granting 100 per cent tax exception on profit earned through construction of affordable houses of up to 30 sq. meters in four metros and 60 sq. meters in other cities. Subvention on service tax for construction of affordable houses up to 60 square meters has also been mandated. PM’s New Year Eve announcement of 3 and 4 percent interest subvention on home loans of up to 12 lakh and 9 lakh respectively is the out of fresh memory.

Laying where credit is due — there’s no denying the fact that government is taking genuine efforts to engage both, demand and supply side of the intended housing reforms. However, despite various incentives, ground reality paints a different picture altogether. There’s only so much a government can do, and without private developers’ intervention, wadding the 19 million housing deficit, out of which 95% demand comes from EWS and LIG segments, might be tricky.

While participation can be seen increasing substantially, as of now, the private players don’t seem much inclined towards the growth of affordable housing segment Case in point: upon one year anniversary of PMAY last year, a news report claimed that only 1,623 houses has been constructed under ‘affordable housing in partnership’ category in contrast to the housing target of 30 lakh. Various factors are responsible for this sloppy performance of realty industry.

High price of whatever little land is available for construction, regulatory bottlenecks, and delays in approval are among major concerns that make manufacturing of low-cost houses nonviable when compared to the luxury segment which helps builder to score premiums.

“At the ground level, despite demand grossly outstripping supply, there is a considerable proportion of unsold inventory in the MIG and HIG categories, which are not absorbed as these properties are unable to demonstrate value for their buyers. Such units fall out of preference either on account of higher-than-expected prices or due to locations. Lack of funds and high land and development costs are the primary reasons for developers not opting for smaller sized units closer to city centers as profitability drastically reduces,” explains Anshul Jain, Managing Director, India, Cushman & Wakefield.

“Despite encouragements from the Government through taxation and funding relief, under the Housing for All 2022 vision, top cities of India have not seen a significant shift in supply for reduced sized apartments within the MIG or LIG. Further, the recent move to demonetize large currencies in order to crack down on black money, the demand for HIG and Luxury housing could temper further. This is expected to propel developers to re-calibrate their plans to suit the high demand segments of affordable housing,” he adds.

So what will it take to attract more private builders?  “When we consider the affordable housing segment, we would be delighted to see income tax benefits that can be extended to corporates when they expand through new construction,” says one of the developer.

Although, incentives shouldn’t be only way developers could be wooed, contends Rajesh Krishnan, Founder & CEO, Brick Eagle Group.

“When you look at the housing necessity in the affordable housing segment — particularly coming from 15-30 lac segment, 15% margin would seem small if big-shot developers involved there are used to, broadly speaking, 30% margin. At outset, this doesn’t seem profitable — more so if the making of houses is done on a limited scale given how the requirement in this range is fewer as compared to those coming for EWG and LIG groups, i.e. 5-10 lac segment.”

 He adds, “What I am trying to say is, when it comes to affordable housing, adopting a manufacturing business model is the key. Take for instance, manufacturing of normal computers. Upon each sale, their profit margin is a measly 2%, but the scale at which they manufacture their product is huge and hence, extremely profitable.”

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