How to put Affordable Housing on the Fast Track

From time immemorial the notion of Rotikapda, and makaan has been deeply ingrained in our psyche. Roti and kapda, of course, are essential to our very existence and survival. But having a roof over our head is no less critical for economic sustainability.

The Current Situation

Unfortunately, the severe shortage of housing in India – especially in the affordable housing category , prevents millions of Indians to own even a modest dwelling. As per the report of the Technical Group on Urban Housing Shortage (2012-17) constituted by the Ministry of Housing and Urban Poverty Alleviation (MoHUPA), there is a shortage of 18.78 million dwelling units out of which nearly 96% belongs to the Economically Weaker Sections (EWS) and Lower Income Group (LIG) Households.

A report by management consultancy Monitor Deloitte says that 22 million households in the country, in the monthly income range between INR 7,500 and INR 25,000, live in poorly constructed, small, cramped houses, with deplorable sanitary conditions and lack of access to basic neighborhood amenities.

This is where the big opportunity lies for public sector housing companies and private developers. Given the choice of living in a small affordable home, even if it is farther off in the suburbs, most of these people would come forward to buy houses between 250-400 square feet at market prices (INR 5 lakh to INR 10 lakh). That makes the estimated opportunity size of affordable housing market at INR 1,100,000 crore or, INR 11 trillion.

What are the Key Challenges?

Though the opportunity exists, it is not easy for developers to crack this market. Some of these key challenges can hold back this massive segment.

Affordable Housing is basically a volumes game. However building affordable units on a mass scale requires large chunks of land, which are not easily available. As developing affordable housing projects on expensive land in inner urban localities has become prohibitively expensive, developers have no option but to acquire land on city outskirts to keep costs down. However, the infrastructure in these areas is mostly found wanting. Roads and the public transportation system are often not adequately developed, which make the developments unattractive to lower-income citizens who depend largely on public transportation to commute to their workplaces which predominantly exist in the main city.

Current regulations that govern real estate development require multiple approvals from different central and state government departments. This can be daunting and time consuming at times. Private participation in affordable housing will certainly get a further boost if a mechanism to grant timely approvals for projects can be put in place. Considering the low-ticket size of these projects, private developers cannot afford procedural delays and this cost cannot be passed on to the end user. Just ensuring that regulatory approvals, licenses and clearances are given in a timely fashion will help to reduce project cost by 25- 30 %, which will further give an impetus to affordable housing market in India.

Construction in India is predominantly labor intensive and relies on traditional building materials like brick and mortar, which are not only expensive but also lead to a longer construction cycle.  The government and industry need to come together to use innovative new age construction technology like Pre – Fab to produce large volumes needed for affordable housing units. Use of new age technology will reduce the timeline and will be more cost effective when volumes come into play.

In the absence of a specialized policy for affordable housing, general development norms apply on affordable housing projects, which push up the overall cost of houses. For example, car parking norms applicable on normal group housings may not be relevant for affordable housing projects as most of the residents may not own private vehicles. Increased FSI and ground coverage, lower external development charges along with the waiver of other statutory charges like land conversion charges and stamp duty can help bring down the cost of affordable housing units.

Similarly, on the demand side, access to home finance for low income groups is one of the major concerns for the affordable housing market to make a significant headway. Measures similar to what banks have taken for promoting professional education like lower interest rates, moratoriums for the first few years and a relaxed repayment option can bring affordable housing within the reach of a wider segment of our society.

Government is moving in the Right Direction

Conscious of the fact that there exists a wide gap between the demand and supply of affordable housing, both in terms of quantity and quality, the Ministry of Housing and Urban Poverty Alleviation has come up with a model policy. The aim is to create an enabling environment for providing affordable housing to all.

The draft policy, which has been sent to the states for their feedback, will allow households with an annual income of up to INR 2 lakh to apply for subsidized houses. Such low-cost houses, with a proposed carpet area of 21-27sq m and 28-60sq m respectively for EWS and LIG categories, would be developed in partnership with either the state housing boards or private developers and are estimated to cost INR 4-10 lakh. The houses will be sold by the developer/ housing boards at rates fixed by the states, while beneficiaries will be selected through draw of lots.

Public Private People Participation can be a game changer

States like Haryana have taken the lead in making available affordable housing to people under the PPPP model. The state had recently come out with an affordable housing scheme where `private developers were asked to submit applications for development of affordable housing projects across the state. Special incentives like increased FAR and Ground Coverage were offered in the policy while selling prices were prefixed by the government.  The scheme received overwhelming response from the industry with more than 50 developers submitting applications under the new scheme.

Other states like Rajasthan and Gujarat have also taken proactive steps for low-income housing. Incentives like giving free FSI and allowing the unused FSI to be transferred to low-income housing projects in the heart of the city is encouraging more developers to enter this segment in Rajasthan.

This model can be a transformative tool and change the landscape of affordable housing in India.

Going forward, affordable housing can become a potent tool for unlocking the huge latent demand for housing in India. All that it requires is the right stimulus appreciate policy levers and conducive regulatory framework for the segment to breakout as a new sunrise industry in the country.

About P. Sahel

As Vice Chairman of Lotus Greens, Sahel is responsible for giving directions on overall business strategy and key investments decisions of the firm. Being one of the founding members of Lotus Greens, Sahel has been instrumental in formulating various company policies, setting up systems and processes, and building a strong team of professionals. Prior to Lotus Greens, Sahel worked for more than 16 years in some of India’s largest and most respected real estate companies like Jones Lang LaSalle for 13 years as the Managing Director of the Markets & Solution Development and DLF prior to that. The views expressed are personal

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