Housing for All: Budget 2016 expectations

The real estate sector which is beset with muted sentiments since the past few years is expected to witness a turnaround going forward on the back of several measures and reforms initiated by the government in order to augment the sector. Budget 2015 saw the announcement of the government’s most ambitious project so far to revive the disoriented sector, “Housing for All” by 2022, a mission to provide a roof for each family. It is targeted to complete 2 crore houses in urban areas and 4 crore houses in rural areas.

The mission on low cost affordable housing is proposed to be anchored by National Housing Bank (NHB) and a sum of USD667 million has been earmarked with a view to increase the flow of cheaper credit for affordable housing to the urban poor/Economically Weaker Section (EWS)/Low Income Group (LIG) segment. The government has identified 305 cities and towns across the states of Madhya Pradesh, Odisha, Rajasthan, Chhattisgarh, Gujarat, Telangana, Jammu and Kashmir, Kerala and Jharkhand, among others, for constructing homes for the urban poor under this scheme.

As it is about to complete one whole year and all eyes are hooked to the upcoming budget 2016, it is time to review its performance. KPMG and NARDECO survey report 'Decoding Housing for All 2022' decodes the whole scenario for us.

Current state of housing in India Requirements to achieve the vision by 2022

• By 2022, India needs to develop about 11 crore housing units

• Investments of more than USD2 trillion or about USD250 to 260 billion annual investment until 2022

• Investments will need to grow at a CAGR of 12 to 13 per cent (unadjusted for inflation) in 2022

• 70 per cent of the housing needs till 2022 should be concentrated in nine states

• Urban housing is to account for about 85 to 90 per cent of the total investments; the focus should be on affordable urban houses, which is 70 per cent of the total urban housing requirement

• About 1.7 to 2.0 lakh hectare of land is expected to be required to fulfil urban housing need by 2022.

Some key points for the Government to focus on in this budget season

1. Shortage of urban housing is prominent across the Economically Weaker Sections (EWS): 39.44 per cent and Low Income Groups (LIG): 56.18 per cent which together constitute 96 per cent of the total housing shortage, presenting an opportunity for affordable housing across India.

2. Scarcity of land: Non-availability of land within city limits along with rising land and construction costs, making affordable housing projects unviable.

3. Lack of adequate policy framework: Low focus on housing for EWS and LIG segment from the developer fraternity owing to lack of effective policy framework.

4. Development norms: Stringent development norms seem to have led to sub-optimal utilisation of land, in-turn raising the per unit value.

5. Approval processes: The lengthy and complex approval process leads to a high gestation period which eventually results in project cost escalation by 20-30 per cent.

6. Funding: The lack of funding sources at lower coupon rates for developers has resulted in an increase in housing cost. This coupled with limited access to credit by the EWS/LIG segment led to a reduction in housing affordability.

7. Cost overrun: Due to lack of advanced technology and skilled manpower, the overall project economics is not achieved. Many of the on-going affordable housing projects are still adopting conventional construction techniques.

With the growing gap between demand and supply for housing, the affordable housing segment poses a business opportunity worth USD 11.8 billion for developers across seven major cities (Delhi-NCR, Mumbai (MMR), Bengaluru, Chennai, Hyderabad, Kolkata and Pune) of India. The success of these developments would lie in the scale of operations. In order to bridge the current gap in the segment, the government should strengthen private participation in this segment.

Recommendations to help improve/ boost the supply of affordable housing in India

1. Creating a conducive and less regulated environment – Streamline approvals required for projects and create a single window clearance, increase FSI and mandate zones for low-income housing, provide government owned land at subsidised rate to developers.

2. Financial assistance – Provide tax deductions or viability gap funding for affordable housing projects, interest rate subsidies to low-income customers, develop new avenues for project financing for affordable housing including that from insurance and pension funds, provide direct tax incentives to customers, increase availability of low cost debt to housing finance companies.
(Image credits: indiatimes)