Budget 2015-16: 8 Expectations for Affordable Housing

The residential segment is the most important part of the real estate market in India. The Technical Group Study on Urban Housing Shortage in 2012 pegs the shortage of houses in India to be at the 1.8-crore figure mark. This would mean an investment of more than 2 million US dollars. The housing market in India is beset with problems, including escalating costs, low demand and oversupply.

The affordable housing market is a huge area of opportunity, as there is a huge gap in the market for houses that can be purchased by mid-income groups and on the government’s part, a large-scale escalation of affordable housing projects and supporting infrastructure is much needed.

Judging by the government’s plan of 100 smart cities, affordable housing is slated to be a top priority and a huge boost to the housing industry in general, in India. There are many expectations from the upcoming Budget to incentivize the affordable housing scene in the country, including reducing interest rates and helping both home buyers and housing finance companies, apart from pushing for affordable housing in tier 2 and tier 3 cities.

The Smart Cities initiative aims to not merely give a much-needed impetus to affordable housing but will also affect other industries by generating employment and improving the economy holistically. Housing is the foundation on which the concept of the Smart Cities is built, as housing in these cities is intended to improve the resident’s quality of life by ensuring better connectivity, access to amenities, open green spaces and much more.

There are many deterrents to affordable housing in the country and it would require concentrated effort from the government and much involvement from the private sector to overcome these difficulties.

• All approvals for construction and infrastructure problems are plagued with red tape and outmoded development norms and permissions, leading to schedules going off-track. This leads to irregular regulations, schedule overlaps, long gestation periods, which drive costs up significantly, almost by 30%. Added to this, there is a shortage of urban land, due to various other projects overlapping with available land and this renders affordable housing to be an exorbitant dream.
• For housing projects, funding is a huge problem and the government should give more incentives to private financiers and attract developers to such projects. The government should look at a joint venture with landowners and across the board and from all states. There should be sophisticated systems in place, including a project management consultant and a marketing team, an edge that only private players can bring.
• Also, cost of construction, raw materials, labor and development drive the prices up. Projects are burdened by taxes and the overall costs make it very unfeasible for developers to find any way of raising capital to sustain these projects over a period of time. It is important to provide tax incentives and breaks for purchase of residential property in order to impact rental sector too. In fact, unclear regulations have hampered flow of capital from foreign investors into this market.
• The government should make the market more investor-centric and should revise taxes in this regard. REITs should be speeded in terms of implementation, as they can be a huge boost to the real estate industry. The cross-funding model that they present can put money into the real estate value chain and overcome time lags in finishing projects. The budget should focus on building infrastructure and in attracting foreign capital to this sector.
• As ambitious and commendable as the plan of Smart Cities is, it is important to bear in mind the technology that is needed for the same. Superior technology and project management systems should be used to raise the standard of construction and development by successfully combining technology with energy efficiency and sustainability in order to address the problem of congestion and rapid urbanization. A Smart City is required to have energy efficient systems, superior information and technology and restructuring the cities to support technology advancements that can drive the functioning of the city. Apart from this, maintaining the existing mid-sized satellite cities and transforming them by preserving houses and flats that are already present, which would require at least Rs.350 crore, which the DDA is setting aside.
• The government’s encouragement of participation from large developers on affordable housing will go a long way in meeting the huge demand in this sector. Already, Tata has started an affordable housing project in Kolkata along with Four Square Group and has been able to render value homes successfully by planning meticulously and by breaking even in just 24 months and with a 40% margin in terms of profit. In fact, with proper funding, adequate housing loans, collaborations with micro financers and a smart use of the capital value chain, it is easy to fund affordable housing projects. The state governments should realign municipal planning policies around new projects in this segment. With all these strides, the number of affordable houses is very much below the desired level.
• There are many aspects that go into a successful affordable housing project. Location is paramount, including proximity to public transport systems and a rapid mass transit system like the metro, which will bridge the large commutes between employment centers and houses. Reforms and fiscal incentives are important, as are incentives to banks to raise long-term loans for housing projects.
• The most important expectations from the budget concern the implementation of the Real Estate Regulatory Bill (RERA) and the Land Acquisition, Rehabilitation and Resettlement Act, which have thrown many projects off-track. Amending and passing these acts will effectively counter the land bureaucracy in the country.