Policy change required to boost affordable housing

Rapid urbanisation and growing urban population has been triggering the housing problem to be tackled with appropriate planning by the authorities. The urban population in India stands at 377.10 million as per 2011 census, which is almost 32% of total population of the country. Urban population is slated to grow up to 45%-50% by 2050, indicating the need of solving the urban housing equation. No other component is is more complex than affordable housing in urban scenario of India.

Demand-supply gap in affordable housing

There exists a glaring mismatch between demand and supply of affordable homes in India. During the period between 2008 and 2011, total supply of homes in price category of Rs 10-20 lakh in the top five cities of Mumbai, Delhi-NCR, Bangalore, Hyderabad and Chennai, was just around 85,000 between the demand stood at 17 lakh homes. Even in the Rs 20-40 lakh category, the supply stands at 2.3 lakh homes which is much lower than the total demand of 6.3 lakh homes during the same period.

Demand for affordable homes stands at about five million at present and of the 5,00000 homes to be delivered this year, large chunk is to be constituted by the affordable homes. The absurdly low supply of affordable homes suggests that there are factors ailing the sector which needs to be handled by the government.

Problems associated affordable homes

The main cause behind deterring developers from affordable housing is high land cost. Scarcity of land in urban centres have propelled the land prices to shoot through the roof. Even when developers find land plots at an affordable rate, the place would be lacking in adequate infrastructure like road connectivity, power or sanitation.

The other deterrent for affordable housing is that they do not bring as much financial gains for the developers as the luxury segment. There is no incentives promised by the government to encourage the developers to go for affordable housing,

The real estate sector in India is faced with acute liquidity crunch, leading way for developers to get trapped in debt. The demand from buyers has hit low ground as inflationary pressures has been affecting the national economy. The residential real estate has witnessed a decline of about 50 per cent in investment as compared to office space realty sector, signalling that investors are looking to invest more in commercial sector to earn better returns. Faced with all these obstacles, to promote an environment where affordable housing can be promoted, government needs to come up with effective policies.

Policy change to incentivise affordable housing

Government needs to address the ailing mass housing sector with a view to find a solution in a long term basis. For this to happen, change in government’s policy and outlook is a must.

The first step would be to set up real estate investment trusts,i.e, investment trusts that own and manage commercial properties and mortgages and other real estate assets on behalf of shareholders. A positive gesture has been the setting up of an urban housing fund by National Housing Bank (NHB), worth Rs 2000 crore. The fund is launched to promote affordable housing in India and it aims to construct about 500000 affordable homes across the cities.

2013 budget offers tax benefit on home loan, which would be reaped primarily by developers in tier II and satellite towns of metro cities. However, as the lion share of the affordable home supply come from the top metros, there is a need to incentivise developers through offering tax exemption on low income homes to be developed in the outskirts of metros.

One of the primary suggestion to incentivise affordable housing is that the government should provide for land acquisition at a rate lower than market rate. To make it easier for developers to lend from banks is also at the top of the list. Developers would be better off to develop affordable houses if public private partnership is encouraged and commercial borrowing becomes easier.

There has also been suggestion of raising home loan limit for affordable homes in the metros and tier I cities from Rs 2.5 million to Rs 3.5 million, which will give a definite push to both supply and consumption of affordable homes.

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