Affordable housing in India opportunities and challenges for developers
This paper focuses mostly on the developer’s side because affordable housing is not possible by the government alone and government is not giving any special type of benefits towards the developer which is making them to loss interest in this segment. The Millions of Indians want to have roof over their heads, yet at the same time hundredth and thousands of housing units remain unutilized throughout the country, the reason is simple, the developers are investing in mid and premium segments but are increasing the material and labor costs while financing the segments, making affordable housing segments unaffordable. The Perceptional risk at keeping buyers away are approached from two angles, the First one, looks at the need of organized players such as Tata housing and Mahindra life who brought innovation and assembly line approach to this sector. Demands are simple and have a single-window of simplified approval process that includes Digitalized land record to make developing land easier. Also to enable mass housing within the city along with simplified taxation on affordable homes schemes and taxation like- Vat, the service tax, stamp duty, registration, if handled by the government then the mass affordable housing has the potential of reducing the cost of ownership by 15 – 20%.
The Other method to simplify Mass Affordable housing is to make the smaller developer understand the value of the land that is critical to crack the market. Organizations like “Brickeagle” are helping developers to achieve that. It is important because bank did not want to educate the developer to buy the land parcel. And private company did not see affordable housing as a worthy bet.
The affordable word can be different to different people. It may be affordable to someone while not be affordable to someone else. Affordability can be archive by two ways, either bringing the cost down or enabling the buyer in buying it, both the aspect need to be worked together
There is shortage of nearly two crore properties in urban area and four crore in major areas but there is also lot of supply available in urban area but the transactions are not happening because of the gap between buyer and the affordable cost. Which need to be brought down, in the area of interest lot of positive steps are taken.
These are the points which are the really big challenges for the real-estate sector especially in affordable housing sector.
- Ease of approval – it’s a distance dream for the housing sector but unfortunately government hasn’t realize even for the much needed affordable housing.
- Lack of land for affordable housing with in the city limit – this is probably the single most challenging factor
- Lack of funding for land cost and also re-construction cost is huge. The zone converging construction approval etc.
- Lack of access to new and efficient technology to cut cost.
Has the government done enough to make the environment bit more conducive for affordable housing?
Government has definitely showed the interest especially in the two budgets (the union budget of the year 2016 and 2017) weather it was interest subsidies the government has given or whether it is 80iba kind of tax holiday for developers or it was giving affordable housing as infrastructure status. The government is definitely on the right path but lot more on the execution side is required, for example, like where land is available for the affordable housing, where infrastructure is is available for affordable housing and the approvals happening on time. the Interest cost is still passed on people who wants to buy these houses. Still the government need to do huge amount of opportunity
This sector need a certain level of mind set. Even after 70 years of independence we are still struggling with getting proper codes in terms of our land title. The Approval process takes so much time compared to any such kind of sector. RERA is turning out to be another problem for the developers, As we look up for RERA which is for helping customer and regulating the sector is very much silent on various approval authority and there is no supervision or regulation of the authority on the work that is done by RERA which is also coming up in the multiple parts of the approval.
How it is better for developer and the people who show interest to get in this sector?
Only consumers were focused by the government side like in RERA, subsidy housing loan but the supply side should also be given importance. The Land rates with in the municipality are still very high and it is the main component in the affordable housing. Government has addressed the supply side in the union budget of the year 2017 which otherwise it has always been focused onto the consumers. The Government starting giving tax rebate to the developer banks that started to take it as a priority sector and providing long term loans.
The Need of a single window clearance system. So many approval have to be taken by state and central. Center has to come up with computerizes clearance system and decreased in the manual interference like height clearance which can be achieve by the central government in 15 day. Similarly the environment is the biggest issue now the charge to supervise with byelaws is given to the development authority. These kind of things will ease the approval system.
- Delays in approval is the biggest challenges to build affordable housing.
- Bringing down the leading rates for affordable housing.
- Approvals problems
Funding challenges for affordable housing
Classifying affordable housing as infrastructure will help bringing down cost of borrowing and the cost of construction will come down and the benefit of that reduction will be passed on to the ultimate buyer.Delays in approval is the biggest challenges to build affordable housing. Bringing down the leading rates for affordable housing, Approvals problems. Land is big cost component. This need to be address because more than 90% affordable housing requirement is in LIG and EWS segment where the affordability is a very big challenge so the cost need to be considerably reduced.
Why are developers hesitant about getting into in the affordable housing sector?
Affordable housing never got favorable environment earlier and there was never an interest among the developers to get into the segment.
For developer no motivation is available for affordable housing motivation is more for doing luxury and mid segment demand because that’s where better reliabilityinvestor driven market
It’s only in union budget of 2017 first time government has taken an account on it and they remove the additional incentive investor use to have. So earlier people use to buy flat for investment and income tax exemption for investor. if they do the set of rental income the whole interest amount use to get exempted and that was the additional seven percent benefit for the investor that’s why more and more investor are participating in real estate sector and they are using the need rather than full filing the need.
India is facing problem of housing shortage and rising inventory prices went up so much which has created economic imbalance India is having huge demand of affordable housing but can’t fulfill the demand because cost is very high and the biggest problem is land cost. Affordable housing For LIG and EWS can’t be done in metros where it interact with the lively hood of the people because for affordable housing someone has to go so far away where there is no desirability for people to go and live because there is no social fabric infrastructure no connectivity. we are the country having infrastructure shortage all around. In this perspective there is a need of affordable housing but supply can come only to the places which are so far away and the land cost near by the location is very high it doesn’t allow affordable housing to exist over there. Unless we see a Moderation in land prices where we ensure there is land is available which is interactive to the consumer lively hood and closer to city
Do federal structure actually works to undermine the growth of affordable housing?
In some state acquiring land giving land there are some incentives bean given
As land is considered the federal structure of our country sometimes there no alignment in affordable housing policy of state and central. There is lot of disconnect between state and central government when it comes to land as a topic or even affordable housing. If we even look at the tax structure when a person buy a home close to 30-35% whatever he pays goes for different types of taxes for central and state whether it’s a developer paying or buyer paying.
Delay aspect, whatever central government says delay happens at the local level. Just a land 2 years delayed for a good developer its cost of capital is 20%.So the 40% of the land prices increasing just because the delay of 2 year.
Enough infrastructure schema happening today which are better than before. There is enough land bank for the developer which is not the case 12 year ago. Enough construction technologies where developer can do construction faster. If we look at all these aspect we have good foundation for the country to go to the next level government can fix 3 4 points wither its better infrastructure, land at lower cost, reducing the tax rate, faster approval.Land, taxation, stamp duty, and the technology if we combine these 4 things so affordable housing in can be achieve in India.
How superior technology help in bringing down the cost in much efficient manner?
Mass housing can only be done in our country is by the use of technology we are having continues shortfall of skilled labor. Form technology is been brought it is slightly expansive in the initial year but over a period of time it will really help delivering housing at different phase. There are technology which may help to build a large scale township. With the help of technology a project can be completed within the 12 months which would have taken 24 to 30 months in the conversional conditions. If we have to do mass affordable housing there has to be some shiftin the way we construct and the way we approach this.
Every developed country wither its South Korea, U.S, U.K, Singapore, have solve their problem because of very high vacant land tax. India today need vacant land tax land is been consider so far where people have parked their black money. There is enough vacant land available in Indian cities which remain undeveloped people don’t really produce it has been a case the more the people hold these land more money they make.
Last 12 years land cost gone up by 5x that means raw material cost gone way much higher than people affordability. Lot of commitment of developer could not produce the good because the prices went high and the rise in the price is driven by generally the land cost. We have done lot of correction in terms of bringing the efficiency providing tax incentives industry status every other thing but nothing happened with the terms of land.
Buyer is getting CLSS (Credit link Subsidy Scheme, of PMAY) it is 6.5 % for EWS, LIG and up to 4% for MIG it is a huge relief but going forward first buyer has to buy the property. Today it’s a cost v/s income which person is having income did not permit the buyer to meet the cost so the cost has to come down in the area like taxes, land cost , stamp duty, sector rate. Sector rates are generally for increased the income of state government because of that actual transition are not happening or land owner decide the price of his land according to sector rates. Custom duties on the technology, size of the unit most of the bye laws don’t allow to make small units
- Quote paper
- Rajat Singh (Author), 2019, Affordable housing in India opportunities and challenges for developers, Munich, GRIN Verlag, https://www.grin.com/document/500590