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Challenges for affordable housing in India written by Surendra Hiranandani | CMD, House of Hiranandani, published in ET Realty. April 4, 2017

 

The year 2016 brought in ground breaking changes and transformation in the real estate industry that had not been witnessed for the past two decades. The various policy initiatives undertaken by the government have been commendable and will boost transparency and credibility of the sector in the long run. A report by the Ministry of Housing and Urban Poverty Alleviation (MHUPA) estimated India&rsquos urban housing shortage at nearly 18.78 million households in 2012 and a significant part of it was in the economically weaker section and low income group. So, the move to grant infrastructure status for affordable housing will act as a perfect catalyst to the government's vision of &ldquoHousing for All by 2022&rdquo.

 

Initiatives such as easy access to finance, the revision in the carpet area, scheme offered on housing loans, or the recent development on abolition of stamp duty will lead to higher participation by private players in this segment. They can also have access to institutional funding and other government subsidies. It is important to recognize the imminent need to bring in the private sector in the form of public private partnerships (PPP), which can only happen when regulations are streamlined and made more effective.

 

We need to remember that Deregulation will be the key to the success of various government initiatives. A major impediment to real estate development in India remains the approval process. The Government has rightfully laid great emphasis on improving India's ranking in the World Bank global Ease of doing Business Index and continuously monitors the same looking at improvements in ranking as a success. The same World Bank released an Ease of obtaining Construction Permits Index. Here India ranks a shocking 185 out of 187 countries. We are in the same club as war torn countries where institutions have collapsed and offices which accord approval have been bombed to rubble. It would be welcome if the Government can look into this as well and take pride to improve our rank on this index also.

 

Since 2010 there has been a lot of pain in the market where developers sold properties at low prices and then were hit by severe inflation, resulting in a large number of projects being uncompleted. Construction and approval costs spiraled out of control. This was coupled with very high interest rates as borrowings are essential for construction projects. Most projects sold in that period resulted in heavy losses on the balance sheets of developers.

 

Even though the demand for affordable housing is humongous, there are multiple concerns owing to which developers are hesitant to enter into this segment. While the concept seems to be a simple solution to current housing woes, its execution remains complicated due to the unclear policy framework. The biggest challenge is the lack of clear definition for affordable housing. The government should redefine the same clearly keeping in view the different geographies in India. While it has announced tax benefits to encourage more builders to take up construction of affordable homes, it&rsquos turn around will be difficult without access to cheaper capital as the margins are very thin in this space.

 

In addition, the lack of availability of urban land at reasonable price, rising costs of construction, high fees and taxes, regulatory issues & unfavorable development norms are few of the major constraints, restricting the desired growth and implementation of affordable housing in India.

 

These pain points should be addressed as early as possible because the problems associated with ever burgeoning population and rapid urbanization will escalate exponentially in the coming years. The demographics of our country ensure that the real estate sector needs to grow to meet the demands of an ever growing economy. The future of India and the future of real estate are intertwined with each other.

 

DISCLAIMER: The views expressed are solely of the author and ETRealty.com does not necessarily subscribe to it. ETRealty.com shall not be responsible for any damage caused to any person/organisation directly or indirectly.