Scenario of Affordable Housing In India
Rapid urbanization across cities due to better job prospects and livelihood has led to the emergence of several challenges in most of these urban centres. Traffic congestion, pressure on basic amenities such as water and sanitation and most importantly, severe housing shortages in cities, especially in the low-cost segment, has plagued the urban areas. The low-cost segment particularly caters to the Economically Weaker Section (EWS) and Low Income Group (LIG) who find it difficult to build a house in cities where they reside to earn a living.
According to government estimates, there was a shortage of more than 18.78 million homes in the urban areas at the beginning of 2012, of which 96% was in the EWS and LIG segment. According to Urban affairs ministry, the housing shortage in 2018 was estimated to be 11 million in urban areas, expected to again reach 19 million by 2022. Amidst the rising population and increasing urbanization, the country’s total urban housing shortage is projected to be about 38 million by 2030. This ever-increasing shortage of relevant supply in the affordable housing segment is forcing people to live in slums and informal settlements.
While the government tried to incentivize private players by offering tax incentives and access to low-cost capital, initially they depicted limited interest in the affordable segment due to thin margins, high land cost and delay in project approvals. However, amidst the subdued demand grappling the Indian residential real estate sector and the government’s rising focus on housing for all by 2022, private players were necessitated to go back to their drawing boards and increase participation in the affordable housing segment. As infrastructure status was accorded to the affordable housing sector and additional benefits in the form of interest subsidies and lower GST rates were granted, the situation seems to have changed in recent years.
The term “affordable housing” is ambiguous as it lacks a universal definition. Numerous agencies and industry bodies have endeavored to classify it based on various socio-economic factors such as household income, location, price, size of dwelling units, employment opportunities, government incentives among others. However, it still remains a concept which varies as per an individual’s financial capability and the city under consideration. Generally, affordable housing is targeted towards a section of society which has an income equivalent or lower than the median income. Ideally, for any individual, the monthly instalment should not exceed more than 30%-40% of gross monthly income and ratio of house price to annual income should be between 2 to 4.
Affordable housing has emerged as one of the fastest growing segments in Indian realty during the past few years and has witnessed the maximum new launches. The incentives given to both the developers and home buyers stand testimony to the government’s commitment towards the sector and achieving the vision of Housing for All by 2022. For this report, we have considered affordable housing as units priced less than INR 40 lakh across 7 major cities namely Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai Metropolitan Region (MMR), National Capital Region (NCR) and Pune.
CHALLENGES IN BUILDING NEW STOCK IN AFFORDABLE HOUSING
There are many impediments in developing affordable housing in urban areas. The government is well aware of these and has been striving to innovate with solutions and policies to make the process efficient.
Lack of available land in core areas of the cities has affected the development of the affordable housing sector. The available land parcels are also expensive, which is not suitable for affordable housing developments. The government initiative of incentivizing the developers through FSI/FAR/TDS will help create few affordable housing for EWS and LIG possible in core parts of cities.
Housing Planning and Location:
Restrictive density norms also act asa major deterrent to the success of the segment. Lack of physical and social infrastructure and insufficient action in providing connectivity to the locations are also impediments for the development of affordable housing. This is one of the reasons why there are more than one hundred thousand units still unoccupied under JNNURM which have been completed.
There are many slums located in different parts of the city that cater to affordable housing needs; but they lack in required size of units and essential amenities like water supply, sanitation, and sewerage facilities. They are mainly kutcha houses in a dilapidated condition, which are not safe for living.
Limited Private Participation:
Low-profit margins, time-consuming approval process, rising input costs, and GST rates have kept large organized players away from this segment.
MAHARASHTRA AFFORDABLE HOUSING SNAPSHOT
Rural-urban convergence is the catalyst to affordable housing; State to fast track affordable housing by PPP policy Maharashtra, home to the country’s largest metropolitan region – MMR – and other major cities such as Pune, Nashik, and Nagpur are witnessing rapid urbanization. Considering the housing shortage as stated by the Ministry of Housing and Urban Poverty Alleviation, the state government of Maharashtra is planning to complete 19.4 lakh sanctioned low-cost affordable houses across the urban centers of the state and MMR. Out of this, MMR is slated to get 50% of the homes sanctioned, which is close to one million.
Investments coming into Maharashtra for Affordable Housing
PMAY has been one of the top listed and prioritized initiatives of the Government of India. The objective of the initiative is to ensure that every family has a pucca house with water connection, toilet facilities, 24X7 electricity supply, by the time the nation completes 75 years of independence. The mission has come to effect since mid-2015 and it will be implemented up to early 2022. Similarly, Maharashtra has also launched multiple PMAY projects in urban and rural parts of the state. The estimated urban housing shortage of India is 18.78 million houses of which Maharashtra targets to develop 1.94 million housing units by 2022. Maharashtra Housing Development Corporation has taken up the initiative to construct these dwelling units. To ensure timely completion, new policies have been formulated to encourage private participation and joint ventures. Capital support will be extended from MHADA (Maharashtra Housing and Area Development Authority), SRA (Slum Rehabilitation Authority), CIDCO (City and Industrial Development Corporation) and financial grants from State
and Centre will also be granted to complete the planned target. MHADA is expected to setup INR 7,000 Cr shelter fund to support affordable housing. With financial and policy support coming from central and local government, affordable housing projects in the state are looking for private participation to reach its target. Under PMAY(U), Maharashtra has planned to complete around 6.7 lakh housing units by 2019, while the target for 2022 remains at 19.4 lakh houses for urban Maharashtra, as stated earlier. However, a quick check at the current status suggests that the need of the hour is to pull up the socks. The state has only issued sanctions for 3.08 lakh houses as of May 2018 which accounts for 46% of the planned target. The prime issue in reaching this target is the scarcity of land and the only way to fast track the affordable housing scheme is by unlocking land parcels. The state’s new policy on affordable housing makes room for such initiatives.
Maharashtra’s new PPP policy to fast track affordable housing
To encourage private participation in affordable housing, the government of Maharashtra has drafted a new PPP (Public Private Participation) policy which plans to acquire land parcels in the state to develop low-cost housing. This policy states the project design, approvals, construction and selling part will be handled by MHADA where landowners do not need to pay anything for the joint venture. This solves the biggest bottleneck for low-cost housing in the state as land acquisition is a challenge. Furthermore, this policy states that 50% of the profit will be shared with the landowners and it will be MHADA’s responsibility to develop the required infrastructure at the project and bear the cost towards the same. MHADA is confident this policy will boost the housing industry and help in building more affordable houses in MMR and other metro cities of Maharashtra. With rising urbanization, the urban dwelling of Maharashtra is experiencing migration and the prime issue arising from this phenomenon is housing shortage. The flagship scheme of central government – PMAY – is expected to address the housing shortage of the state. To provide further impetus to this scheme state government has appointed MHADA as a nodal point to achieve the target of 6.7 lakh homes by 2019. However due to land scarcity and other challenges, the state is way behind its target. However, the newly drafted policy is expected to expedite the progress in the coming years.
The term ‘affordable’ is one of the most used terms in real estate since the time the present government took charge in 2014 because of their election manifesto which aimed to provide ‘Housing to All by 2022’. Keeping in sync with the vision, the central government has been consistently introducing various sops for affordable housing over the last few years. As per ANAROCK research, affordable housing1 (units priced below INR 40 lakh) activity picked up in 2014 after the announcement of Housing for All by 2022 campaign by the present government. Post-2015, the Indian real estate sector was grappled with subdued demand and as a result, the overall new launches were on a decline. Nonetheless, the average share of affordable housing supply of total new launches, was around 40% between 2013-2018, indicating the incessant activity in this segment. In 2017, affordable housing supply had the highest share of 45% to total new launch supply, as developers looked to offer the right priced products so as to gain sales traction. Affordable supply increased by 18% in 2018 over 2017; this is the first positive sign of market recovery after the regulatory change.
Excerpts of Report from Anarock Affordable Housing Report.
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