India government moves to boost affordable housing

When Narendra Modi promised to alleviate the housing crisis for the poorest, pledging ‘housing for all by 2022’, few developers were interested. But there are signs that India is striving to boost the plan.

A train passes through slum area of Mumbai, a city that is too costly for the many poor people living there. The government now says affordable housing will receive infrastructure status. Rajanish Kakade / AP Photo
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MUMBAI // In this city, there are many families that make the streets their home. Too poor to pay for accommodation in the overcrowded city, they eat, sleep and raise their children on the pavement.

Similar scenes are found across the country.

India’s prime minister, Narendra Modi, has promised to alleviate this situation, setting a target of “housing for all by 2022”. But more than a year after the scheme was launched, developers say that progress has been slow and much more needs to done to incentivise builders and get them on board if the ambitious goal is to be achieved.

“At the current pace at which it is being implemented by various state governments, the target of 20,000,000 homes seems far from being achieved by 2022,” says Snehdeep Aggarwal, the founder and chairman of Bhartiya Group, which is developing a township in Bangalore. “The vision has been framed by the central government but the onus of implementation lies on various state governments through public-and-private-partnership schemes.”

There are signs that India is striving to boost the scheme. In the announcement of the Union Budget on Wednesday, Arun Jaitley, India’s finance minister, revealed that affordable housing will receive infrastructure status, which would help developers secure financing more easily and at cheaper rates.

“The announcement of affordable housing being given infrastructure status is a welcome move and will act as a catalyst to meet the objectives of housing for all by 2022,” says Ravi Ahuja, the executive director at Colliers International India. “Credit offtake towards the affordable segment of housing will lead to creation of supply.”

He adds that housing for all has “not taken off” and is “a work in progress, but measures like this will only accelerate it. On an ongoing basis, we have seen the government taking positive measures for affordable housing.”

The budget outlined plans to build 10 million homes in rural India for the homeless and those living in makeshift housing and increased the scheme’s spending in rural areas from 150 billion rupees (Dh8.2bn) to 230bn rupees.

“Promoters of affordable housing projects will benefit from the following announcement that instead of the earlier timeline of completing their projects within three years, they now have a cushion of two additional years,” says Anuj Puri, the chairman and country head of JLL India.

In another step to boost the scheme, at the end of December, Mr Modi announced plans to make low-interest loans available to the poor in urban and rural areas. But developers agree that more measures are needed.

“Housing for all by 2022 is only possible if the government includes the private sector to develop these homes,” says Pratik Mehta, the managing director of Unishire, an Indian developer.

“First of all, the government should make it attractive or lucrative for private developers to get into the affordable housing space as margins are minuscule.” Complex approval processes often delay projects, which can make building affordable homes financially unviable.

“Lack of single-window clearance and also issues faced during the development of projects need to be looked into for successful implementation of affordable housing,” says Mr Mehta.

High land costs, availability of land and other challenges that developers face when trying secure land to build projects are commonly cited as factors holding back the development of more affordable housing in the country.

India’s property industry has faced a difficult period over the past few years as sales have slowed, while the government’s efforts to clamp down on black money by scrapping the two highest value banknotes in November have added to the sector’s woes.

“Housing for all is one of the most aggressive schemes of the Indian government,” says Vinay Prajapati, the founder of Propdial, a property management company.

“Particular focus should be given to related regulations. For instance, land cost is a major challenge for affordable housing. The built-up area per unit of land has to increase by allowing a higher floor-area ratio. But that will also mean additional infrastructure to manage the denser population with sufficient roads, electricity, water supply, schools and hospitals.”

He says that state governments across India need to play a role providing land for low-cost homes. Beyond that, more facilities need to be put in place for those living in extreme poverty, Mr Prajapati says. “What we also need is increased allocations for homeless shelters and social rental housing in urban areas for migrant workers and the poor.

“The government in the budget also indicated that it would redefine affordable housing, depending on the city the project was located in, to make allowance for property prices varying wildly across different parts of the country.

“This is very much required, as we expect the government to make a deliberate decision on defining affordable housing keeping in view the differentiation between tier one, two and three locations and cities across the Indian geographies.”

Experts say that a lack of motivation on the part of state governments remains a major hindrance to the target and this needs to be addressed for the scheme to really take off.

“State governments are not aggressive on the agenda on account of factors like lack of funds, limited bandwidth for execution, unavailability of developable land, red-tapism and political unwillingness,” says Mr Aggarwal.

“They need to partner with private developers, financial institutions, technology innovators under public-private partnership models for quick access to developable land, finances for land acquisition and development, developing and implementation of new and cost effective construction methodologies to make the housing for all 2022 a success.”

It is not only up to the authorities to make the plan work, however. The sector also needs to do its part to devise more affordable ways of building homes in India.

“The real estate industry collectively along with state and central government agencies need to work towards thinking out of the box solutions around space planning, design, construction methodologies like pre-fab, pre-cast,” says Mr Aggarwal. “These solutions will optimise and standardise construction and development costs, reduce time for construction and in turn pass the benefits of economies of scale to homebuyers and customers.”

He explains that if the demands of the industry can be met, developing affordable housing could become attractive to builders, including his own company, because “the market size is huge and no real estate player can overlook the opportunity”.

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