Affordable Housing - A Key growth Driver in the Real Estate Sector

Affordable Housing - A Key Growth Driver in the Real Estate Sector

The big dream is to have housing for all Indians by the year 2022! Over the last decade, India has seen a demographic transformation in terms of rising urbanization, an increased number of nuclear families, and a rise in income levels, thus creating an ever-widening gap between the demand and supply of residential units in the country.

The central government identifies housing as the primary need of every citizen and has therefore launched a mission of creating affordable housing for all by the year 2022. Besides, the housing sector is an economic booster with tremendous potential, contributing to 6 percent of India’s GDP and creating the second-largest employment opportunities with 250 ancillary industries attached to it.

Government Initiatives for Affordable Housing

To realize this colossal dream, the government is accelerating its efforts in all spheres, including:

• Changes in policies and reforms

• Inviting private players to meet demands

• Creating better coordination between all authorities

• Relaxing financing and funding norms

• Reducing the gestation period of projects

• Correcting excessive fees and charges

To understand how far we are from realizing this vision, it is important to assess the current scenario, bottlenecks, and future requirements.

Current Scenario and Housing Demand

With a rapid increase in annual population, the urban population is estimated to reach 81 crores by the year 2050. An estimated 1 crore homes need to be added year on year to meet the vision, demanding the creation of 11 crore housing units by 2022, of which 6 crore units is the existing shortfall.

• 70% of the houses are needed in the affordable housing sector

• Will cater to the housing requirements of Economically Weaker Sections (EWS) and Lower Income Groups (LIG) (annual income of less than ₹2 lakhs per annum)

Housing Demand by Region

• 30% of the housing need is concentrated in just two states

• 70% of the housing need is in nine states:

  • Uttar Pradesh

  • Bihar

  • Maharashtra

  • West Bengal

  • Madhya Pradesh

  • Andhra Pradesh (including Telangana)

  • Rajasthan

  • Tamil Nadu

  • Karnataka

Investment and Land Requirements

• Total investment expected to accommodate all by 2022: US$ 3.5 trillion

  • US$ 2 trillion for housing units

  • US$ 1.5 trillion for infrastructure

• Current annual investment in housing: US$ 110-120 billion

• Land required: 1.7-2.0 lakh hectares for 11 crore residential units (85-90% in urban areas)

• Growth rate required for investments: 12-13% CAGR till 2022 (compared to 5-6% annual growth from 2008-2014)

Challenges in Affordable Housing

• Slow growth in housing infrastructure due to political and economic bottlenecks

• Rising cost of land due to urbanization, making housing expensive

• High building costs and unavailability of skilled labor

• Fees and taxes amounting to 30-35% of the unit cost

• Long gestation periods of projects (6-8 years)

• Difficult access to approvals and permissions

• Issues in financing system leading to lower availability of long-term funds for builders

Government Strategies to Overcome Challenges

To combat these challenges, the government is encouraging private sector participation. Economic reforms include:

• Permitting Foreign Direct Investments (FDI)

• Offering tax rebates to the housing sector

• Improving access to credit

• Development of 100 smart cities and the Delhi-Mumbai Industrial Corridor (DMIC)

Key Strategic Initiatives for Affordable Housing

The central government has laid down an agenda based on six key themes:

1. Strategic Initiatives for Further Impetus

   • Multi-layered initiatives to enhance project delivery capabilities

   • Supportive policies in sync with the vision

2. Make Strategic Investments

   • Reduce fees and taxes

   • Facilitate EWS & LIG with lower interest rates, subsidies, and micro-financing options

3. Simplify Structural and Procedural Framework

   • Streamline and simplify existing norms

   • Revise LARR Act to remove complexity

4. Introduce Legal and Regulatory Reforms

   • Form a nodal agency for better coordination

   • Grant infrastructure status to affordable housing

5. Empower the Consumer for Greater Affordability

   • Increase fund inflow to urban housing development

   • Promote Public-Private Partnership (PPP) framework

6. Strengthen Housing Programme Delivery

   • Empower local authorities for decision-making

   • Create faster approval mechanisms supported by new-age technology

Conclusion

Though achieving affordable housing for all by 2022 seems like a distant dream, the government under Prime Minister Narendra Modi is leaving no stone unturned to make this possible. With strategic reforms, private sector participation, and strong policies, India is moving closer to ensuring a roof over every citizen’s head at an affordable cost.

About the Author

Meenakshi Khurana is the Director of Client Relations, Sales, and Marketing at Smart Homes Infrastructure (P) Ltd.

Smart Homes is a professionally managed young organization specializing in affordable Group Housing and Town Planning Projects in India. The company plans to build more than 100,000 homes in the next decade. The Smart Homes team has over 100 man-years of experience in apartment development and has successfully sold over 80 million square feet of housing projects across India.