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Affordable houses for all House Shortages The 12the Plan working group on financing urban infrastructure estimates the housing shortage in the country at nearly 29 million units. Most worrisome is that about 26 million units pertain to EWS (household average monthly income up to Rs 5,0007,000) is three million. An inadequate supply of affordable housing is a key reason why at least half the residents in larger metros live in slums or other informal accommodation.


here is one agenda, to provide affordable housing to all, on top priority before the real estate sector today. However, challenges within the sector are limiting the efforts of private developers to provide housing for Economically Weaker Sections (EWS). The challenges that the real estate industry is facing include high land cost, lesser floor space index (FSI), poor infrastructure, no incentives from government (like loan subsidy), no benefits no customs, excise duties, huge escalation in cost of construction, and pre-fabricated houses not being an acceptable formula. From the 1990s, enabled by the growth of the housing finance industry, the government increasingly sought to incentivize the private sector to build LIG housing stock using floor space index (FSI), tax exemptions and other tools. While this approach reduced government's outlay, the emphasis on ownership remained. Greater availability of finance benefited

construction companies and aspiring MIG and HIG homeowners. What is affordable house? Mr Sunil Mantri, Chairman and managing Director of Mantri Developers says, “Affordable housing is where a person can avail loan, 6 times his annual income; cost of housing unit ranges from Rs 3 lakh to Rs 50 lakh, there should be no compromise on quality of houses, housing for the masses; provisioning of socio-economic infrastructure. However, the criteria differ in Tier III v/s metropolitan cities in definition. There should be a separate housing scheme for the poor to meet their basic needs, facility like the JNNURM houses; the concerned government or local bodies should take up slum development and rehabilitation, take up repairs and redevelopment of old and dilapidated buildings specially in urban areas where most of the residential buildings are over 100 years old. Housing boards, DDA and private developers provide houses in this category.

As per 2011 census, the country had a population of 1,210.98 million, out of which, 377.10 million (31.76%) lived in urban areas. During 2001-2011, the urban population of India grew at a CAGR of 2.8%, resulting in the increase in level of urbanization from 27.81 per cent to 31.16 per cent. This growing concentration of people in urban areas has led to problems of land shortage, housing shortfall and congested transit and has led to problems of land shortage, housing shortfall and congested transit and also severely stressed the existing basic amenities such as water, power and open spaces of the towns and cities. According to the 2011 census, the housing stock in urban India stood at 78.48 million for 78.86 million urban households. Though the gap between household and housing stock is narrowing, actual shortage is high due to a certain part of the current stock being dilapidated and people living in congested dwellings. Urbanization has resulted in people increasingly living in slums and squatter settlements and has deteriorated the

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COVER STORY housing conditions of the economically weaker sections of the society. This is primarily due to the skyrocketing prices of land and real estate in urban areas that have forced the poor and the economically weaker sections of the society to occupy the marginal lands typified by poor housing stock, congestion and obsolescence.

Housing Shortage in Urban India Considering these factors, there currently exists a wide gap between the demand and supply of housing (both in terms of quantity and quality) in urban India. According to e s t i m a te s o f t h e Te c h n i c a l G ro u p

and lower income groups that are grossly neglected, and there exists a huge dearth in the supply of affordable houses primarily demanded by this income group in India.

Major constraints There are several constraints in India for constructing affordable homes for EWS of LIG people of the society. Main constraints are: Land factor very expensive; Lesser FSI (against 10 to 20 globally); Infra practically Non-existent (road/connectivity; No

constituted by the Ministry of Housing and Urban Poverty Alleviation (MHUPA), the urban housing shortage in the country at the th end of the 10 Five-Year Plan was estimated to be 24.71 million for 66.30 million households. The group further estimated that 88 per cent of this Shortage pertains to houses for Economically Weaker Sections (EWS) and another 11 per cent for Lower Income Groups (LIG). For Middle- and High-Income Groups (MIG and HIG), the estimated Shortage is only 0.04 million. During the th 11 Five-Year Plan, the group estimated that the total housing requirement in India cities (including backlog) by end-2012 will be to the tune of 26.53 million dwelling units for 75.01 million households. If the current increase in backlog of housing is maintained, a minimum Of 30 million additional houses will be required by 2020. In India, private developers primarily target luxury, high-end and upper-mid housing segment, since it fetches a premium over low income housing. This leads to a sustained supply for this segment, increasing market competitiveness for developers. On the other hand, the housing for the poor and EWS is primarily provided by the government for welfare purposes. However, it is insufficient compared to the existing shortage in the segment . Thus, it is the housing requirements of the lower middle-income

Issues in the Development of Affordable Housing Developing affordable housing in Indian cities faces significant challenges due to several economic, regulatory and urban issues. Whilst the lack of availability or urban land, rising threshold costs of construction and regulatory issues are supply-side constraint, which impacts the ability of low-income groups to buy housing in the organized sector. Whilst some of these are gradually being mitigated, concerted efforts are required by multiple institutions to facilitate mass development in this sector. With high population density, which is growing due to rapid urbanization,there exists a huge demand for land in urban India. The real shortage has been further exacerbated artificially by poorly conceived central, state and municipal regulations. As a result, land prices in India are much higher than intrinsic levels that can support mass real estate developments.

Lack of Marketable Land Parcels

benefits to Customs/ Excise/ Taxes; Total 40% taxes levied on Affordable Housing segment; No incentive from the government to give land to de3velopers on priority (only houses is priority). Problems of retail loan to individual customers (since no income proof); huge escalation in cost of construction from time to time making it unviable/ no margins; Speedy construction a big issue; Pre-fabricated houses/ houses in 15 days not a very acceptable formula.

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Government authorities or stateowned entities such as railways and ports own large tracts of urban land, which are non-marketable, and these results in their inefficient use, which is Incompatible with its real market value. Most of these land parcels are located in central areas, as they have been inherited colonially, and they have high value for compatible uses today. These areas also provide for proliferation of slums and squatter settlements, as authorities are often incapable of monitoring their own holdings regularly.

Main fiscal issues Stamp duty and registration, tax relief, property tax, group guarantee scheme, home loan interest @ 4 per cent to 5 per

COVER STORY cent p.a and developers loan @ 8 per cent p.a., reverse mortgage, fostering the market (REIT / SAVINGS / INSURANCE Cos' NHB) are some of the fiscal issues for which the respective state governments should work on it.

construction costs have significantly increased by nearly 80 100 per cent due to the appreciation in prices of construction materials such as steel, cement and sand. Shortage of labour has also resulted in a rapid increase in wages.

Rising Costs of Construction

Lack of Access to Home Finance for Low Income Groups

Whilst price of premium residential projects are largely guided by land costs, construction costs have a significant share in the price of affordable housing. This is due to the fact that whilst land prices fall exponentially from city centre to peripheral locations of the city, construction costs generally follow a gradual trend from premium luxury, mid-income to low-income housing. If land is acquired at a reasonable

Despite having an extensive network of financial institutions, banks and apex housing cooperative societies, low-income groups lack access to home finance. National Housing Bank, a fully owned subsidiary of the Reserve Bank of India, was set up primarily to accelerate housing finance activity in India and promote the Housing Finance Companies (HFCs) by

amendment to Section 35AD for extending investment-based deduction of 150 per cent of capital expenditure in affordable housing, exempting service tax on low-cost housing of less than 60 sq meters, setting up mortgage risk guarantee trust fund to cover risk of bankers for lending to low-income borrowers and 1 per cent interest subvention on housing loans up to Rs 15 lakh for house costing up to Rs 25 lakh. The government must promote redevelopment of old buildings within cities or provide world-class infrastructure in suburban locations where people can reside and still commute to cities for work with ease. It can decongest large cities by developing large land parcels located outside them. Business models need to be followed along with the help of market forces rather than just talking about problems and suggestions, said Susheel Kumar, Joint Secretary (Housing), Ministry of HUPA, Government of India. “Market forces would mean some efforts from the builders in providing affordable housing, efforts from the banks in providing access to credit for the pooper sections as half of those 27 million have the ability to pay off loans and the rest need to bank on the rental housing only�.

Cost of Rs 150-250 per sq ft, and affordable housing project with basic amenities (construction cost of Rs 800 1,000 per sq ft) would result in a minimum selling price of Rs 1,400-1,700 per sq ft. Thus, construction costs form nearly 50-60 per cent of the total selling price for affordable housing. On the other hand, luxury housing projects in south Mumbai have construction costs of nearly Rs 4,000 5,000 per sq ft, which is nearly 18 20 per cent of the selling price of Rs 20,000 25,000 per sq ft. Affordable housing projects get more affected by rising costs of construction than premium projects. Hence, it becomes important that costs are minimized for construction of low-income housing whilst balancing the amenities provided as well as ensuring the safety and serviceability of the built structure during its lifecycle. During the past decade,

Providing them with financial support. It acts as the apex institution and regulator of the housing finance industry.

Government's Vision The Central and state governments must come out with a policy to provide good incentives to developers to increase the supply of affordable houses, and reserving 25 per cent to 50 per cent area for affordable housing segment in every tender for land allotment. It was noted that on its part, the Ministry of Housing Urban Poverty Alleviation, Government of India, has announced affordable housing in partnership schemes and introduced fiscal incentives in the Union Budget 2012-2013. These include

The Haryana government has formulated a policy to provide affordable houses to families living Below Poverty Line (BPL). Under the policy, 50 per cent plots of Economically Weaker Sections (EWS) belonging to the private developers would be transferred to the Housing Board at a subsidized rate of Rs 500 per square yard for construction of flats for BPL families. The state government has completed the construction work of 6,442 houses of various categories from March 2005 to March 2012 at a cost of Rs 403. The Haryana Housing Board has identified various cities and towns belong to Urban Local bodies department. Akruti, HDIL, Unitech, Hiranandani, Sahara Group, and large number of private developers have successfully implemented the PPP model in slum redevelopment. In fact, this model has managed to boost Akruti to a high level of national recognition, though the company has no significant land holdings in Mumbai. The PPP platform is currently a very workable one through which slum rehabilitation proposals can be implemented, though the possibility that an

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COVER STORY even more progressive model will evolve cannot be discounted.

Getting Clearance is most difficult Before taking up any housing project, there are between 40 and 60 regulatory authorities, headed by over 150 personnel,

Reasons for not constructing affordable houses by Builders High cost of land and stringent acquisition process, narrow margins compared to high end housing, delay in clearance of project (in some cases 2 to 5 years), delay in commencement results in high interest costs, difficulties in loan availability for

Business models need to be followed to Provide affordable housing for one and all. The government must reserve 25-50 per cent Area for affordable housing segment in Every tender for land allotment. This agenda Could work wonders in limiting the Challenges in the way of the real estate sector. to get clearance of the project and by completing all the formalities, around 1-1 and ½ year to 2 years is wasted, which result in price escalation of land or housing units. The main nodal agencies are DTCP, HUDA, Municipal Corporation, Revenue Department, Civil Aviations, PCB of StateCentral MOEFF, Ministry of Explosives, Chief Fire Officer, Electricity Department, EE Building proposals, Water and Seepage Department, Forest Department, and Coastal Zone Authority. To reduce the time frame of clearance of land from all formalities, I suggest that two months should be approved by licensed architect and land use. Airport Authority of India should earmark 'funnel' and rest of the areas NOCs to be followed for each and every proposal by local authority. No NOC is required if property falls in “R” zone of the master plan and central government should issue standard guidelines for NOC to be followed for each and every proposal by local authority. Excavation at the site is not mining. Whatever amount is required on account of mining may be charged in the Building Permission fees and diverted to the concerned department. Sometimes the fire department objects to many things. A proper procedure is to be drawn and if possible same authority to be kept with the building Permission plan. There should be set provision for providing water, electricity, and seepage connection.

MIG/ LIG of society, heavy taxes in construction costs such as 5 per cent development agreement stamp duty, flat p u rc h a s e s t a m p d u t y 5 p e r c e n t , Registration and VAT 1 per cent each, Service Tax 2.6 per cent, Excise and Custom 10 to 16 per cent (varies from state to state);

Double costs, no incentive from Government Viz. FSI, concessions in premiums, fast approvals of loans, and above all delay in the sanction process by various regulatory authorities and completing the NOC process from 18 to 60 departments which are completed 6 to 24 months in normal procedure.

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Solutions for affordable housing External Commercial Borrowing for Affordable Housing: Under the Union Budget 2012-13, external Commercial Borrowing (ECB) has been allowed for affordable and low-cost housing. This has been done to ensure a lower cost of borrowing for the segment. Under norms, ECB may have to be routed through the National Housing Bank (NHB), which could act as a centralized mechanism to help small developers avail the facility. The government would also allow developers to raise such debt only for projects where a significant portion of units (75-90%) are reserved for the LIG and EWS. There are several solutions to come out from major constraints. The Central or state government should provide land for the affordable housing to be completely subsidised or available to the developer on very nominal cost and sale of government land should be earmarked - 25 per cent area for affordable housing will help create huge number of housing. The government should waive of taxes, stamp duty, customs, premiums, charges, EDC, IDC for affordable housing and allot land to developers under priority sector who builds affordable housing and create huge land supply for infra (access/connectivity) which will open up new areas for affordable housing beside

Higher FSI up to 5 for affordable housing (to reduce land cost).

Suggestions to the government The central and state governments should come out with mass housing projects plan. Secondly, the government should adopt

COVER STORY single window clearance system for obtaining the NOC instead of visiting one Window to another and one city to another city for the purpose. It is just wasting the time and money and is the main cause for project delay. Standard building norms to be followed like standard sized rooms, specifications, buildings etc. There should be Good connectivity to Suburbs/city extensions for Affordable housing, there should be Private-PublicParticipation (PPP) model, Government should create Special Residential zone, site production be preferred like blocks, windows, doors and other building material and for all these, the government must Act as a “facilitator� and Enabler.

and incentivised to enable a billion of the world's population to participate in the housing market as full economic citizens. Despite rise in property prices in the last couple of years, it is now easier for the middle to upper middle -class people to buy a house in the country. According to HDFC Ltd, the largest home loan lender in the country, the Average Price

To sum up


In the coming decade, the Affordable housing market could grow to more than a trillion U.S. dollars if families simply double the current level of annual consumption of housing products and services. This is a conservative estimate based on the current gap between need and supply, and the Increasing migrations to cities' urban slums. In the process of unleashing this significant market opportunity, hundreds of millions of people would have access to dignified homes, healthier places to raise their families, and more valuable assets that they could leverage to transform and improve their lives. Unfortunately, we will not accomplish this unless we stop thinking one business deal, one company, one client at a time. We need to build a new affordable housing ecosystem, one with the capacity to continue to ramp up the processes and systemic changes neede4d for the housing industry to offer appropriate products for low-income populations, for enough financing to become available, and for the right standards and quality to be in place

years, to 4.5, 4.7 and 4.8 year during 2009, 2010, and 2011, respectively. In 1995, the affordability factor was 22. That means, in 1995, one required 22 years' income to buy a house. But after that, while average property prices fell sharply, the income of the middle class rose. This brought down the number of years' income one required to buy a house. The average income between 1998 and 2002 doubled from Rs 1.2 lakh to Rs 2.45 lakh. But the property prices fell sharply to less than half the value in 1995, from Rs 26 lakh to Rs 12 lakh, in 2002. This improved the affordability factor sharply from 22 to 5.1. That means, while in 1995 an average middle-income group family required 22 years' income to buy a house, in 2002 they required only 5.1 years' i9ncome to buy their dream house. After that, as India rode the higher economic growth of above 8 per cent, the prices of real estate appreciated very sharply. But, at the same time the average income of middle class also rose handsomely. Because of this, the number of years' income required to buy a house remained almost the same around five years. In 2004, it was lowest at 4.3 years.

of a house in metro cities remained less than the five years' income of an middle-class family.

According to a study conducted by the housing finance company, the affordability factor, which denotes the number of years' income of a family required to buy a house, has fallen from over five years in 2007 and 2008, at 5.1

Despite rise in property prices in the last Couple of years, it is now easier for the Middle to upper middle-class people to buy A house in the country. According to HDFC Ltd, the largest home loan lender in the country, the average price of a house in metro cities remained less than the five years' income of an average middle-class family. Jan 2013 I Twin Cities REAL ESTATE BULLETIN I 13

Affordable Houses  

House for all

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