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Challenges For Growth In The Affordable Housing Segment

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Sujan Sinha, Managing Director & CEO, Shriram Housing Finance Ltd,,

Housing for All– 2022. This is one of the critical and stated objectives in front of the government and the nation today. However, the challenges in implementation of this for all the stakeholders cannot be underestimated. I shall attempt to discuss the progress made in the succeeding paragraphs.

In June 2014, the Hon’ble President, in his speech before the Parliament, declared that it is the endeavour of the government to ensure that all families “will have a pucca house with water connection, toilet facilities, 24x7 electricity supply and access”. No doubt, since then, a lot of progress has been made to achieve the goal, though a lot, lot more remains to be executed.

In 2015 itself, as a first step, 305 cities and towns in the country were identified for launching the “Housing for All” scheme. The same year saw the launching of the “Pradhan Mantri Awas Yojana(PMAY)” which envisages the construction of 2 crore housing units and, in another major boost to the plans, the Pension Fund Regulatory and Development Authority (PFRDA), the regulator for pension funds, allowed such funds to invest in the realty sector. The following year actually witnessed the adoption of the Real Estate(Regulation & Development) Act, more commonly known as RERA, which was originally mooted by the UPA government in 2013 and also allowing concessions on the service tax applicability on “under construction’ residential units. In 2017 the government announced infrastructure status for affordable housing, paving the way for attracting far larger investments for the industry. It also introduced the much – needed PPP (Public-Private Partnership) for affordable housing projects. On the policy side, the scope for the Credit Linked Subsidy Scheme(CLSS)was expanded and a dedicated Affordable Housing Fund(AHF)in National Housing Bank, funded from priority sector lending shortfall and fully serviced bonds authorised by the Government of India was also introduced.

While research estimates indicate that the “affordable housing” industry will be a INR 6 trillion market by 2022 (Source: Indian Real Estate Sector, Grant Thornton & Secondary Research), RERA is, possibly, one of the most potent instrument of change which is expected to usher in control and supervision in this huge market. While, as on 31st July ’17 a large number of the states were yet to implement the act in their respective states, there were relaxations given in some of the states which tended to dilute the efficacy of the act, at least in the near term. For example, in a couple of states, the on-going, unfinished projects have been kept outside the purview of the Act, while the regulatory authority who is supposed to be enforcing the act has not been constituted in some of the others. Another shortcoming has been that projects of less than 1000 square metres have also not been covered by the Act, which tends to keep away the benefits of this regulation away from small projects.

Like in most economic welfare schemes, the demand for affordable housing for the Middle-Income Groups and the High-Income Groups (MIG & HIG respectively) would be hugely concentrated from the top 8 eight cities, i.e. Mumbai, National Capital Region(NCR), Bangalore, Kolkata, Hyderabad, Chennai, Pune and Ahmedabad (estimated to be around 2.7 million housing units, according to the India Brand Equity Foundation). As of now, according to JLL (Jonas Lang LaSalle) the highest number of unsold residential housing inventory is present in the NCR, Mumbai and Bangalore. Unfortunately, the total demand for LIG (Low-Income Group) housing, estimated to be close to half of the demand across segments has seen only 2 percent share of the total new inventory added in recent times. Actually, Maharashtra has been leading the way in the launch of affordable housing with more than 1-lac units having been launched across the state, with investments in excess of INR 15-thousand crore. Gujarat has, to its credit, launched more than 28-thousand units at an investment of close to INR 10thousand crore.

On the PPP issue, while it is no doubt intended to be a steroid dose for bringing about a much more improved off take of projects; the outlook remains hazy even now. The willingness of large developers to work on projects, where the profit margins would be wafer thin, seems to be doubtful. But, overall, they are possibly a better bet as partners to the government since they, with their well-leveraged range of products, could afford to work on marginal returns for this segment.While, on the other hand, the smaller developers, with hardly any margin of profit to cushion them, are most certainly going to be non-starters for this initiative. The danger remains of international developers, with deep pockets, making an aggressive entry into this segment and, ultimately, killing off the smaller players. It, indeed, remains a problem that is not going to disappear in a hurry.

However, major strides have been made on the availability of financing for the prospective home¬owners. While the traditional channels for funding by commercial banks and the housing finance companies(HFCs) continue full swing, the number of such HFCs has increased substantially in the last 4 years. The National Housing Bank has, taking an aggressive developmental role, have been instrumental in ensuring that 34 new HFCs have come into existence compared to the 58 that existed at the end of financial year 2014. This, indeed, is a huge development, boosting the credit delivery mechanism substantially.

Therefore, while we are witnessing a historic race against time by the government in ensuring housing for all before the end of the next five years, many of the pieces of this gigantic jigsaw puzzle are yet to be located, much less fitted in. However, we still remain optimistic because even partial fulfilment of this massive target would be a tremendous achievement.

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