Multipronged Approach Needed To Make Affordable Housing Truly Affordable

Gopalakrishnan has over 32 years of rich work experience covering all facets of corporate finance in some of the largest industrial houses of India including Reliance Industries and Aditya Birla Group, he has significant experience in the areas of M&A, corporate restructuring, debt and equity capital markets and debt financing.

By 2030, India will be the world’s most populous country and will be staring at a huge demand of around 25 million additional affordable housing units, which is currently reeling under shortage of around 10 million units. It is the lower income groups and economically weaker sections of society that face this deficit. While the noble mission of the honorable Prime Minister’s vision of ‘housing for all’ is a definite step in addressing this deficit, there is that much more that can be done by stakeholders to bridge the gap. Having said that, it must be mentioned that the efforts of the Government in achieving 10 million affordable houses in 2022 is truly commendable and possible an unparalleled global achievement. The need of the hour is strong private public partnerships that can create the ideal ecosystem that will ease bottlenecks, accelerate construction activity, and speed up the delivery process.

Some of the factors that affect the growth of affordable housing include shortage of land in urban areas, taxation, statutory clearances, and processes for approval. Land acquisition continues to be a huge challenge for most developers, as procedures to acquire land are complicated. Steps to ease land acquisition such as uniform rules for States, should be drawn up and implemented to remove any hurdles in the acquisition process. There is an urgent need to increase public funding for land acquisition for affordable housing projects to reduce costs for developers, and result in more home buyers. Developers find it unviable to take up affordable housing projects in prime areas mainly due to the high cost of land in these areas and better returns on investment in other asset classes. This leaves affordable housing projects to be taken up on the city outskirts, which often lack supporting infrastructure. The Government should consider introducing larger schemes for long term infrastructure wherein they provide finance support or low interest rate long term loans. This can reduce the unit costs by another 5 percent to 6 percent. In addition, it is imperative that the Government monetizes excess State owned land by repurposing it for affordable housing.

Steps to ease land acquisition such as uniform rules for States, should be drawn up and implemented to remove any hurdles in the acquisition process

Giving a bigger thrust on housing will have a multiplier effect on the economy as over 135 industries are connected to the real estate. Currently for property that falls under the affordable housing bracket which is 45 lakhs, close to about 25 percent to 30 percent goes towards taxes. So it is imperative for the government to remove GST for affordable housing or reinstate input tax credit so that the benefit can be passed on to the customer. In addition, the Government of India needs to impress upon State Governments to work towards reducing stamp duty. Removal of GST and reduction in stamp duty can bring down unit costs by 15 percent to 16 percent. With an increasing number of people buying affordable housing units, the tax-payer base as well as the proportion of revenue for the government will automatically go up. The thrust on affordable housing by the government and the anticipated rising demand in the coming decades will give the segment the potential to become a major wealth creator for the country. It will also encourage established and trusted developers to venture into the affordable housing segment, resulting in a win-win situation for developers, buyers as well as the government if there is that further impetus on the affordable housing sector.

The lengthy process for statutory clearances currently takes anywhere between six months to a year. This causes delays in projects and increases costs by around 20 percent. While certain states in the country have implemented a single window clearance system, introduction of a faceless system, by emphasizing thrust on digital will reduce human intervention, lessen paperwork, and quicken the process significantly. Implementing a faceless system for sanctions and approvals across the country will address uniformity of approach and uniform application of law and make the processes more efficient.

One area that has been largely unaddressed is the availability of finance for people in the economically weaker sections and low-income groups. This is mainly because they work mostly in the unorganized sector and do not have the necessary documents to procure a loan. While some NBFCs and micro finance companies have developed home loan products for this segment of people, it would come as a shot in the arm if the Government could step in to create an environment where all stakeholders can operate seamlessly.

To sum it up, it is imperative to follow a multipronged approach to make affordable housing truly affordable where issues in both demand and supply are equally addressed. As far as addressing demand issues, while subsidies play a vital role and are necessary, complementing subsidies with infrastructure development, basic amenities and services around affordable housing projects is an absolute must. From the supply point of view, feasibility of affordable housing projects would largely depend on policies and initiatives that promote low cost. Incentivizing large developers who take up affordable housing projects would help boost the segment and bring in accountability, adherence to timelines, transparency, and boost confidence in potential home buyers.