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AFFORDABLE HOUSING FINALLY A SIGNIFICANT TAKE-OFF

Millions of Indians can now aspire to move into their own homes, as affordable housing is coming of age, with the government encouraging developers to take up projects that are within the reach of ordinary folk

By-TEAM URBAN VAASTU

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PUBLIC housing has finally taken off in India especially after Prime Minister Narendra Modi launched his ambitious ‘Housing for All by 2022’ project just two years ago.
Indeed, the mission has given a boost to the affordable and public housing sector in the country. A recent report by Knight Frank India, part of the global real estate consultancy, noted that there was a significant surge in the affordable housing segment in eight cities across the country.
According to the consultancy, homes in the under-Rs5 million bracket accounted for more than 70 per cent of total launches in these cities in the first six months of 2017. This was a hefty 50-plus per cent jump over the figures for the corresponding period in 2016.
The government’s ‘Housing for All by 2022’ scheme aims to develop about 20 million homes to be built across cities in just five years. Interestingly, the move has triggered off a spate of activities in the real estate sector.
And new legislation such as the Real Estate Regulatory Authority (RERA) is also complementing the government’s efforts to boost demand for affordable public housing.

AFFORDABLE HOUSING FINANCE
A report by India Ratings & Research, a Fitch Group company, noted that affordable housing finance (largely for loan ticket size of up to Rs1.5 million) will become a large segment for housing finance companies over the next five years. The estimated share is expected to increase to 37 per cent in fiscal 2022, as against 26 per cent today.
The agency anticipates a demand for a whopping 25 million homes over the next four to five years in the Medium Income Group (MIG) and Lower Income Group (LIG) categories. The sector is also expected to attract over ₹200 billion of equity inflows over the same period.
There is a combination of factors that are converting latent demand into commercially lucrative business opportunities. These include:
• Government financial and policy thrust
• Regulatory support
• Rising urbanisation
• Increasing nuclearisation of families
• Increasing affordability, which is converting latent demand into a commercially lucrative business opportunity.

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 Positive factors that are driving the real estate sector, especially in a place like Mumbai, are the introduction of RERA and GST, besides India’s emergence in its World Bank ranking to 100th position.

Not surprisingly, the government’s move to accelerate affordable housing has resulted in a boost to the real estate sector. In the first nine months of the year (January-September), the affordable housing sector has witnessed a surge of over 27 per cent in new units launched in the top eight Indian cities.

RECORD NUMBER OF NEW LAUNCHES
Mumbai witnessed the highest number of launches – of 19,400 new residents units – till September. And of these, 10,000 were affordable housing units, a three-fold increase over the figures for the same period last year.
Mayur Shah, president, CREDAI–MCHI (Confederation of Real Estate Developers Association of India and the Maharashtra Chamber of Housing Industry), says the market is looking up with developers getting a good number of enquiries.
“There’s festive mood in the market, and demand is picking up starting Diwali season,” he says. “If things go the way sales are picking up, we may even reach our peak in another six months.”
Shah maintains that the focus is on affordable housing. “We aim to work towards providing a home for every Mumbaikar besides making it a world-class city with our Clean and Green City initiative,” he adds.
Positive factors that are driving the real estate sector, especially in a place like Mumbai, are the introduction of RERA and GST, besides India’s emergence in its World Bank ranking to 100th position.
According to Shah, the Indian real estate market – which is the second-largest employer after agriculture – is expected to touch $180 billion by 2020. “The housing sector alone contributes about 8 per cent of the country’s GDP,” he points out.

INFRA STATUS TO AFFORDABLE HOUSING
Analysts expect a boost to public housing in India thanks to the series of measures unveiled by the central government. For instance, it has granted the infrastructure status to affordable housing, enabling developers to access cheaper funding and also external commercial borrowings (ECBs).
The Securities and Exchange Board of India (Sebi) had in September amended norms governing real estate investments trusts (REITs) and infrastructure investment trusts (InvITs).
They are now allowed to raise funds through debt securities and also allowing single-asset REITs in a bid to boost the financial instruments.
Last month, the government also raised the carpet area of houses under its affordable housing scheme, enabling buyers to get such apartments at lower prices. The real estate sector had appealed to the government to relax the rules to enable it to sell thousands of unsold flats, with marginally higher carpet areas than that allowed under the scheme.
Hardeep Singh Puri, the minister of state for housing and urban affairs (independent charge), says the increase in carpet area will enable individuals under the MIG category to have a wider choice in projects. “It will give a boost to the sale of ready built flats in the affordable housing segment,” he adds.
The government has already given the affordable housing sector the status of infrastructure, ensuring tax holidays and easier credit access for developers.
According to the minister, the government aims to provide homes for all by 2022 through various schemes. A technical study by the government in 2011 had estimated a housing shortage of 18.76 million units in urban areas, with 96 per cent relating to the economically weaker sections and low income groups.
“Subsequent assessments that were carried out since 2011 onwards have resulted in this figure being revised to something around or near about 10 million units,” points out Puri. “Even 10 million is a very large number.”

ENCOURAGING PRIVATE PLAYERS
The National Democratic Alliance (NDA) government has also released various PPP (public-private partnership) models to encourage private players in housing. The government would provide land and subsidy to allottees and also help them in getting concessional funding from banks.
Promoters of affordable housing have been given more time to complete the projects; it has been raised from three years to five, to enable them to execute it fully. Similarly, the tenure for long-term capital gains for affordable housing has been reduced from three to two years.
Indeed, in his budget last February, finance minister Arun Jaitley came out with several measures to ease the pressures on developers of low-cost housing. He gave low-cost housing the status of an industry, and also eased capital gains norms.
Developers of affordable housing are now eligible for several incentives, subsidies, tax benefits and institutional funding.
And to expand institutional credit flow to the housing needs of the urban poor, the government will implement credit-linked subsidy component as a demand side intervention.

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INTEREST SUBSIDY
The interest subsidy will be credited upfront to the loan account of beneficiaries through primary lending institutions resulting in reduced effective housing loan and Equated Monthly Instalment (EMI). The Net Present Value (NPV) of the interest subsidy will be calculated at a discount rate of 9%.
Beneficiaries of Economically Weaker section (EWS) and Low Income Group (LIG) seeking housing loans from banks and housing finance companies are eligible for an interest subsidy at the rate of 6.5% for a tenure of 20 years or during tenure of loan whichever is lower.
The credit linked subsidy is available only for loan amounts up to ₹600,000 and additional loans beyond this, it will be at non-subsidised rates.

‘PUCCA’ HOME FOR EVERY FAMILY
“By the time, the nation completes 75 years of its Independence, every family will have a pucca house with water connection, toilet facilities, 24×7 electricity supply and access to it.”
Pranab Mukherjee, then President of India, addressing the joint session of Parliament on June 9, 2014, had announced Prime Minister Narendra Modi’s envisioned Housing for All by 2022 (when the nation completes 75 years of Independence).
The Modi government launched the ambitious project in 2015. The mission seeks to address the housing requirement of urban poor including slum dwellers through four programme verticals:
• Rehabilitation of slum dwellers with participation of private developers using land as a resource
• Promotion of affordable housing for weaker sections through credit linked subsidy
• Affordable housing in partnership with public and private sectors
• Subsidy for beneficiary-led individual house construction
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DEVELOPERS ENTER THE SEGMENT
The enormous incentives that the government unfolded for affordable housing has seen several developers entering the segment. Developers are also entering into partnerships and joint ventures to launch new projects.
In October, Mahindra Lifespace Developers, the real estate arm of Mahindra Group, announced a partnership with HDFC Capital Advisors to jointly invest ₹5 billion over the next three years to develop affordable housing projects across India.
Mahindra Happinest Developers Ltd (MHDL), the new venture, will see a 51:49 equity shareholding between Mahindra Lifespace and HDFC Capital. The first development is ‘Happinest, Palghar’, a project on the outskirts of Mumbai.
Mahindra Lifespace forayed into the affordable housing segment in 2014, by launching its brand Happinest. It has two projects, near Mumbai and Chennai, and has already delivered 1,000 of the total, 1600 units. Housing units under the Happinest umbrella sell for between ₹1.7 million and ₹2.7 million.
“Affordable housing is a critical component of quality urban infrastructure as also a growth driver for the real estate industry in India,” said Anita Arjundas, managing director, Mahinera Lifespace. “We are delighted to partner with HDFC Capital in a venture that will leverage the experience and commitment of each organisation, to develop affordable homes that will create sustainable value for our customers, while also addressing the largely unmet demand in this segment.”

LONG-TERM CAPITAL
According to Vipul Roongta, chief executive, HDFC Capital Advisors, the main objective is to invest in residential affordable housing projects by providing long-term equity. “Lack of patient long-term capital is one of the key challenges facing growth and development of low and middle-income housing in India. HDFC Capital’s first fund is dedicated to addressing this funding gap by providing long-term equity-oriented capital for development in urban and semi urban peripheral areas.”
Another company that is targeting affordable housing is the Brick Eagle group, which was set up in 2011 to provide market-based solution for ‘housing poverty’ in India.
The company recently raised Rs1 billion from Bennett Property Holdings (which is part of Bennett, Coleman & Co, the publishers of the Times of India and Economic Times, among other publications) and Axis Bank.

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INCREASE IN CARPET AREA
Last month, the union cabinet approved an increase in carpet area of houses eligible for interest subsidy under the Credit Linked Subsidy Scheme (CLSS) for the Middle Income Group (MIG) under Pradhan Mantri Awas Yojana (PMAY).
According to Dr Niranjan Hiranandani, CMD, Hiranandani Communities and president, National Real Estate Development Council (NAREDCO), PMAY aims to provide houses to all the urban poor by 2022.
He termed the cabinet’s decision ‘positive’, pointing out that the move brings the entire demand for affordable housing under the interest subvention scheme – affordable housing comprising the largest chunk of demand for new houses in India.
Under the MIG-I category, the carpet area of houses has been increased from 90 sq m to 120 sq m; the area under MIG-II segment, has been increased to 150 sq m from the current 110 sq m.
Under the MIG-I category, a four percent interest subsidy is provided to the beneficiaries, whose annual income is between Rs600,000 and Rs1.2 million, on a loan of up to Rs900,000. Under the MIG-II category, the beneficiaries with an annual income of ₹1.2 million to ₹1.8 million get an interest subsidy of three percent on a loan of up to ₹1.2 million.
The decision to hike carpet area of houses eligible for interest subsidy under the PMAY will help middle income buyers make their dream homes a reality, while also helping the real estate industry clear unsold homes.
According to Hiranandani it would help meeting the aspiration of millions of MIG home buyers. “This decision will encourage real estate developers to launch new projects and effectively, boost the economy, GDP growth and employment,” he said. “‘Housing for All by 2022’ gets a boost, with the cabinet’s decision to hike unit size of MIG houses under Credit Linked Subsidy Scheme.”

Joanna DeSouza, president, Bennett Property Holdings, believes that affordable housing is a huge opportunity as India moves forward with new themes like ‘Housing for All’ and ‘Make in India’.
Global investment major Kohlberg Kravis Roberts & Co Ltd (KKR) invested ₹2 billion in May in real estate firm Signature Global for development of affordable housing projects. Last year, Signature Global had raised ₹1.5 billion from ICICI Prudential.
The developer is promoting seven projects in Gurugram under the Haryana government’s affordable housing policy. According to Pradeep Aggarwal, co-founder and chairman, Signature Global, there is huge demand for affordable homes in India. His company plans to launch more than 15,000 affordable housing units in India this year.
With an increasing number of top developers taking up affordable public housing in India, the sector appears set for a major take-off. Hopefully, it will ultimately provide affordable and reasonable homes to millions of Indians – both from the middle- and lower-income segments.

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