Make affordable housing a reality

There is an acute shortage of affordable housing units, and yet an oversupply of high-end housing. Developers are not making the obvious shift from the latter to the former due to policy infirmities.

Over 300 million people are expected to shift to urban cities over the next decade, which will result in a housing shortage of massive proportions. India’s housing shortfall is estimated at approximately 19 million units, of which over 95 per cent are supposed to be for low-income groups.

Developers face a significant challenge in development of affordable housing due to wafer-thin margins – with high cost of land and construction, coupled with the need for multiple approvals from various authorities. There is a lack of infrastructure support in suburbs and remote locations, where cheap land is available.

The other major issue is the gap in financing affordable housing projects. Banks have overall caps on real estate funding, and as a result projects from reputed, established developers with higher margins get preference over affordable housing projects.

It is therefore important to make the sector more viable and attractive for a multitude of investors. Further, the real estate sector attracts a plethora of taxes at different points of housing-related transactions and on average adds up to around 25 per cent of the property rate.

It is clearly the supply that is lacking. In this regard, the following six recommendations can help provide near term, practical solutions:

Granting infrastructure status to affordable housing : This will open up certain additional funding avenues and also provide direct tax benefits, and easy finance availability to the infrastructure sector.

Rationalisation of taxes : A single tax like GST and reduced stamp duty will be crucial steps in this regard. Secondly, there is merit in reinstating the erstwhile provision of income tax section 80IB (10), which provides liberal taxation for affordable real estate construction.

Single window clearance : There are around 35-40 major approvals from various departments and agencies that need to be obtained before beginning a group housing project. This entire exercise takes close to 2 years and results in delays and higher cost of construction.

Lower cost of funding : Project funding for affordable housing should ideally be excluded from overall caps set by RBI. Taking this a step further, the RBI may also look at including such funding within the existing Priority Sector lending (PSL) classifications set by it for all banks.

Implement an effective zoning process : This will be a key step to make land available for affordable housing development.

The government should designate areas where housing friendly zoning rules will apply, with higher FAR/FSI norms and relaxed density norms.

Set up mortgage guarantee companies : There is a clear need to set up companies to provide mortgage guarantees in India. This will help banks and housing finance companies cater to the vast untapped market in India.

While Government-led initiatives such as Pradhan Mantri Awas Yojana (PMAY), Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and Housing Mission have been established with the sole purpose of catering to growing housing and infrastructure demands, it is essential that administrative structures and policy frameworks facilitate and encourage resource mobilisation.

According to the RBI, an investment of ₹70 trillion is required mainly for construction of affordable housing, urban roads and modern transportation over the next two decades.

The Real Estate (Regulatory & Development) Bill, when passed, will facilitate the constitution of a real estate regulator, and set in motion key consumer-friendly initiatives.

The writer is MD & CEO, YES Bank