Affordable Housing: Land costs to tech, factors that influence successful implementation

At present, there is a shortage of 18.8 million homes across urban centers of India, of which 15 million are needed in the LIG (Low Income Group) category.

Written by A Shankar | Published: February 18, 2017 3:19 am
budget, budget 2017, affordable housing, real estate, budget affordable housing, affordable housing scheme, budget arun jaitley, central government budget As part of the Smart City initiatives, some Indian cities have planned convergence with the Housing for All scheme to address the informal housing sector. (Representational)

The year 2016 turned out to be a year of transition, particularly for real estate — a sector that has been directly or indirectly affected by most policy reforms introduced by the state or central governments. Some of these policy changes might seem disadvantageous in the short-run, however, they will render the entire system more mature, organised and transparent. The Union Budget 2017-18 has yet again emphasised the importance of housing, and has accorded infrastructure status to this sector. It is important to attract the attention of all stakeholders to this sector, particularly those who influence supply — developers and banks. The traditional factors influencing housing demand keep fluctuating due to policy interventions; yet, consumers keep investing in real estate.

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Of all the policy initiatives, the Housing for All (Pradhan Mantri Awas Yojana) and the Smart Cities Mission are two major flagship policies that have affected the demand and supply trends of residential real estate, and have a huge impact on addressing the issues of informal housing / housing for the urban poor. The recent Real Estate Regulatory Act does not concentrate on incentives to promote informal housing, though it increases transparency in the formal residential market.

At present, there is a shortage of 18.8 million homes across urban centers of India, of which 15 million are needed in the LIG (Low Income Group) category. Large-scale budget housing projects are definitely the need of the day to address the mammoth shortfall. The Housing for All mission envisions a multitude of strategies such as tax rebates, monetary support, relaxed development regulations, discounted interest rates, etc. to provide Housing for All by 2022.

The Housing for All and Smart Cities missions, through convergence, use the benefits given to each other and also compensate for shortcomings by leveraging their advantages. While Housing for All concentrates on funding and incentives for developers and buyers, the Smart Cities mission focuses on leveraging land availability, implementation under single entity SPVs (Special Purpose Vehicles), and strengthening basic infrastructure facilities.

As part of the Smart City initiatives, some Indian cities have planned convergence with the Housing for All scheme to address the informal housing sector. Some of these initiatives would include housing for economically weaker sections or affordable housing, slum redevelopment, rental housing, working women’s hostels, shelters for the homeless, etc. as part of the Smart City plan.

All these would be developed through the PPP model with the involvement of private developers. There is a huge opportunity for private developers to get involved in the development of housing for the informal sector. Aspects which would form the basis for the success of the convergence agenda and will address the housing shortage issue of India in a big way through private participation are:

Land as a resource

This cost plays a major role in the pricing and affordability of residential units. Smart Cities leverage available government-owned land parcels within the specified areas for development for housing for the urban poor and the informal sector. Utilising such land parcels at a subsidised rate will drastically reduce the pricing of the resultant housing units.

Technology intervention

Technology intervention in construction such as prefab technology will definitely address the gap between time, efficiency and funding for mass housing projects which are part of the Smart Cities initiative.

Redevelopment

Most of the smart cities in India have adopted the redevelopment model for ABD (Area Based Development). This gives an opportunity to address the housing needs of the informal sector by redeveloping the area with quality housing, since most of the existing urban informal housing is in such locations.

Improved infrastructure

The Smart Cities mission aims to create and maintain high-quality, 100 per cent efficient civic infrastructure. Electricity, sewerage, storm water drainage and water supply will be strengthened in Smart Cities, relieving the stress that large-scale housing projects invariably create on a city’s infrastructure.

Multiple financing options

For Smart Cities availability of funding is ensured through convergence with other government schemes like funds raised from the state governments, municipal debt, Real Estate Investment Trusts (REITs), infrastructure debt funds, and the PPP vehicle. A stable cash flow will ensure successful completion of the project, which is a major concern in most other initiatives where projects are stalled due to lack of funding. This will open up lot of avenues for investment from other countries and various financial sources.

Private players

The Smart Cities mission encourages participation of private entities, thereby increasing the productivity and quality of the projects. This will provide an integrated platform for private players such as housing developers and infrastructure service providers. Since the funding and the revenue system are distributed across projects within Smart City initiatives, the mission proves profitable for all involved service providers. The convergence of schemes such as the Housing for All and Smart Cities missions will be most appropriate to achieve optimal results with proper implementation. Isolated policies will yield much lower results.

Overall, the goals for urban development in India should be to create sustainable, inclusive and smart urban centers with good housing standards and participation of the private sector.

(The writer is National Director & Head of Operations – Strategic Consulting, JLL India)

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