Even as India is rapidly urbanising in the current decade, driven by strong industrial and economic growth, there is a significant shortfall of housing that threatens to hamper our country’s socioeconomic development. Nearly 28 per cent of India’s population live in cities and urban areas, a figure that is expected to rise to 40 per cent by 2020. Over 300 million people are expected to shift to urban areas over the next decade, which will result in a housing shortage of epic proportions. In fact, India’s total housing shortfall is estimated at approximately 19 million units, of which over 95 per cent are supposed to be for the economically weaker sections and low income groups.
The solution to this critical component of holistic socioeconomic development of our country lies in exponential growth of affordable housing sector; which will have a significant multiplier effect by improving the living standards of citizens. Against this backdrop, it is certainly encouraging that affordable housing forms an integral part of the government’s development blueprint, as this will be a key enabler for the sustainable growth of Smart cities.
While 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, including that from the private sector.
According to the Reserve Bank of India (RBI), an investment of Rs 70 trillion is required mainly for construction of affordable housing, urban roads and modern transportation over the next 2 decades. The next level of economic transformation will require some bold steps to revive growth in India’s infrastructure sector. In this regard, it is essential that all political parties come to a consensus on tabling and passing the Real Estate (Regulation & Development) Bill in the current session of the Parliament. This will facilitate the constitution of a real estate regulator and also set in motion key consumer-friendly initiatives. I would summarize my thoughts and recommendations in 3 broad categories as below:
Channelising capital flows to affordable housing sector
It is critical to help the affordable housing sector attract investments and greater capital and investment formation by granting ‘infrastructure’ status and implementing further financial sector reforms. Further measures to boost capital flows to the sector must be implemented such as including the affordable housing sector under priority sector lending (PSL) as well as excluding affordable housing project funding from overall sector limit for real estate. Granting ‘approved status’ for investments by insurance and pension funds will also increase capital flows in the sector.
Further, it will be useful to develop an urban infrastructure fund and channelise surplus funds of Government PSUs and long term finance towards infrastructure development. Another significant step will be to extend the concept of Long Term Infra Bonds (currently allowed for home loans) to Affordable Housing construction funding with similar capping as done for home loans.
As a logical next step, the government and regulators must work to develop the Municipal Bond market in India, to fully develop the operating contours of municipalities through devolution of power and skill development & technical assistance. Financial institutions can also play a critical role in capacity building of the municipalities by providing debt on infrastructure projects. Innovative financing models, such as social impact bonds have started to make a mark in the global markets and must be taken advantage of here as well.
Regulation & policy related recommendations
A clear, rational and sustainable procedure to ensure the cost-effective availability of land is a primary condition for affordable housing to pick up in a meaningful manner in India. Apart from quick passage of the Real Estate Bill, the government may look at pushing affordable housing development through zoning process and designate areas with higher FAR/FSI, relaxed density norms and TDR for effective use of land. Rationalisation of direct and indirect taxes in real estate sector must also be brought about to enable competitive pricing for the end user. Implementation of GST and reduced stamp duty are crucial steps in this regard.
A few other steps are to establish a regulatory authority to monitor work of urban local bodies (ULBs) and build capacity in research, planning and HRD, facilitated by state governments.
Infrastructure upgradation & slum rehabilitation:
Apart from the enabling factors outlined above, it is also necessary to put in place a number of complementary factors that will ensure sustainable and ‘smart’ development of India’s new urban centres.
It is most important, in my view, to upgrade civic amenities, healthcare services, urban transport and inter-city connectivity for Tier II cities and improve quality of life in Tier I & II cities by maintaining and developing recreation facilities and public parks. For this, impetus must be given to essential infrastructure in outskirts of Tier I and II cities to ensure affordable housing clusters are well connected and cities are decongested.
It will be key to develop and replicate a ‘model’ slum-free Tier I city through slum rehabilitation programs, creation of affordable and rental housing inventory over the next 5 years — by collaborating with global technical and financial agencies to develop each city. The government may also look at effective use of Indian Railways’ urban land banks to rehabilitate slums by creating affordable housing inventory and rental housing facilities for various income groups.
It is also going to be important to create green infrastructure or blue-green infrastructure networks to solve the urban and climatic challenges by building with nature. Integrating disaster management systems and putting in place a comprehensive Risk management framework into urban planning and conducting periodic audits to ensure effective implementation will also be necessary steps to ensure sustainable and planned growth.
I believe that the above measures, if implemented in the right spirit, will act as effective catalysts to complement the government’s vision of providing ‘Housing for All by 2022’. Facilitating faster implementation of projects, private sector investments and community partnerships in affordable housing will play an important role in bridging market imperfections.
Granting low income housing ‘infrastructure status’, promoting ‘transit oriented development’, further facilitating investments through FDI, REITS, InvITs and other innovative real estate financing models will help attract long term funds from foreign and domestic investors.
What needs to be done
* It is critical to help the affordable housing sector attract investments and greater capital and investment formation by granting ‘infrastructure’ status and implementing further financial sector reforms.
* A clear and rational procedure to ensure the cost-effective availability of land is a primary condition
* It is most important to upgrade civic amenities, healthcare services, urban transport and inter-city connectivity for Tier II cities and improve quality of life in Tier I & II cities
* It is essential that administrative structures and policy frameworks encourage resource mobilisation, including that from the private sector
The writer is Founder, Managing Director and CEO of Yes Bank