Affordable housing in India—opportunities and challenges.
Prepared by Shikha Sharma, Unnati Fortune Group 2017
India is an emerging market and it has been witnessing rapid urbanization since last decade. This can be seen in the census data which highlights the fact that how there is rapid urbanization happen in the last decade. For instance, in 2001, only about 72% of the population lived in rural areas and 28% lived in urban areas. By 2011, this figure has changed to 69% rural population and 31% in urban areas.
This has resulted in putting pressure on the infrastructure of the cities with slums mushrooming around due to nonavailability of the required numbers of dwelling units owing to high cost. Since housing is a long cherished dream for many in India but the cost of housing is a major impediment in fulfilling this dream. This is due to the fact that larger chunk of the population who are homeless belongs to economically socially weaker section (EWS), lower middle class and middle class.
Thus, to meet the growing demand at the lower cost the need for affordable housing has gained importance in the last few years. Affordable housing can be defined as per the Ministry of Housing and Urban Poverty Alleviation (MHUPA) across the various segment. The segment includes EWS, lower middles class and middle class as per the built up area and carpet area size. As per this specification, EWS should have the minimum of 300 square feet super built up area and 269 square feet of carpet area. While in the case of LIG flat, a minimum of 500 square feet of built up area and the maximum of 517 square feet of carpet area and in the case of MIG flat it should have 600-1200 square feet of built up area and maximum of 861 square feet carpet area.
As per the current estimates Of CREDAI, affordable housing market is around 5 to 10 trillion in terms of market size and expected to increase manifolds in coming years.Despite huge potential of this mass development in real estate, private developers are slow in laying down the foundation of their projects in this segment. There are several reasons for it but some of them included are as follows:
Lack of availability of urban land: with rapid urbanization, there exists a huge demand for land in urban India. However, due to poor planning of urbanization by central, state and municipal regulation in cities, there is a scarcity of land, which has kept the land price on a higher side. This has forced the developer to mark their projects to high end only to keep their margins to recover the cost since land is major cost while building a project.
Construction cost: while land prices account for the majority of cost in the high end or luxury projects in real estate, the construction cost play a vital role in the case of affordable housing projects. This is due to the fact that although land prices fall exponentially from the city center to the peripheral location of the city, the construction cost generally follows the gradual trend from premium luxury, mid-income to low-income housing. For instance, as per Jones lang LaSalle study, if the land is acquired at a reasonable cost of Rs 150-250 per square feet an affordable housing project with basic amenities( construction cost of Rs 800-1100 per square feet would result in the minimum selling price of Rs 800-1000 per square feet. Thus, construction costs nearly account for 50–60% of the total selling price for affordable housing. This is huge if there is no volume in this segment since volume plays a larger role in the affordable housing segment.
Lack of loan availability for lower income group: whilst there is huge demand of loan from Rs 3 to Rs 10 lakh, the availability of funds are scarce for them owing to perceived risk of becoming non-performing assets by housing finance company (HFCs). This is due to fact that the 65% to 70% of the population under this loan brackets works in the unorganised sector. Since they are paid in cash and due to lack of formal document, address, and income, they considered to be risky profile by HFCs. Although, as per monitor inclusive markets, the loan market of Rs 3 to 10 lakh is almost worth Rs 1,100,000 crore(USD 220 billion) despite that HFC are not open to provide loans to this segment due to the high risk area.
Even though affordable housing segment has the potential to the tune of 4- 5 trillion it is a highly untapped segment. To make it more promising and to deal with the above-mentioned issue we need to make a comprehensive framework for the development of affordable housing. These measures can include innovative microfinance schemes for the lower income group at the lower level of interest. In addition to it, effective financing through micro mortgage by utilizing the reach of self-help groups and other innovative financing schemes to reach the larger section of the group such as EWS and lower income group. On the other hand, for developers, various measure such as streamline of land records to improve planning and utilisation of land, which can make the availability of land at reasonable prices can be considered. Lastly, use of the advanced technology for curtailment of the construction cost can act as a catalyst for the growth this segment.
So, with these measure we can make a progress in the mass real estate development or can make affordable housing story as promising one for the large section of society as well.
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