It can only happen if the private sector chips in, writes ?the managing director of VBHC Value Homes Pvt Ltd
Indian Prime Minister Narendra Modi's 'Housing for All by 2022' vision has got cabinet's approval. The initiative recognises the large urbanisation and migration that India is undergoing at a rapid and unexpected pace. The largest chunk of demand for housing arising from this would be in the economically weaker section (EWS) and the low-income group (LIG) categories.
According to a conservative estimate, these categories alone will need 110 million dwelling LIG units. The requirement for affordable homes is a herculean task for the Indian government, not to mention the capital requirement for its fulfillment is expected to be about $2 trillion. Public housing projects alone cannot meet this demand; such scale can be met only with support from the private sector. The absence of a well-planned policy framework to handle the crumbling infrastructure is compounding the problem in India.
The opportunity is huge, but lack of a proactive approach in tackling some of the policy issues that exist makes the sector largely unattractive and unexplored. For instance, institutional credit for housing investment in India is lower than in countries like China, Thailand and Malaysia though India's housing sector is growing at a compounded annual growth rate (CAGR) of about 19 per cent per annum. Procedural delay is another major constraint for growth in this sector along with a convoluted approval process and high taxation costs.
In this context, the 'Housing for All 2022' initiative launched by the government is a welcome move that is definitive in scope and timeline. With a focus on expedited approval processes, reduced interest rates, introduction of REITS, FDI in real estate, infrastructure status to affordable housing, and priority sector status to affordable housing the initiative exhibits the promise to mitigate several of the issues that have traditionally plagued the industry.
The decision to lower the minimum area requirement for FDI injection from 50,000 square metres to 20,000 square metres will improve the availability of finance in this sector. The move has already seen some companies gain new investment. At VBHC, we too have had investors like the Netherlands-based Van Herk Group, who have come on board recently with a $20 million investment.
Credit subsidies like increasing the loan amount eligible for interest deduction from Rs100,000 to Rs500,000, along with the subvention rate moved up to five per cent, will make it easier for consumers to avail cheaper housing finance. Granting priority-lending status to affordable sectors is another way of lowering interest rates.
Under the Credit Linked Interest Subsidy component, interest subsidy of 6.5 per cent on housing loans availed up to tenure of 15 years will be provided to EWS/LIG categories, wherein the subsidy pay-out on NPV basis is estimated to be Rs230,000 per housing unit. The RBI's decision to grant infrastructure status to the affordable housing segment has been appreciated by all the stakeholders concerned. It will allow long-term lending institutions to offer credit to affordable housing companies.
The government has also made an effort to accelerate the approval process, and as per new regulations, projects less than 50,000 square metres will not require any environmental clearance. Self-certification of project by qualified architects to ensure all regulations are being followed in the project will now be possible. This will circumvent delays.
The mission also promotes the adoption of modern, innovative and green technologies and building material for faster and quality construction of houses, preparation and adoption of layout designs, deploying environment-friendly technologies. Technology will also be leveraged to coordinate with other agencies working in green and energy efficient technologies, climate change and others. The revocation of unfavourable policies like the Urban Land Ceiling Act and FSI ceiling policies will increase supply of land to the affordable housing segment leading to higher supply at lower cost, which will benefit the industry.
All these factors will encourage private sector participation and provide much needed impetus to the affordable housing space to overcome the housing challenge that India currently faces and work towards the government's 'Housing for All by 2022' vision.
The writer is Managing Director of Bengaluru-based VBHC Value Homes Pvt Ltd.