Tag Archives: Real estate policy advocacy

The business of affordable housing: A comeback story

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By: Sachin Agarwal, CMD, Maple Shelters

Sachin Agarwal, Maple Shelters, Indina realty news, India real estate news, India property news, Indian property market, Real estate policy advocacy, Track2Media Research, Track2RealtyTrack2Realty: The definition of affordable means different for different people depending on the socio-economic class, income levels etc. In India, the term applies most pertinently to housing created for the EWS (Economically Weaker Section) of society so that they, like the middle class, can also benefit from the financial and emotional security of home ownership.

While this segment of housing did not receive sufficient impetus in earlier years, the incumbent BJP Government has made it clear that it intends to see a significant increase in housing projects aimed at the bottom-most and the thickest part of the income pyramid.

This means that we are looking at an interesting new phase in India where affordable housing in India is getting preferred rather than ‘poor cousin’ status. There is much that the new Government can do to boost this sector, including promoting re-development of old buildings and providing high-grade infrastructure to peri-urban locations where the population could reside while continuing to work within the city. The key factor here is to ease the commute time and allow access to vast land parcels outside the city.

An interesting and important fact related to Indian real estate is that affordable housing projects have the fastest absorption rates. In other words, the creation of more affordable housing makes sense not only from a socio-economic point of view but also in terms of the real estate business. The demand in terms of units is phenomenal, and developers who have been focused on affordable homes from the start (or who are getting into this segment now) can build and sell their projects for years to come.

Though affordable housing has not seen the kind of growth that India requires in this segment, it is in fact the most sustainable business model for real estate developers. Developers who concentrate on this segment of housing are completely insulated from recession or sentiment-induced market slowdowns. In fact, genuinely affordable housing – projects wherein units are priced below Rs. 20 lakh – are completely recession proof since demand is not only steady but in fact constantly growing.

As a direct effect of this dynamic, affordable housing is now also the most preferred asset class for property investors. There has been a huge supply in mid-income and high-end properties in all cities of India, but a marked lack of willingness among buyers to pay the high rates for residential spaces. As a result, we are seeing more and more investors focusing on budget homes.

Clearly, affordable housing is a business vertical that has stood the test of time when larger format housing has failed to attract buyers and investors. Today, larger developers who previously focused only on mid-income and high-end housing projects are seriously looking at building up their presence in affordable housing, as well. Their rationale is that the higher-volume/lower-margins affordable housing segment is a reliable hedge against the market slowdown in costlier housing, and also because budget housing is a new means for reputed developers to leverage their brand value.

Should you invest in a flat or in land?

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By: Sachin Agarwal, CMD, Maple Shelters

Sachin Agarwal, Maple Shelters, Indina realty news, India real estate news, India property news, Indian property market, Real estate policy advocacy, Track2Media Research, Track2RealtyTrack2Realty: The answer to the question whether it is preferable to invest in a flat or in a plot of land depends on many factors, including the maturity of the investor. The investor’s overall objectives, ability to leverage, risk appetite and period of time he is able to hold on to the property before selling it again must be considered.

A young investor with limited capital should ideally purchase an apartment for capital appreciation or rental income. Land investment is a better option for mature investors who have a bigger investment horizon.

Land investment involved identifying opportunities where there is a possibility of creating value – e.g. agricultural land, which can be converted to NA / residential or commercial zone, making it possible to develop it and then lease it out or sell it. Alternatively, the investor can sell it after booking an acceptable profit when capital is required, or when sufficient value has been built up.

Land purchase is most profitable when one invests in emerging growth corridors of cities where appreciation is likely to happen over the next 3-4 years. Wherever there is existing commercial activity or the likelihood of such activity beside the existence of social infrastructure, the future demand for residential apartments will be higher.

For maximum future returns, it is important to make one’s investment while entry costs are low. Location is very important if one wishes to buy land to use in a retail or industrial setup. This is because such ventures are dependent on the immediate access to a customer bases and availability of manpower.

Wherever possible, the investor should try to find out the valuations of the land over the last five years to benchmark against past and recent land transactions in the area. Availability of other land parcels for possible purchase is an important factor to look at, and the investor must establish whether the seller is the sole or joint owner of the land. To avoid the various risks that investors can be exposed to while investing in land, it is always advisable to purchase developed plots from reputed developers.

Apart from the price of the plot, the other expenses that will have to be addressed are the registration fee, the stamp duty, the surveyor’s fee (if any) and legal fees. If one has bought agricultural land, then one may eventually need to change its land use to commercial or residential. For this, an application has to be made to the local collector’s office, along with all documents and applicable fees required by State law.

How India can bridge the affordable housing gap

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By: Sachin Agarwal, CMD – Maple Shelters

Sachin Agarwal, Maple Shelters, Indina realty news, India real estate news, India property news, Indian property market, Real estate policy advocacy, Track2Media Research, Track2RealtyTrack2Realty: Affordable housing is not only essential to the well-being and health of the people but also for the smooth running of economies. Yet all over the globe, in advanced and developing economies alike, a majority of the cities are struggling to give their citizens decent, affordable housing.

Given the rapid rate of urbanization being witnessed all over the world, coupled with the far less impressive rate of income growth at the lower levels of the social pyramid, we are presented with a rather gloomy picture.

Over the next ten years, the number of people who are seriously challenged by urban housing costs and will continue to inhabit substandard housing is going to rise exponentially. Throughout, India will continue to figure among the most housing-challenged nations unless the new government delivers on its electoral promise to make housing for all a reality.

The difference between what most households can afford to pay for a home without spending more than 30% of their income and cost of an acceptable normal housing unit is called the affordability gap. Needless to say, the affordable urban housing gap will only increase as urban populations grow. Currently, trends indicate that the next 10-12 years will see the arrival of over 106 million more low-income urban dwellers globally.

This trend gives rise to a serious question – how can the affordable housing gap be bridged? What are the means available to governments to achieve faster delivery of such homes? There are four primary approaches to handle this problem, all centered on lowering the cost of construction, land, financing, operations and maintenance.

Implemented individually, each of these approaches can significantly decrease the affordable housing gap in a country like India. However, if implemented simultaneously and in tandem, they can reduce the cost of affordable housing in the country’s urban areas by 35-50% and substantially decrease India’s affordable urban housing gap over the next ten years.

  • Unlocking land supply

Unlocking land supply is the primary and most vital aspect, because land is the largest expense in real estate. Making existing land in strategic urban locations available for development of affordable housing is not as complicated as it may seem. In fact, it is not a question of availability at all but merely one of greater will at a government policy level.

In India’s primary cities, as in many of the largest cities anywhere in the world, many significantly large parcels of land actually usually remain underused or unoccupied. Most of such land belongs to the government or the local authorities and could be sold to purchase other lands for affordable housing, or released for development of such housing.

In cases where such land parcels belong to the private sector, it can be brought forward for affordable housing development through various incentives such as density bonuses (increasing the allowed floor space on a particular plot of land and therefore increasing its value, in return for which the owners must provide the land for affordable housing projects.)

  •  Reducing the cost of construction

While the manufacturing and other related industries have increased productivity consistently in the past few years, output in the construction sector in India and also most other countries has gone down or stagnated. Also, residential projects are still built using the same techniques that were used five decades ago.

 The costs of housing projects development could be reduced by over 30% and the completion time shortened by over 40% if more developers start using the latest construction methods and standardized project designs (for instance, assembling housing structures from prefabricated components manufactured off-site). Process improvements such as efficient procurement methods would help, as well.

  •  Improved maintenance and operations

 Upto 20-30% of housing costs go into maintenance and operations. Energy-efficient retrofits such as new windows and insulation can cut down these costs. Maintenance expenses can also be reduced if more developers tie up with qualified suppliers (through licensing and registration) and through consolidated purchasing.

  • Lowering financing costs

Lowering the financing costs for real estate developers and buyers can go a long way in helping banks and financial institutions to safely make and sell more home loans to lower-income earners. Programs such as contractual saving schemes aimed at helping people with lower levels of financial discipline towards saving would assist low-income housing buyers to accumulate the corpus needed to make down payments on a home, making it possible for them to service smaller home loans. Such programs can also be used to provide capital with low-interest mortgages to most savers.

The Indian governments also needs to step in to cut down the financing costs for developers of affordable housing by reducing the risks associated with housing projects and making them more affordable — for example, by guaranteeing tenants or buyers of completed units.

It is certainly true that the policy aspects of this four-pronged approach towards taking affordable housing from the level of electoral mandate to ground reality is already being seriously examined by the new BJP government. However, only an approach that assimilates all four solutions into unified implementation will be able to make a visible dent in India’s affordable housing shortfall.


Saving our cities with rainwater harvesting

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By: Sachin Agarwal, CMD – Maple Shelters 

Sachin Agarwal, Maple Shelters, Indina realty news, India real estate news, India property news, Indian property market, Real estate policy advocacy, Track2Media Research, Track2RealtyTrack2Realty: In a land-locked city like Pune, the importance of water is inescapable. Even at a national and global level, climactic changes as well as other factors are causing water levels to decrease.

Overpopulation has led to more and more acquisition of shallow lands for landfills, reducing the number of available water bodies. Deforestation has further compounded the scarcity of water, as this causes regional rainfall to become more unpredictable.

Though India is advantageously placed geographically, several regions are seriously affected by lack of usable water – a city like Pune is, in fact, a prime example of this phenomenon. In the years to come, the majority of the world’s population will be living in urban areas.

Because of rapid real estate development in our cities, the highest demand for resources such as water is centered there. Moreover, with limited developable land, multi-story residential complexes are being built at a very fast rate. 

The earth’s surface is 70% water; however, very little of this is drinkable or usable by humans. It is more than likely that we will soon reach a point when the amount of usable water present on the earth’s surface is not enough to meet all the needs of the growing population and the development taking place alongside.

Water as a resource is needed in every activity, be it farming or construction of buildings. Rainwater harvesting is the only real solution available now, and is a practice that is catching on in urban as well as rural areas.

Rainwater harvesting involves collecting, filtering and storing rain water to be used for various residential and industrial purposes. The primary apparatus includes a down pipe and a first flush arrangement, a filter unit and a storage tank. Rainwater provides a clean, free source of potable water.

Rainwater harvesting employed in residential properties, which usually involves trapping rainwater from roofs and guiding it into storage tanks or cisterns in the ground, can meet 50% of everyday household needs. 

In fact, rainwater harvesting is not just a way to make maximum use of this natural resource, but also a way to do with minimum environmental impact. Naturally, it also results in significant cost savings on utilities bills. 

The various benefits of harvesting rainwater in urban residential areas include: 

Reduced pressure on ground water

Most water supply in urban areas comes from reservoirs, rivers and lakes. Urban water supply also involves putting up treatment plants, supply pipes as well as pumping stations. In most Indian cities, city planning authorities cannot match utilities with the pace of growth.

Water resources are impossibly stretched even in the most developed cities in the world, but the problem is worse in developing countries like India, which see a greater rate of population movement from rural areas to urban areas. Geologists and engineers are constantly struggling to find new sources of water. The demand for water for industrial uses has led to further depletion of ground water levels.

In Indian cities like Pune, there is relentless drilling for ground water, with shafts going deeper as the search for more water continues. In such a scenario, rainwater can significantly supplement a city’s water supply and reduce the pressure on conventional water supplies. 

Lower utility bills

When rainwater is harvested in a housing complex, it can be used for various non-drinking purposes that require large volumes of water. For instance, rainwater can be used for functions such as household and vehicle cleaning, garden and green space maintenance and toilet flushing.

This means greatly reduced utility bills, because rainwater can complement the conventional water supply system. This is equally applicable for industries that use up large quantities of water for various uses. Industries can make use of rainwater for the majority of their operations and therefore reducing pressure on ground water. 

Creates backup water supply 

Rainwater harvesting can be used as an insurance for times when water supplies are compromised for any reason. This is important, because climate change has caused major disruptions in the weather patterns in many Indian cities. Rainwater can be collected and stored, and used during drought seasons to complement the stretched normal water supply. 

In cities like Pune and Mumbai, the dreaded bane of water shortage and rationing is significantly mitigated with rainwater harvesting, which also reduces the dependency on water reservoirs and dams. 

Good for the environment

When several residential buildings in a city use rain water harvesting systems, there is a significant decrease in surface run offs, floods, soil erosion and reduced pressure on the drainage system. Collecting rain water means less contamination of surface water from surface run off, when rainwater picks up pesticides and other harmful chemicals that ends up in rivers and lakes. 

Collecting rainwater, especially in low-lying areas, reduces the possibility of floods. It can also protect the soil from erosion caused by peak storm runoffs. Rain water collection therefore also serves an environment conservation purpose by preventing contamination of other water sources and ensuring that less water is drawn from lakes and rivers. 

Rainwater collection can be used to recharge ground water levels through various methods, and to improve the quality of ground water. This helps in improving urban greenery; in fact, this is the only reliable means of having green areas within urban areas without leeching off from existing water supplies. Within large residential projects, such water can be used for landscape irrigation. 

Easy implementation

Rainwater harvesting systems are easy to install and maintain. Since rainwater is pure, there is no need for the complex purifying systems that have to be employed to clean ground water. Rainwater collection systems are based on basic technology, and maintenance only involves occasional cleaning of the storage tanks and collection pipes to ensure that the rainwater collected is not contaminated. 

In fact, rainwater harvesting can be achieved by anyone. Installation of gutters is the first step for any building without them, along with a filtration system to ensure that leaves or any other kind of debris do not find their way into the storage tank.

Safety precautions include having locking lids or bars to prevent contamination of the stored water and the breeding of mosquitoes. Catchment areas in a city can include paved areas such as car parks, roads and paths, where water can be harvested for several non-drinking purposes. 

Increasing government support

The Indian government has laid out a number of plans concerning harvesting of rainwater and putting it to maximum use. A good example is the ongoing work done by Greater Vishakhapatnam Municipal Corporation (GVMC). The municipality is going to fine households that do not have the mandatory rainwater pits. 

New apartment projects in several Indian states are now required to be engineered to have rainwater harvesting systems. In many areas, the government is also promoting rainwater harvesting as a means to address the scarcity of water for agriculture. As rainfall is getting visibly scantier, the government is planning to implement special measures and urge residential societies, educational institutions and similar buildings to optimize water saving and usage. 

The increased areas of paving and roads is preventing the proper percolation of rainwater, ultimately affecting the water table and causing water bottlenecks in the outskirts. Installation of pits at regular intervals over urbanized localities is a good way to trap this water for better use. 

The Centre for Science and Environment (CSE) is now promoting the maximum use of rainwater and its harvesting all across the country. It has launched various campaigns to educate people on India’s traditional water harvesting processes. The organization has gathered all NGOs working in this area under its wings, and is running consultancies to improve the conditions. 

Rainwater harvesting should be the default code for sustainable households. Builders and architects are getting aware of and implementing the same in their designs. In many areas, buildings into which rainwater harvesting systems have not been integrated are being partially reconstructed to add this vital measure.  

Slums and slum redevelopment – A fresh perspective

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By: Sachin Agarwal, CMD – Maple Shelters

Sachin Agarwal, Maple Shelters, Indina realty news, India real estate news, India property news, Indian property market, Real estate policy advocacy, Track2Media Research, Track2RealtyTrack2Realty: Considering the increasing scarcity of available land in our cities, it is becoming increasingly difficult to discuss affordable housing creation without also considering slums and their redevelopment. In latter-day India, almost every city has its slums.

While Mumbai is probably the most talked-about city when it comes to the incidence of slums, Pune is by no means an exemption. Pune and the Pimpri-Chinchwad Municipal Corporation together have almost 200 areas which are either officially classified as slums or meet all the criteria of that define slums. Areas in the latter category can be also be defined as squatter settlements, which are not strictly speaking slums at all.

In either case, one recurring concept about slums and squatter settlements is that they are neighbourhoods in which the city’s poor reside in squalor and ignorance. Before we discuss slum redevelopment in Pune, Mumbai or any other Indian city, we should understand how true this concept really is. After all, we are talking about people and what they are doing for subsistence, and how that equation will or should change.

So, what are slums and squatter settlements, and what makes them so common in a country like India?

What are slums?

Slums are popularly defined as areas with extremely poor quality housing, unhygienic drainage, high crime rate and overall lack of convenience and security for residents. As such, they come across as a clear representation of urban poverty. Urban ‘poor housing’ comes in a variety of sizes and shapes, and is called by different names in different regions.

The word ‘slum’ literally means a community neighborhood which was previously in good shape but have since deteriorated and been subdivided to accommodate a disproportionately large portion of low income groups.

On the other hand, the concept of squatter settlement revolves more around areas accommodating housing built on illegally occupied lands. There is also a third kind of settlement in this category, sometimes referred to as ‘irregular subdivisions’ by urban planners. This term refers to the housing premises which have been legally built by the owner, but subdivided into plots and rented or sold to the poor without following the applicable byelaws.

A clearer definition for slums is a quarter for a group of people who lack any or all of the following: sufficient floor space for each member, durable structure, access to clean water and sanitation and secured tenure of living. These are the areas and people that are in greatest need of affordable modern housing to replace the inferior living conditions.

Why do slums exist?

All over India, cities are growing, and it is getting increasingly difficult for the poor to acquire personally owned property. The most common school of thought is that slums are the result of poverty. This is only partially true. in fact, slums are the products of bad governance, failed policies, inappropriate regulations, an unresponsive financial system, a city’s dysfunctional property market, corruption and a complete lack of political will.

Slums and squatter settlements are very prominent around core urban areas because the poor cannot afford even the most minimal housing arrangements provided by the government. Many other are forced into slums as they are not able to decipher and overcome barriers like red tape and the time constraints involved in acquiring property via the existing system.

In highly-developed cities like Karachi, Manila or Mumbai, slums account for over 50% of the populated area. In many regions, land is still acquired through traditional means and indigenous tenure systems, which are basically bad news for the poor.

While development is facilitating the construction of modern buildings, the prices of average housing are constantly rising. Even homes with minimal conveniences and provisions are beyond affordability for the lower income groups. Forced out of the property market, they are constrained upon to find accommodation in low-quality, pathetic housing arrangements – slums.

Interestingly, it is also true that the modern economy is centered around cities. As such, the poor cannot go far beyond the city’s urban areas, and must linger around the periphery in slums, which at least gives them access to the available job opportunities. Due to the space crunch, they are forced to occupy as little land as possible in places that are frequently affected by flooding, poor drainage and a substantial lack of hygiene.

Slum redevelopment and rehabilitation – Beyond the brick and mortar

Before we can intelligently discuss slum redevelopment and rehabilitation, which is in any case only possible with determined political will, it is important to first understand the needs and priorities of slum dwellers. To the casual eye, slums are a places for diseases, political unrest, crime, ignorance and misbehavior.

Not many are aware that slum dwellers are actually a lot more organized than inhabitants of regulated urban areas. Every occupant participates in the slum’s economy, and together they work out ways to address all the challenges facing them. Contrary to popular opinion, slums are full of dynamism, enthusiasm, creativity, resourcefulness and even entrepreneurial skills.

Many Indian slums even have their own local market, property dealers and cultural grouping. These processes are not overseen by the government, but are run by the residents themselves. Despite the serious limitations in their lives, slum dwellers live in admirable harmony. As such, NGO and government agencies first need to understand the intricate social system of slums before they plan to intervene.

Slum dwellers themselves are naturally averse to any kind of change in the already precariously balanced status quo they exist in, but it is only with the help of these same slum dwellers that the government can come even close to a properly laid-out plan for resettling these families and provide a better means of living.

Homing in on affordable housing in shikrapur

Posted on by Track2Realty

By: Sachin Agarwal, CMD – Maple Shelters

Sachin Agarwal, Maple Shelters, Indina realty news, India real estate news, India property news, Indian property market, Real estate policy advocacy, Track2Media Research, Track2RealtyTrack2Realty: Pune’s rapid growth as a city is constantly pushing the envelope for real estate development. Suburbs that were considered ‘upcoming’ less than two years ago are now established destinations, with increased property price appreciation creating a challenge for budget home seekers.

One of the latest entrants of hot new budget homes destinations, Shikrapur in East Pune is one of the few areas that still offer affordability along with good connectivity.

In the past, Pune’s eastern corridor along the Nagar road delivered many new locations that became hotbeds of real estate development activity within very short periods. Like Shikrapur, Kharadi and Wagholi were seen as little more than remote industrial regions.

Today, these areas have undergone a massive image makeover because of the frenetic economic development along the Nagar Road belt. After the rapid saturation and price escalation seen at Wagholi, affordable home buyers have now turned their sights and hopes on nearby Shikrapur.

Projecting no more than five years into the future, we can see Shikrapur’s real estate market seeing the kind of price escalations that have already placed Wagholi beyond the reach of the lower income groups.

Land prices will rise, available land parcels will decrease and we will witness the birth of yet another middle-class housing destination with flats costing Rs. 35-50 lakh and above. However, as of today, Shikrapur still offers scope for affordable housing to meet the requirements of its blue-collar industrial workforce.

Demand for homes in Shikrapur is primarily driven by the city’s blue collared workforce employed in the Shikrapur-Chakan industrial belt. However, Shikrapur is also located just 20 minutes away from Kharadi, and close to the Pune Airport and Nagar Road’s rapidly expanding retail operations. In addition to the demand from industrial workers, Shikrapur is also a location of natural choice for modestly-salaried people employed at the airport and the various malls along Nagar Road.

So far, the growing demand for affordable homes in Shikrapur has largely been addressed by small one-off projects with limited facilities and modern amenities. However, with the entry of Maple Shelters and its affordable housing township Auracity, the demand for budget homes in Shikrapur has seen a quantum shift. This township under Maple Shelters’ popular Aapla Ghar scheme and is now going into its second phase and provides low-income home buyers the option of modern features.

As a result, home buyers looking at Shikrapur with modest budgets are not deprived of a comfortable, contemporary and secure lifestyle. Maple Shelters’ Auracity offers 1-2 BHK flats with unit prices not exceeding Rs. 20-25 lakh, making it the ideal option for price-sensitive home buyers in this region.

With public transport always being an important criterion for LIG home buyers, the fact that Pune Railway station is a mere 40 minutes’ commute away also adds to Shikrapur’s advantages. Infrastructure initiatives that will benefit Shikrapur include the proposed Ring Road, a four-lane flyover linking Shikrapur to Wagholi and several additional roads that will improve connectivity to other key locations in Pune.

Does budget housing pull down a location’s property values?

Posted on by Track2Realty

By: Sachin Agarwal, CMD, Maple Shelters

Sachin Agarwal, Maple Shelters, Indina realty news, India real estate news, India property news, Indian property market, Real estate policy advocacy, Track2Media Research, Track2RealtyTrack2Realty: It is usually believed that any sort of affordable housing reduces the property values of the neighboring properties as well. In the Indian market context, however, various studies as well as on-ground experiences in India reveal that this age-old preconception does not hold true.

The reason is simple – property values depend on aspects such as the overall development and prosperity of the area, and the condition of the properties on the market. These factors are not influenced at all by the presence of budget homes projects in the neighborhood. However, property values ARE negatively affected by the presence of old, ill-maintained buildings in the area.

The famous Wisconsin study, which is one of the most authoritative reports on this subject, was carried out on four affordable housing projects in Chicago. It was conducted over the four Low Income Housing projects which were made possible because of tax incentives and subsidies given by the government.

This study showed that a blend of different income groups within a neighbourhood actually worked positively for the area. In fact, overall property values went up and showed great progress. Significantly, these affordable housing projects were part of a redevelopment initiative and replaced several old, dilapidated buildings which WERE responsible for lowering the property values in the area. 

In the Indian context, it has been observed that this dynamic holds true across locations and property types. Regardless of whether the area is populated by the homes of affluent people, or whether it is dominated by stand-alone bungalows or high-rises, the availability of good quality affordable housing impacts the overall pricing dynamics of the area favourably rather than negatively.

This may come across as surprising to those who think they know how the real estate market in India functions. Regardless of whether one compares the sale prices before, after and during the construction of an affordable housing project, or traditional statistical techniques like regression analysis to find the effect of affordable housing in the proximity – there are no adverse effects on the values of neighbouring properties.

The assumption that the contrary – namely, that budget housing pulls down neighbouring property value – is solely based on the belief that such projects are unattractive, conspicuous, poorly managed and poorly managed. This assumption does not take into account the fact that affordable housing in India is no longer of the tenement, near-slum typology but in fact involves modern, well-constructed buildings with all facilities.

Can the government do more for affordable housing?

Posted on by Track2Realty

By: Sachin Agarwal, CMD, Maple Shelters

Sachin Agarwal, Maple Shelters, Indina realty news, India real estate news, India property news, Indian property market, Real estate policy advocacy, Track2Media Research, Track2RealtyTrack2Realty: Narendra Modi’s government has made massive forward strides within a short period. The progress in such a short period is remarkable, considering that the government is still hamstrung by a disproportionate fiscal deficit and its ability to induce further growth through public investment.

It is evident that the Modi Government cannot leave any stone unturned in order to bring about an environment that is attractive as easy to navigate for private investors. But judging from what we have seen so far, the real estate industry in India is definitely back on track in 2014. Still, there are complex challenges that remain. Two of these are inflation and, despite the demonstrated good intention, affordable housing.

On the inflation front, the RBI and the Modi government have taken a determined stand. From a larger perspective, inflation obviously impacts the overall borrowing cost in the economy and as a result is a major stumbling block for faster economic growth.

The effect of inflation on real estate as an industry is quite pronounced because it acts as a deterrent to spending by consumers and increases the financial burden of home loan borrowing. In such an environment, home purchase sentiment will remain subdued.

But inflation also has a grievous effect on the construction sector. The Indian construction industry is very dependent on raw materials like steel and cement. The higher the cost of constructing a residential project, the higher will be the cost of flats.

Indian developers are seriously challenged by the constantly increasing cost of construction. The rise in this cost has been no less than 18% every year for the last four years. It is surprising and extremely worrying that the recent Union Budget did not make any provisions to bring the cost of construction down.

Inflation should not be tackled only by keeping borrowing rates high. Another way to bring it down which is very pertinent to the real estate construction industry is to fast-track the development of roads and highways so that goods can be transported more quickly and efficiently.

Raw materials for construction are constantly sourced from all over the country. At the same time, the method in which tax is levied on such goods as they cross state borders must be simplified. In other words, the introduction of GST (Goods and Services Tax) system is very important at this stage.

When it comes to affordable housing as a segment, many of the measures that were pending for a long time have materialized in the recent Union Budget. The affordable housing segment was finally given priority by granting the benefits of infrastructure status. The RBI also increased the limit for home loans availed for purchasing budget homes. Previously, the limit was a mere Rs. 25 lakh and this has now been raised to Rs 65 lakhs in the primary Indian cities and Rs. 50 lakh in tier 2 and tier 3 cities and towns.

But there is more to encouraging affordable housing than just incentivizing banks. Developers of such housing projects must also be given more breaks so that affordable housing development becomes more attractive and therefore encourages more builders to join the bandwagon. The ‘smart cities’ concept is getting a lot of limelight today, but what a country like India really needs is ‘affordable cities’.

Finally, there is a lot of land in the core areas of our cities that is being held by various government bodies. We have seen enough instances where such land is auctioned off to the highest-bidding developers who want to build luxury housing on these plots. If the current government is really focused on encouraging affordable housing in India, then it must release such land solely for the creation of such housing.