Residential realty being a major segment of real estate, it holds key to the overall growth of the sector. And in view of the huge shortfall in residential real estate, affordable housing is the answer to boost supply. But despite government’s flagship mission of 'Housing for All by 2022', focusing on low cost housing, the demand-supply gap is widening. Not withstanding government’s incentives under Pradhan Mantri Awas Yojana (PMAY), private developers are not much enthused to take up affordable housing, largely because it is not a financially attractive business proposition due to thin margins.
According to Neeraj Bansal, Partner, Real Estate, KPMG, as every sixth person is getting urbanised in India, we need 20-25 lakh houses every year, with 96 per cent demand in lower category. However, a recent joint study by Megalith Ventures and Meraqi highlights thehuge gap in demand and supply. As per its findings, housing shortage in EWS and LIG housing, respectively stands at 10 million and 7.4 million units, respectively. And since 2015, under the ambitious PMAY, 51 lakh units have been approved and just about 8 lakh units completed. Gorakh Jhunjhunwala, MD, Meraqi points out that incentives announced by the central government are not sufficient trade off to allure private developers to affordable housing segment. “Lack of suitable land parcels, high land costs and low profit margins are limiting private participation”, says Jhunjhunwala.
Sticking to mid-segment
That not many developers are taking to affordable housing is also evident from the emerging trend of developers taking to mid-segment housing. Says Ram Walase, MD & CEO, VBHC Value Homes, a leading affordable housing player, “Because of shrinking margins in affordable housing and lack of demand for luxury housing, developers have found a sweet spot in mid-segment housing in the range of Rs 25- 50 lakh”.
Developers of mid-segment housing are also encouraged by the government’s policy initiative to extend benefits of CLSS under PMAY to mid-segment housing as well.
Another factor which is fuelling demand for mid-segment homes and enhancing developers’ interest, is the lack of supporting infrastructure, especially connectivity problem. Ram Walase says that instead of opting for cheaper homes in the periphery of city with no infrastructure, home buyers are giving preference to compact homes in the vicinity of city centres with proper infrastructure. Keeping in view this trend, VBHC is also foraying into mid-segment housing, closer to city centres. Anuj Puri, Chairman, Anarock Property Consultants endorses Walase’s view, “It is because of the lack of connectivity and othe supporting infra that around 2.37 lakh affordable housing units (below 40 lakh) across seven cities were lying unsold as of Q2 of 2018.
Challenge of funds
Funding is also posing a major challenge to the developers, making affordable housing unviable. Deepak Parekh, Chairman of HDFC which has launched its affordable housing fund — H- CARE 2, says, “In the prevailing financial environment, lack of flexible long term capital is one of the key challenges facing developers of affordable and mid-segment housing”. With banks putting restrictions on funding real estate sector, even affordable housing players have to depend on costly NBFC/PE funds for their projects, and the subsequent pressure on margins is proving to be a dampener. Says Pradeep Aggarwal, Chairman of NCR-based affordable housing company Signature Global, and Chairman of National Affordable Housing Council of Assocham, “What has really disheartened the developers is that despite affordable housing getting infra status, banks are not lending easily and at reasonable rates to affordable housing players. What is further putting financial pressure on developers in Haryana is that under Haryana government’s Affordable Housing Policy, the selling rate of Rs 4,000 per square feet fixed by the government in 2013 has not been revised despite 5 per cent annual inflation”.
Further, developers are discouraged to take up affordable housing in core areas of cities due to non- availability/high cost of land. It is because of this reason that in Haryana this year, developers have not shown much interest in getting licenses to develop affordable housing project.
Lack of clear norms
In different states, lack of clarity on additional FAR, TDR and density norms are the other major impediments. It is another matter that under the new affordable housing policy of Punjab, developers hope to reap benefits of liberalised density norms. As Prateek Mittal, ED, Sushma Buildtech puts it, “Earlier, restricted density norms were discouraging, but the new norms allowing up to 150 units per acre will make developers step into this segment”.
The way out
So, what needs to be done to make affordable housing a truly financially viable business model? Developers present a case for bringing down the cost of homes through various initiatives. Gorakh Jhunjhunwala has a formula in the form of dedicated zones in cities for affordable housing, higher FSI and accessibility to construction finance. R.K Arora, Chairman, Supertech demands bringing down transaction cost by waiving off 8 per cent GST on affordable housing projects. Pradeep Aggarwal aptly sums it up, “Affordable housing is a highly price sensitive segment. And as delayed approvals add 15 per cent to the cost, pre- pproved standard building plans are an answer to tackling this issue. Moreover, as technology plays a big role in speeding up construction and bringing down cost, government must encourage adoption of newer technologies by way of tax incentives”.
— The writer is founder, Ground Real(i)ty Media
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