In Budget 2012-13, the finance minister emphasised the need for affordable housing. So has the time come for developers to gear up and make it a reality?

Had he been alive, Laurence Wilfred Baker would have been a happy man. The veteran architect and pioneer of the low-cost, eco-friendly houses, with his signature no-frills style that drew heavily on traditional Kerala architecture, would have been ecstatic at the government’s focus on affordable housing. ‘Affordability’ may be a relative concept, but the government’s move to provide some concessions to low-cost houses and apartments has brought cheers among house hunters.

For a number of years now, the concept of ‘affordable housing' has been the toast of the government, property developers and even real estate consultants. But has it really taken off? Obviously, we are not talking about re-branding existing projects under the garb of affordable housing.

Last year, finance minister Pranab Mukherjee announced a one per cent interest rate subvention for housing loans up to Rs 15 lakh for residential units that carry a maximum price tag of Rs 25 lakh. The announcement kindled interest among many aspiring homebuyers, even though it meant buying their dream home far away from cities, where they struggle to earn their daily bread. Even in far-flung city suburbs, especially of Mumbai and New Delhi, property prices have spiralled, making housing unaffordable.

Nevertheless, the one per cent interest rate subvention at least looked practical from enabling a few to go for their dreams, rather than the government’s earlier push for reserving 20 per cent of an area, earmarked for property development, in cities to be set aside for the economically weaker sections (EWS), without even battling an eyelid whether EWS people could really afford to buy a home in cities, however small the size in which it comes.

Nandita Tripathi, director - tax & regulatory services, KPMG, feels the impetus to affordable housing has been a key priority for the finance minister this year. “Affordable housing projects will now be allowed access to foreign debt at lower withholding tax rate of 5 per cent (against the current prescribed 20 per cent) for 3 years. This will certainly provide the cash-starved sector requisite financing options at lower costs while in parallel encouraging higher investment in the segment,” Tripathi says, while adding the investment-linked deduction of 100 per cent of capital expenditure extended to notified affordable housing projects in last year’s budget has been enhanced to 150 per cent.

Senior urban economist Tanaji Chakravorty too feels that the finance minister has given a broader focus to affordable housing in this year’s Budget. “The affordable housing sector in the country should get an impetus due to the incentives announced specifically in this regard in this year’s Union Budget. Importantly, these incentives are both focussed as well as comprehensive and may end up encouraging incremental supply in the affordable housing segment, which has historically witnessed significant demand-supply imbalance" says Chakravorty.

Has the government’s initiative to make affordable housing available to a larger section of society been met partially? Brotin Banerjee, managing director and CEO, Tata Housing, nods in the negative. “Initiatives such as external commercial borrowing for the affordable and low-cost housing segment will help the sector to tap long-term funds and help ease the liquidity in the sector,” he says.

Kamal Khetan, chairman and managing director, Sunteck Realty, agrees. “The finance minister’s move to allow ECB for developers engaging in value housing has been a pleasant surprise. This will act as a major boost to the smooth completion of projects that were otherwise inundated with financing woes. Affordable housing segment will now be able to avail of loans at a significantly lower interest.”

Pradeep Jain, chairman, Parsavnath Developers is not excited. The finance minister had laid a thrust on affordable housing, but on a deeper perusal, it looks more like “the last minute window dressing”.

“Instead of permitting ECB route and extending the one per cent interest rate subvention, the finance minister could bring affordable housing under priority lending. It would have solved both the concerns – that is shortage of capital as well as cost of capital for affordable housing,” says Jain.

Pre-budget, international property adivisory firm, Cushman & Wakefield India’s managing director, Anurag Mathur stressed on the need to re-introduce measures like the erstwhile 80 I(B) to give tax exemption for affordable housing. He had also sought, again for affordable housing, the enhancement of the existing scheme of interest subvention of one per cent on housing loans of up to Rs 15 lakh to be increased to Rs 25 lakh.

On the other hand, Anuj Puri, chairman and country head, Jones Lang Lasalle, wanted the scope of the one per cent interest rate subvention to be “amplified and broadened” to include a wider price band of budget housing to benefit home buyers, especially in lower income groups. “The government should also enact provisions for special residential zones (SRZs) to incentivise the growth of housing stock at targeted locations,” he says.

Lalit Kumar Jain, national president of Confederation of Real Estate Developers’ Association of India (Credai), is not excited. “We definitely expected huge impetus to affordable housing sector which would have worked as an incremental boost to economy. The interest rate subvention on home loans is definitely not enough for sustenance and will undeniably not help the economically weaker sections or the lower income group segment.”

“We expected some boost to affordable housing segment in ways of special schemes and proposals wherein an interest subvention of 5-7 per cent for the LIG and EWS housing and promotion of rental housing through tax exemption would have helped in sustaining the growth process of the real estate sector,” he adds.

According to Prem Kumar, president of Andhra Pradesh Real Estate Developers Association, the availability of ECB channel will infuse some liquidity into the system. “Institutional funding in recent times has been available at high interest rates. In view of the rupee strengthening against the dollar, paying back the loan in dollar terms will be a risky proposition. Though real estate development companies can take to hedging to protect the dollar, the costs involved with erode the benefits of taking ECB route,” he says.

However, from the developers’ point of view, increased liquidity does not necessarily mean making ‘affordable’ houses more ‘affordable’. “The two per cent increase in service tax and excise duty will not allow developers to pass on the cost benefit due to the ECB to the individual buyers. The improved liquidity will allow the developers to take up more projects. So, in the long run customers will have more choice in terms of number of projects but not in terms of the cost of the properties,” says an industry official.

The finance minister did make an attempt to lay the thrust on affordable housing. It is now time for realty players to make affordable housing a reality.

Can affordable housing take off? |
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  • Realtors want incentives to develop low-cost housing units

    Mumbai: Realtors have sought to bring up incentives like free land allocation and public-private partnerships models to increase affordable housing stocks for the economically weaker sections.

    "There is a huge shortage of housing for the poor sections of the society. To meet rising demand for affordable housing, active government participation is needed which could be by way of offering incentives to developers," said property consultant DTZ Chief Executive Anshul Jain.

    According to an expert committee report submitted to the Union Housing and Urban Poverty Alleviation Ministry recently, more than 18 million housing units are required in the 12th Plan.

    The report had also noted that as much as 88 per cent of this shortage pertained to houses for the poor and another 11 per cent for low income groups.

    "To provide a house at Rs 1,000-1,200 per sq ft at a time when the cost of land and construction is too high, is not a viable proposition. This deters developers from taking up affordable housing projects," he said.

    Peninsula Land Vice-Chairman and Managing Director Rajeev Piramal said providing low-cost housing becomes uneconomical especially when the other costs are going up.

    "With land contributing nearly 20 per cent to the overall construction cost, it actually becomes uneconomical for creating affordable housing. Creating such homes at high cost puts pressures on our margins. At the end of the day, we are into business and we want to make profit," Piramal said.

    He further said if the government can provide certain incentives to developers for creating affordable homes, many realtors will come forward.

    "Since land cost is high, we would expect the government to provide us land free of cost, which we can use exclusively for creating low-cost housing stock. Such incentives can encourage developers to undertake projects for providing affordable homes," he said.

    Realtors want incentives to develop low-cost housing units
  • Affordable housing: Builders finding difficult to make profits in low-cost housing space

    Affordable housing: Builders finding difficult to make profits in low-cost housing space - The Economic Times
  • External Commercial Borrowing (ECB) for affordable housing

    RBI has notified the permission for availing ECB for low cost affordable housing projects.

    As per the A.P. (DIR Series) Circular No. 61 dated December 17 2012, ECB can be availed of by developers/builders for low cost affordable housing projects. Housing Finance Companies (HFCs)/National Housing Bank (NHB) can also avail of ECB for financing prospective owners of low cost affordable housing units.

    Extract from the circular

    A low cost affordable housing project for the purpose of ECB would be a project in which at least 60 per cent of the permissible FSI would be for units having maximum carpet area up to 60 square meters.

    Slum rehabilitation projects will also be eligible under the low cost affordable housing scheme. The eligibility of slum rehabilitation project for ECB will be based on the parameters to be set by the Central Sanctioning and Monitoring Committee of the Affordable Housing in Partnership Scheme (AHP) constituted under the Chairmanship of Secretary, Housing & Urban Poverty Alleviation (HUPA) which administers the slum rehabilitation projects.

    (II) Eligible Borrowers :-

    (a) Developers/builders:-

    Developers/builders with proven financial track record based on the following criteria shall qualify for availing ECB for low cost affordable housing projects:

    i) Developers/builders undertaking low cost affordable housing projects should be a company registered under the Companies Act, 1956;

    ii) Such developers/builders should have minimum 5 years’ experience in undertaking residential projects, and should have good track record in terms of quality and delivery;

    iii) The developers/builders should not have defaulted in any of their financial commitments to banks/ financial institutions or any other agencies;

    iv) The project should not be a matter of litigation;

    v) The project should be in conformity with the provisions of master plan/ development plan of the area. The layout should conform to the land use stipulated by the town and country planning department for housing projects; and

    vi) All necessary clearances from various bodies including Revenue Department with respect to land usage/environment clearance, etc., are available on record.

    (b) Housing Finance Companies (HFCs):-

    HFCs, satisfying the following conditions, can avail of ECB for financing prospective owners of low cost affordable housing units: -

    i) The HFC should be registered with the National Housing Bank (NHB) and operating in accordance with the regulatory directions and guidelines issued by NHB;

    ii) The minimum paid-up capital, as per the latest audited balance sheet, shall not be less than INR 50 crore;

    iii) The minimum Net Owned Funds (NOF) for the past three financial years shall not be less than INR 300 crore;

    iv) Borrowing through the ECB should be within the HFC's overall borrowing limit of 16 times their Net Owned Funds (NOF);

    v) The net non-performing assets (NNPA) shall not exceed 2.5 % of the net advances;

    vi) The maximum loan amount sanctioned to the individual buyer will be capped at INR 25 lakh subject to the condition that the cost of the individual housing unit shall not exceed INR 30 lakh; and

    vii) The ECB shall be swapped into Rupees for the entire maturity on fully hedged basis.

    Besides HFCs meeting norms set at para above, NHB shall be eligible for raising of ECB for financing low cost affordable housing units of individual borrowers. Further, in the event a developer of low cost affordable housing project not being able to raise ECB directly as envisaged above, National Housing Bank shall be permitted to avail of ECB for on-lending to such developers who satisfy the conditions stated in para3 (II) (a) above subject to the interest rate spread set by RBI.
  • 1 % Interest subvention for housing loans upto Rs 15 lakhs for properties costing upto Rs 25 lakhs

    Extract from RBI's circular on interest subvention for housing loans upto Rs 15 lakhs

    The interest subvention scheme has been liberalized with effect from FY 2011-12 by extending it to housing loans up to Rs.15 lakh where the cost of the house does not exceed Rs.25 lakh. The Scheme has since been extended by Government of India and will remain in force up to March 31, 2013.

    A Budgetary provision of Rs. 400.00 crore has been made under the Scheme for the year 2012-13 by Government of India.

    The National Housing Bank is the sole Nodal Agency for implementation of the Scheme for Scheduled Commercial Banks, Regional Rural Banks and Housing Finance Companies.
  • Affordable Homes May Get Tax Boost

    Affordable housing sector may get a fillip in the Union Budget for 2013-14 as the finance ministry is favouring some of the proposals made by the housing and urban poverty alleviation ministry (HUPA) for extending income-tax breaks for investors in this business. These proposals include infrastructure status for the housing sector under Section 80-IA of the Income Tax Act and a one-year extension of the tax relief under Section 80-IB of the IT Act, government sources said.

    Currently, there is a 10-year tax holiday on profits under section 80-IA for infrastructure companies developing roads, highways, ports, bridges, water supply projects, power plants, industrial parks, special economic zones and for providers of telecom and domestic satellite services.

    Inclusion of affordable housing in the infrastructure definition could attract more investments into this business.
    Housing companies, like other corporate taxpayers, however, will have to pay an 18.5% minimum alternative tax (MAT) on their book profits if the tax liability is found to be less than this threshold due to tax breaks.

    Confirming the same, HUPA minister Ajay Maken told FE, “We are being told that the finance ministry is favouring (these proposals). We have learned that the finance ministry has also written to the RBI (Reserve Bank of India) for considering restructuring of loans which have been declared as NPAs (non-performing assets) because of delays in statutory clearances where a developer is not at fault and hence should not be termed as NPAs.”

    Under 80-IB (10), a taxpayer is entitled to 100% deduction while calculating the taxable income from a housing project that is for the benefit of the middle and lower classes. This provision currently is available for projects approved on or before March 31, 2008, and expires on March 31, 2013. HUPA has asked for a one-year extension of the terminal date.
    HUPA has also asked for extension of the service tax exemption to all categories of affordable housing projects. This demand may also be accepted by the finance minister, a senior official indicated. Currently, projects under the Jawaharlal Nehru National Urban Renewal Mission, JNNURM, Rajiv Awas Yojana, and affordable housing in partnership and other slum rehabilitation schemes of state governments are eligible for this exemption.

    If these demands indeed make it to the budget speech slated to be delivered by finance minister P Chidambaram on February 28, it may go a long way in bridging the urban affordable-housing deficit currently estimated at about 26 million, experts said. Also, the total housing loan outstanding in the country is pegged at about Rs 3.06 lakh crore, of which only about 24% is towards loans up to Rs 5 lakh, which are mostly taken by economically weaker sections and low-income groups.

    The establishment of a government-supported Credit Risk Guarantee Fund will facilitate credit enablement of the urban poor as well as flow of institutional finance for affordable housing, HUPA has recommended.

    Maken said that government is for active consideration of giving infrastructure status to the sector. Recently, Maken wrote to Chidambaram detailing the issues that need to be addressed in the sector. HUPA has also sought creation of commercial real estate (housing) guidelines by the RBI. Currently, the housing sector under RBI guidelines is treated at par with the commercial real estate category.

    Source: Financial Express By RAJAT ARORA, TIMSY JAIPURIA 08 Feb 2013
  • Housing challenge: No Easy Solution To Falling Share Of Low-Cost Housing

    Source: THE FINANCIAL EXPRESS 09 Feb 2013
  • Element Capital to raise $1 bn fund for low-cost housing

    BANGALORE: Real estate-focused private equity firm Element Capital is in the process of launching a billion-dollar (about 5,400 crore) fund that will invest in low-income housing, as it looks to take advantage of a resurgent property market.

    The Element Value Housing Fund, which is expected to be launched by this August, has received commitments of about $300 million ( 1,600 crore) from many high net-worth individuals, endowments and pension funds, according to fund manager Sharik Currimbhoy.

    "We hope to have the first and final close of the fund by August 2012, and are in the process of identifying projects in Hyderabad, Bangalore, North Delhi, among others," Currimbhoy told ET. The news comes at a time when the country's moribund residential property market is expected to see an uptick in fortunes in 2013, driven by improved economic conditions.

    "The residential property market in India is doing quite well currently, and may even be doing better than commercial realty," said Ambar Maheshwari, managing director of corporate finance at Jones Lang LaSalle.

    The fund is expected to make investments of $100 million per project, and will look to stay invested for a minimum of five years, with the option of two one-year extensions. "The investments will be straight up equity investments, and we will be creating special purpose vehicles for each project identified by us," Currimbhoy said. Separately, recent policy changes have given fresh hope to fund managers, who have otherwise failed to deliver the promised double-digit returns to investors, even as the country's economic growth continued to contract.

    Last December, RBI allowed real estate players to avail external commercial borrowings for low-cost housing projects. Also, state-owned HUDCO has announced an interest rate cut of 0.5%, which will see floating interest rates for housing schemes for the poor range between 8.50% and 8.75%. "The availability of ECBs and HUDCO's rate cut have come as a huge positive, and we are looking to take advantage of that," Currimbhoy said.

    Element Capital to raise $1 bn fund for low-cost housing - The Economic Times
  • 'Give tax rebates to housing projects'

    Brotin Banerjee, MD and CEO of Tata Housing, says last year’s story was one of mixed industrial data and a slump across industries, including realty. With the Union Budget 2013-14 fast approaching, the property sector is renewing hopes that any new measures may help overcome fears of sluggish growth continuing next fiscal. Excerpts from an interview with Ashish K Tiwari:

    On affordable housing:
    The Budget should provide sops and tax rebates for affordable housing projects along with interest subvention of 5% for the low income groups and economically weaker sections. Extension of scheme of interest subvention of 1% on housing loan up to `15 lakh on homes costing up to `25 lakh should be continued. Excise duty reduction on cement and steel to lower project costs and expansion of the interest subsidy on loans will prove to be necessary tools to boost developers’ interest in the affordable housing segment.

    On fiscal policy:
    A few weeks ago, the central bank announced its first policy rate cut in nine months.Although that has brought cheer, the fact remains that 2012 can be aptly described as a slow year. Real estate consultancy firm Jones Lang La Salle says that the launch of real estate investment trusts (REITs) or real estate mutual funds (REMFs) in 2013 will drive investor demand across cities. This will allow investments in rental housing and this will be a first for the sector. Mandated bank support for project development is required to ensure timely completion of projects.

    On taxation:
    Tax measures such as increasing the limit of interest deduction on home loans from Rs 1.5 lakh to Rs 3 lakh will provide necessary motivation to consumers to increase buying activity and revive demand. Raising the income tax exemption limit to Rs 3 lakh will lead to more disposable income available for domestic investments.
    Increase in service tax and excise duty by 2% in the last Budget has put pressure on project costs, raising the unit costs by 4-5%. As a result, high cost of construction has impacted demand and is proving to be a deterrent for both sides. To revive demand and control rising property prices, government should consider lowering of service tax and excise duty.

    On Real Estate Bill:
    The introduction of legislation such as the ‘Real Estate Bill’ is expected to increase transparency and boost investor confidence in the Indian market. We continue to advocate the formation of a regulatory authority for the sector which will ensure planned and transparent development and protect the interest of the customers. Another recommendation would be the establishment of a single-window clearance for construction projects.

    On raising funds:
    The Reserve Bank of India also allowed real estate developers and housing finance companies to raise up to $1 billion through external commercial borrowing (ECB), a move that is expected to make funding more accessible, especially given the current regulatory and reform environment.

    Source: DNA By: Ashish K Tiwari Publish: 20-February-2013
  • Budget 2013: Affordable housing may get infra status

    The upcoming Budget may see grant of infrastructure status to affordable housing. Union Minister for Housing and Poverty Alleviation Ajay Maken will seek an infrastructure status for affordable housing from the Finance Ministry which is working to present the Budget later this month.

    The move, Maken said, will boost such initiatives as clearances from the state government will become a lot easier. He was speaking at a CII event in Mumbai earlier this week.

    The Technical Group on Urban Housing Shortage has estimated that the total housing shortage in the country is 18.78 million units in 2012. Affordable housing accounts for more than half of this shortage.

    "There are few developers who are building affordable units currently. This new move by the Centre will allow cash inflow in the realty sector and prompt developers to build affordable housing. It will also give tax rebate to developers and consumers and will widen the scope of investment for property buyers," said Rajeeb Dash, marketing head, Tata Housing Development Co. Ltd, a company that is developing affordable housing in many cities across India.

    Welcoming the move, the real estate apex body CREDAI demanded for extension of similar treatment to the entire housing sector.

    "We are happy that the Centre has come half way through on the demand for according infrastructure status to the housing sector to facilitate easy financing and other benefits and to give a much-needed boost to the most important need of a man after food and water," says Lalit Kumar Jain, National President of CREDAI.

    CREDAI has been relentlessly campaigning for infrastructure status for housing sector, declaring it as an industry and creation of special housing zones with tax relief on the line of SEZ, Jain points out.

    Housing, along with construction industry, contributes as much as 11 percent to the GDP and supports some 400 industries which can substantially multiply if supported with proactive policies.

    "Such a move will certainly make the loans available at affordable prices and the larger component of the money can be availed from the banking sector. But to give impetus to the economy, the government has to give the industry status to other real estate segments like township developments. Townships cover affordable as well other segments of housings such as commercial, connectivity, infrastructure etc," says V Suresh, principal executive officer, HIRCO.

    This will allow more investments and will boost the employment sector. Investment of Rs 1 crore can boost 100 man years of employment, he adds.

    Budget 2013: Affordable housing may get infra status - The Economic Times
  • Pioneer In Providing Houses For The Poor

    Source: Financial Express 07 March 2013
  • 'Do not deny us our due'

    Leading developers evaluate the Union Budget 2013-14 and its impact on affordable housing, in interviews to Express Estates

    Will the Budget proposals stimulate affordable housing?

    It will certainly give an impetus to affordable housing but will not bring a turnaround as sops come along with certain caps. It will help boost housing sales in tier II and III cities, and metro suburbs, where the scope of constructing and selling affordable housing is more. The Budget proposal of additional tax deduction of Rs 1 lakh on home loans for first-time buyers will directly boost demand for affordable housing. This additional tax deduction can be carried forward to the next year in case the limit is not exhausted in the current year. With the ongoing interest rates of nearly 10.5 per cent, the total outflow for a loan amount of Rs 25 lakh would be Rs 3 lakh, of which, Rs 2.64 lakh (for first year) would be the interest outgo. The home buyer would get tax benefit equivalent to 95 per cent of the total interest burden, which was earlier only 57 per cent.

    For FY13, the impact will be marginal. There is a substantial extent of home loans up to Rs 25 lakh in size — all the new sanctions will have to be deferred to the next year, as borrowers will not like to lose this significant benefit.

    With this additional rebate for buyers, do you see an immediate spurt in demand for your projects?

    We expect to see a rise in demand in this space over a period of time. Our dedicated affordable housing subsidiary Smart Value Homes, has offerings in the range of Rs 15 lakh to Rs 50 lakh. Given this price point, it would not be wrong in assuming that most of our customers would be first-time home buyers. This year, we will be launching about 15-20 million sq ft of projects and will continue to expand our presence across 10 metros and emerging cities.

    Will the proposal to set up an urban housing fund help mitigate the housing shortage in urban areas? What else should the government do to enable more supply in this segment?

    The urban housing fund will work as a pool fund for developers strapped for cash. Most developers stay away from the affordable housing segment because it is not an attractively-priced segment and access to funds is limited. It has been a long-standing demand of the real estate sector to be granted 'industry status'. This will help the sector become better-organised and increase accountability and help the sector access bank lending at average interest rates with low collateral as against the high rates at present, which would help bring down home prices and increase supply.

    State governments should establish a single-window clearance system, which serves the three principal objectives of realistic price discovery, land allotment and granting approvals in a time-bound manner. This would ensure timely completion and avoid cost overruns. A haze of contradictory approval requirements, administrative delays and a dysfunctional system which works on multiple clearances are a bane for players in this sector.

    Other than Budget measures, what are the procedural constraints need to be eased, for you to operate efficiently?

    Developers are primarily looking at luxury, high-end and upper-mid housing segments since these fetch a premium. However, to be fair, it's not always been a case of higher profitability that has driven developers away from affordable housing. Restrictive civic laws limiting floor space index (FSI) levels and high land rates in metros have actually made affordable housing unviable. Planners really need to pursue strategic densification, including relaxing FSI limits, which will ensure developers get decent margins. This will also bring down property rates, and release more supply.

    The current focus of state governments has been limited to auctioning land to private players. This has contributed to escalation of land prices, detrimental to affordable housing.

    The government would also do well to consider that apart from land rates, there has been a significant hike in input costs (cement, steel and labour). For realty players promoting affordable housing, a tax incentive would be very welcome. Other incentives could include capital subsidy for PPP initiatives, regulated lower interest rates, discounts in stamp duty and registration, and priority sector credit for home loans up to Rs 25 lakh.

    Brotin Banerjee, MD & CEO, Tata Housing

    'Do not deny us our due' - Indian Express
  • Affordable housing sees slew of new entrants, renewed interest

    Source: Livemint By: Madhurima Nandy Publish: 14-March-2013
  • Policy changes key to affordable housing

    Affordable housing is the key to India's realty industry being able to change lanes to the fast track but cost escalations due to delayed permissions, lack of access to cheap credit and shortage of building material are proving to be major hurdles. The solution: Policy changes covering land to lending.

    The demand for affordable homes alone, in the range of Rs.1-5 million, is in the range of five million. Over a third of new homes is in this category. According to industry statistics, out of 500,000 homes to be delivered this year, a large part will be the affordable housing segment.

    But the affordability of home-buyers has been severely hit by cost escalations and high project cost is proving to be the main deterrent. The lack of sustained funds flow to the realty industry not only restricts supplies, leading to housing shortage (mostly in the affordable category), but also results in a spurt in property prices.

    Amid this liquidity crisis, a large number of realty companies today find themselves in a debt trap. So much so that promoters of a few companies have pledged a major part of their holdings to seek debt. There is a need to ease bank funding and make foreign direct investment and external commercial borrowings more accessible to developers.

    On the private equity front, statistics show that such investments in the residential segment registered a 50 per cent decline compared to the office realty space, as these investors were more interested in income-generating assets.

    In this context, speeding up the launch of real estate investment trusts, or listed companies that own and manage property on behalf of shareholders, on the bourses will help meet the large-scale fund requirement for mass housing.

    It is, indeed, heartening that the National Housing Bank (NHB) is setting up an urban housing fund with Rs.2,000 crore ($360 million) to spur affordable housing. The Housing and Urban Development Corp, with a target to build 500,000 affordable homes, has in its first tranche raised about Rs.2,200 crore ($400 million).

    Both these funds will work as a "pool fund" to incetivise cash-strapped developers aspiring to tap the high potential segment of affordable housing.

    It is on the policy front that there is the lack of effective initiatives. This year's budget sop of Rs.100,000 ($1,800) additional tax benefit on home loans will largely benefit tier II and tier III cities.

    But given that the top six-seven cities constitute less than a fourth of the overall affordable-housing supply, there is a need to launch incentivised policies for developers to provide mass housing in the suburbs and satellite towns of metros and Tier I cities.

    For developers, the tax exemption for low-income houses up to 60 square metre carpet area and extension of tax holidays for low-income housing under Sec 80 1B of the Income Tax Act could prove beneficial.

    With urbanisation expected to grow at a compounded annual growth rate of more than two per cent over the next two decades, there is the need to liberalise obsolete development norms, rationalising floor area ratio and density. There should be policy initiatives in place to fast-track the public-private partnership route. For that, the city development agencies should give up policy of land auctioning and instead allow land pooling for developer entities.

    Considering a major part of the mortgage disbursed - expected to touch the Rs.220,000-crore ($40-billion) mark by the end of this fiscal - will be in the affordable segment, there is an urgent need to regulate home-loan rates. A parliamentary panel on the finance has sought a cap and regulation on interest charged by housing finance companies.

    Raising home loan limit for affordable homes in the metros and tier I cities from Rs.2.5 million to Rs.3.5 million may well go a long way in encouraging developers and home buyers, thereby pushing up supply and consumption of mass housing.

    With a host of new private equity players and developers targeting mass housing, the coming months will witness increased traction on this segment of the realty industry. Increasing viability of affordable housing projects will be the way forward.

    Policy changes key to affordable housing - The Economic Times
  • Lack of affordable housing forces poor into death traps

    MUMBAI: Aslamkhan Bhikankha sold his wife's jewellery and used all his savings to buy a flat in a Mumbai suburb which he now fears will soon be razed, leaving his family homeless.

    The flat is in one of numerous illegal buildings in Mumbra that house poor migrant workers and face demolition by authorities over safety concerns after the collapse last week of a 7-storey block nearby in which 74 people died.

    "If they break this building, they should run the bulldozer over us and kill us too," said Bhikankha, a plumber who moved to Mumbai three years ago from a village 350 km (217 miles) to the north in search of a livelihood. "It will be better than losing all our money and living on the streets."

    The building collapse and Bhikankha's plight underscore the government's failure to develop policies to house the millions of people who flood from rural India into cities to do the low-wage jobs in a modernising economy, Asia's third-biggest.

    While building collapses are not uncommon in India, many were shocked by the Mumbra disaster, one of the deadliest such incidents in recent years. The apartment block crumbled in seconds, instantly killing dozens of construction workers and their wives and children who had been living there.


    A shortage of affordable housing in Indian cities has led to rampant illegal construction by developers using cheap materials and shoddy methods in order to offer low-cost homes to low-paid workers, paying bribes to officials to turn a blind eye.

    Despite several promises by the government to build affordable homes for country's poor in densely populated cities, the country's urban housing shortage is estimated at nearly 19 million households. That lack of affordable housing is especially acute in Mumbai, country's financial capital and home to some of the world's costliest real estate, where an estimated six out of every 10 people live in slums.

    "This lack of quality affordable housing is why thousands choose to invest their hard-earned money in sub-standard construction," said Brotin Banerjee, CEO of Tata Housing, which is part of salt-to-steel conglomerate Tata Sons and is building cheap homes in Boisar, on the outskirts of Mumbai.

    Developers argue that expensive land, high interest rates, and corruption and red tape that cause delays make building low-cost homes financially unviable. "There is a need to increase affordable housing in the state and we are taking steps," said Sachin Ahir, the state of Maharashtra's junior housing minister. "The government needs to think about how to rehabilitate those who will be displaced."

    "We have tried to create affordable housing, but people have their own restrictions and aren't ready to go far from where they live," he added.

    Ahir said the government is also reviewing its rental housing scheme, designed to provide affordable homes for the poor. The Maharashtra Housing and Area Development Authority, the state body that builds homes, has also been asked to do more to create joint venture partnerships with private developers to increase the stock of cheap homes, he said.


    A report by property consultant Knight Frank shows house prices in Dadar, a middle-class area in central Mumbai, are Rs 20,000-30,000 ($370-$550) per square foot, out of reach for people like Bhikankha, 28, who earns Rs 7,000 a month. He paid Rs 605,000 for his sparsely decorated 2-bedroom flat on the ground floor where he lives with his wife, 2-year-old daughter and 12-year-old sister-in-law.

    The top three floors of the 8-storey building have been reduced to rubble by local authorities who in the aftermath of the nearby collapse broke down the walls and ceilings of empty flats built without approval. Electricity to the building has been cut and residents served evacuation notices. Bhikankha said he has spent the last few days at home as he fears authorities will evict his family and demolish the building when he's at work.


    As workers combed through the rubble of the collapsed apartment, another illegal and occupied building on the same site was being torn down. That 6-storey structure crumbled like a sandcastle as an excavator clawed at the walls, reducing it in moments to a pile of mangled steel and concrete. "The builders and government are playing with people's lives," said 32-year-old rickshaw driver Mohammad Khalid Sheikh, who lives nearby.

    Thirteen people have been arrested and charged on various counts, including culpable homicide and bribery, in connection with the collapsed building that left 74 dead and 62 injured, a spokesman for the local authority said.

    Built in under two months with poor quality materials and without the proper approvals, the apartment block stood on forest land in an area where nine of 10 buildings are illegal, officials say. It was still under construction when it collapsed, with the mainly migrant workers and their families living on the lower floors and paying as little as Rs 500 a month in rent.

    If a building, despite being illegal, is part occupied it cannot be demolished. That encourages developers to rent out flats at cheap rates while they continue building more floors. "People who are greedy and can exploit the system will continue to build these kinds of projects even if there was availability of affordable homes because they have figured an easier way of making money," said Chintan Patel, director of real estate and hospitality at Ernst & Young.

    Reshma Ansari lost the only earning member of her family in the Mumbra disaster. Her 60-year-old brother-in-law, who earned about 10,000 rupees a month at a bakery, was selling bread in the building when it collapsed, as one witness said, "like a pack of cards".

    Ansari, 20, lives with her husband and infant daughter in another illegal building because it is all they can afford. She said the government should do more to make housing available. "This happened because of their negligence and now they are out to break every building in the area and put us on the streets, but we won't leave."

    Lack of affordable housing forces poor into death traps - The Economic Times
  • Easier ECB norms to create more affordable housing: Crisil

    MUMBAI: The easing of fund-raising norms through the external commercial borrowing (ECB) route will lead to developers focusing on low-cost housing projects, says rating agency Crisil.

    Earlier this week, RBI lowered the total experience of developers or builders for affordable housing projects to 3 years, against 5 years prescribed earlier to avail of ECBs.

    Besides, the apex bank has also withdrawn the condition of minimum paid-up capital requirement of not less than Rs 50 crore for housing finance companies (HFCs) to avail of ECBs.

    "Both, housing finance companies and developers, are the direct beneficiaries while home buyers will also benefit in terms of concessional interest rates and greater availability of low-cost homes," CrisilBSE -0.64 % said in a report.

    Crisil estimates that the cost of funding for developers will come down to around 9-11 per cent (taking into account the hedging cost) from the current levels of 15-20 per cent, depending on the current source of funds.

    "In addition to the cost of funds, since the criteria of past experience has been relaxed, relatively less experienced developers will also benefit as it will enable them to launch new projects in the affordable housing segment," it said.

    Easier ECB norms to create more affordable housing: Crisil - The Economic Times