If the latest Union Budget is any indication, policymakers have a soft spot for affordable housing. Such projects have been offered many goodies, including permission to tap the cheaper channel of external commercial borrowings (ECBs) and exemption from service tax. That’s apart from the tax credit developers can get and the extended interest relief for borrowers.

Srinivas Acharya, managing director of Sundaram BNP Paribas Home Finance, welcomes all that. But he is someone who believes a very basic question needs sorting out first. And that is: what is affordable housing?

“Affordability needs to have a larger meaning in its coverage,” says Acharya. “Does it mean I get a house where I want, or does it mean I get a house at price I want or I am getting a house at a place and price I want? All may not go together.” Put in a different way, “is an affordable house something that costs between . 5 lakh and . 15 lakh?” That’s one way of defining it, he says, though it won’t work in the long run.

That almost existential question pops up at a time when affordable housing seems to have created a lot of buzz as a concept. The big developers might have largely steered clear of affordable housing projects. However,some of the big names in the corporate world – including the Tatas, the TVS group and entrepreneur Jerry Rao – are fancying their chances.

Rao’s model, building houses costing about . 5-7 lakh on the outskirts of Bangalore, is built around capping his expected profits (at 25%). The venture has already attracted investments by HDFC and the Carlyle group. The Tatas have a separate brand, Shubh Griha, to focus on this segment. A Shubh Griha project in the outskirts of Mumbai is targeting sub-. 7 lakh prices. TVS Housing is thinking of a price tag of between . 7 lakh and . 10 lakh for its project outside Chennai. The demand for affordable housing is expected to grow at a compounded rate of 13% during 2011-13, according to business intelligence provider RNCOS. This should be read in the context of India having a shortage of 27 million houses.

The need to define affordable housing is important, says Acharya, because then a uniform approach can be developed. As of now, “Governments have yet to define the special regulatory approach to this category,” he says.

“Affordability comes from standardisation, not customisation. There has to be acceptance across States on the parameters and single window clearance.”
States have gone about supporting the concept in their own ways.

Maharashtra, for instance, is said to be open to the idea of bearing a fourth of the land cost if buyers come together to acquire land for housing. Rajasthan gives fasttracked approval besides allotting land for affordable housing. Tamil Nadu’s latest Budget contains a plan to allow a higher floor space index for such houses without insisting on premium charges. Most states have made housing for the economically weaker sections part of their affordable housing programmes.

“Every state on a standalone basis is doing something. So pick up the best practices and make them uniform,” says Acharya. Generally, what he advocates is more special treatment. To start with, affordable housing projects need faster clearances. They shouldn’t wait 14 months for clearances, the time it takes normal projects to get approved. “Time is of essence,” says Acharya.

Then, the land component of total cost shouldn’t be too high. Logically, that means affordable houses will come up well outside the city, where employment opportunities are usually non-existent. That’s why Acharya believes the government should be able to provide the land bank. Otherwise, the land cost may end up accounting for more than 70% of the total cost, rendering affordable housing dreams useless.

The government could also think about providing raw materials such as cement at subsidised rates, he says. “Cement makers can then be given relief in terms of duty.” The involvement of government seems inevitable. A 2010 RICS Research report made a similar point, after comparing affordable housing projects in eight international cities. Projects in Hong Kong, it said, had a significant government hand. On the other hand, those in Vancouver had a significant private sector role. No city, however,left it completely to the private sector.

Acharya reckons Tier II and Tier III cities will take to affordable housing faster. “They are still growing. As they grow, things can be planned. But in well developed metros, there will be challenges.”

He also feels the government can look to promote concept of co-operative housing because it has elements of affordability. “Personally I would say a group of 15 people joining together to build apartments for their own living has very large element of affordability, as everything is pooled together.” If done well, he says, “Affordable housing can have the same impact like NREGA.”

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