Affordable 28-12-10

AFFORDABLE HOUSING

IntroductionHome buyers face challenges while deciding “when” to purchase houses.While favorable economic conditions lead to higher incomes for homebuyers, it also leads to spiraling real estate prices making it difficult for abuyer to purchase homes even given their higher incomes. On the otherhand, during economic downturns while real estate prices decline, peoplebecome skeptical about their incomes and adopt a more cautiousapproach to purchases.Affordable housing may be a good strategy to this home-buyers dilemmaand can help ensure housing across different sections of society.

Affordable housing can be defined usingthree key parameters viz.• income level,• size of dwelling unit • affordability.

AFFORDABLE HOUSING – “Affordability” as a concept is very generic and could have different meanings fordifferent people based on differences in income levels.Affordable housing refers to any housing that meets some form of affordability1 criterion .Different countries have defined affordable housing to present the economic potential of an individual buying a house. In the United States and Canada, a commonly accepted guideline for affordable housing is that the cost of housing should not be more than 30 percent of a household's gross income. Housing costs here include taxes and insurance for owners, and utility costs.If the monthly carrying costs of a home exceed 30–35 percent of householdincome, the housing is considered2 unaffordable for that household .Defining affordable housing in India is a difficult task given that at every squarekilometer of the country, the dynamics of the market are different. At KPMG andCREDAI, we have therefore broadly defined affordable housing in India for Tier I, II and III cities based on three key parameters:

IS AFFORDABLE HOUSING AND LOW-COST HOUSING THE SAME?Affordable and low-cost housing are ofteninterchangeably used, but are quite differentfrom each other. Low-cost housing isgenerally meant for EWS category andcomprises bare minimum housing facilitieswhile affordable housing is mostly meantfor LIG and MIG and includes basicamenities like schools, hospitals and othercommunity facilities and services.

DEMAND AND SUPPLY CONSTRAINTSUrbanization:Rising income levels leading to a sizeablemiddle class segment:Urbanization is an “index oftransformation from traditional rural1 ECONOMIES TO MODERN INDUSTRIAL ONE .”India’s urban population is increasing at afaster rate than its total population. At 28percent, the pace of urbanization in Indiahas been slower than the average pace ofurbanization in Asia. However, the absolutenumber of people in urban cities and townshas gone up substantially. In India,urbanization can be described as a productof demographic explosion and povertyinduced rural-urban migration. This situationhas resulted in pressure on urbaninfrastructure and in an increase in thenumber of homeless people living on thestreets. As per the 2001 census the totalurban homeless population was 7, 78,599people, which would be much morecurrently given the inadequate availability of2 affordable / low-cost housing .

Demand drivers and supply constraints for affordable housing in India

Source: KPMG Analysis

Rising income levels leading to a sizeable middle class segment The past few yearshave seen tremendous economic growth in the country and one of the implementation of one of the most successful anti-poverty programmes in the country’s history. While 93 percent of the total population in 1985 was under deprived category, this declined to 54 percent of total population in 2005 and is expected to3 further decline to 22% by 2025 .Theeconomic growth is also expected to dramatically change India’s income pyramid3 by creating a sizeable layer of middle class .This middle class segment is expected to be the primary driver for affordable housing

THREE STAKEHOLDERS VIZ. GOVERNMENT, REAL ESTATE DEVELOPERS AND FINANCIAL INSTITUTIONS.

GovernmentInterest Rate Subsidy?One percent subsidy on loans upto INR one million for purchase of houses costing less than INR two millionFSI (Floor Space Index)?Haryana & Tamil Nadu Government have announced increase in FSI for housing projects targeting lower and middle income groups?Tamil Nadu has announced 50 percent extra FSI for projects targeting EWS in Chennai Metropolitan Area (CMA)?Tamil Nadu has further announced 30 percent extra FSI for projects targeting MIGResumption of 80 IB?Profits from housing projects approved between April 01, 2007 and March 31, 2008 will be made tax free if they are completed by March 31, 2012PPP Measures?EWS rental project at Virar, Mumbai by MMRDA (Mumbai Metropolitan Regional Development Authority) and HDIL(Housing Development and InfrastructureLimited); Bengal Ambuja Housing Project?Modification in JNNURM (Jawaharlal Nehru National Urban Renewal Mission) to encourage affordable housing on PPP (Public Private Partnership) basisPolicies?Launch of Rajiv Awas Yojana to promote slum free India

REAL ESTATE DEVELOPERSPrivate developers have been aggressively pursuing affordable housing post the economic slump of 2008Developers have realized the opportunity and need of affordable housing and have taken several steps to tap the sameDevelopers have on an average reduced the prices by 30 percent in last one year and are willing to operate at a lower marginsPlayers like Tata Housing, DLF, Unitech, etc. have multi-city, pan-India plans of developing 10,000 -15,000 units over next four yearsTata Housing has taken the lead by launching an affordable housing project in Boisar- Phase I will be allotted to LIG families – one room kitchen and one bed room hall kitchen (BHK) flats upto INR 0.7 million- Phase II to MIG families – 2/3 BHK apartments at INR 1.2 million and above- FINANCIAL INSTITUTIONSBanks and MFIs (Microfinance Institutions) are willing partnersBanks are willing to fund suitable projects, provided that adequate checks are in place to monitor credit riskMFIs have expressed interest in funding EWS dwelling units upto INR 0.5 millionMicro Housing Finance Corporation is an MFI that is exclusively focused on housing finance

ConclusionWhile the basic necessities of life – food, clothing, and shelter – are increasingly becoming luxury and unaffordable, luxury items such as televisions, mobile phones, refrigerators, etcare become affordable! While we are often amazed at the progress our country has madewhen we see an auto rickshaw driver with a mobile phone, we fail to notice that he is stillliving in a slum-like dwelling.It is understandable that economic growth leads to rise in income but this has led to evenfaster rise in property prices leaving it unaffordable for majority of population. Affordablehousing is expected to have a positive by improving basic quality of life. Problems like trafficcongestion, air quality, commute times, etc. can be resolved by providing proper housingfacilities to the weaker sections of the society. While the concept of affordable housingseems to be a simple solution to current housing woes, its execution remains complicateddue to the unclear policy framework. To make affordable housing work in India, it wouldrequire “will” from all the stakeholders by slightly adjusting their interests towards a widersocial cause.

HOUSING FOR THE POOR IN INDIA Introduction According to the last census conducted in India in 1991, the country had a population of 846.3 million out of which 217.6 million lived in cities and towns. The total number of households was estimated at 153.2 million for the same year. As against this figure, the housing stock in the country was of the order of 148 million – 39.3 million units in urban areas (26.6%) and 108.7 million in rural areas (73.4%). During the period 1971-1991, while the number of households increased by 58%, the number of housing units went up by about 59%. Although India has been facing the problem of housing shortage for a long time, the increase in housing stock in recent decades has been more than that in the number of households. Table 1 portrays some salient data regarding the housing situation in India at the 1991 Census. Approximately 40% of households in 1991 were in single room tenaments; about 30% lived in two-room units. Only about 15% of households had four or more rooms. Table 2 shows the percentage break-up of households by the number of rooms occupied.

HOUSING SHORTAGE Housing shortage is estimated in terms of excess households over houses including houseless households, congestion (number of married couples requiring separate room/house), replacement/upgradation of kutcha/unserviceable kutcha houses and obsolescence/replacement of old houses. Table 5 shows the components of housing shortage in the country at the beginning of 1991. Table 6 shows the estimates of housing shortage in urban areas based on the Report of the Ninth Plan Working Group of the Government of India, Ministry of Urban Affairs & Employment

Urbanization

• Indian urban population in 2001 was 27.8% of the total population.

• Over 5 decades, annual growth of urban population ranged between 2.7 to 3.8%. During last decade it increased at annual rate of 2.7%.

• The process of urbanisation is marked by increasing concerntration in larger cities.

• It is projected that by 2041, India’s urban population will be 50%.

• The current ratio of urban land to population to GDP is 3:30:60. By 2040 it will be 3: 50: ?

Urban Housing Scenario in India

Housing Shortage – BREAK-UP

Estimated Urban Housing Unit Shortage as on 1.4.2007:

More than 99% shortage is for EWS/LIG segments – Technical Committee set up by Ministry of Housing & Urban Poverty Alleviation

Total : 24.71 mEWS : 21.78 mLIG : 2.89 mMIG/HIG : 0.04 m

Financial Investment Required for Overcoming Shortage

Total requirement including basic infrastructure

Rs.600,000 crore

Initiatives by Ministry of Housing & Urban Poverty Alleviation

Formulation of National Urban Housing & Habitat Policy 2007.

Jawaharlal Nehru National Urban Renewal Mission.

Interest Subsidy Scheme for Housing the Urban Poor.

Affordable Housing in Partnership : Modification in JNNURM

Setting up of a High Power Task Force on Affordable Housing.

Launch of the Rajiv Awas Yojana

Major Government Initiatives and Programmes for Affordable Housing

National Urban Housing and Habitat Policy 2007

Goal of the Policy is Affordable Housing for All with special emphasis on the urban poor.

Strategy framework is multiple partnership of States with various stakeholders, cooperatives, employee welfare housing organisations, private sector, state parastals.

Special emphasis has been laid on SC/ST/BC/Minorities, empowerment of women within the ambit of the urban poor with emphasis on security of tenure.

Salient Features

Way Forward Central Government

JNNURM and social housing to be given stronger boost with reform emphasis, additional funds and new components

State Governments

State Housing Board to be reactivated with definite purpose and definite targets.

Land to be provided at nominal cost for economically weaker sections and controlled prices for LIG and MIG

Cooperative Societies to be encouraged

Effective partnership between Govt. and private sector in the form of earmarking of land for EWS/LIG

Partnership

Effective partnership between central government, state govts., parastatals, private sector, cooperative sector, employees welfare housing societies

Rental Housing

Rental housing is to be encouraged by way of amendment in the rent control laws and also using as a tax instrument which need to be crafted to avoid evasion.

RAJIV AWAS YOJANA – A RAY OF HOPE to Slum Dwellers and Urban Poor

Way Forward..contd.