6th Affordable Housing Summit & Excellence Awards · 2020-06-18 · 8.5 trillion is required for...

Affordable Housing: Instrument for Inclusive Development

Public and Social Policies Management (PSPM) Group, YES BANK

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2014

Instrument for Inclusive DevelopmentAffordable Housing

ForewordNearly 28% of India’s population lives in cities and urban areas, a figure that is expected to rise to 40% by 2020. The growing housing shortage is a culmination of the high rate of urbanization, with over 300 million people expected to shift to urban cities over the next decade, as estimated in the 12th Five Year Plan.

Majority of housing in urban areas caters to the premium segment; thereby a large section of society is unable to own homes. According to the National Housing Board (NHB), an investment of INR 8.5 trillion is required for construction of Affordable Housing in slum and non-slum areas. The Government on its own will not be able to cater to this demand and it is essential that administrative structures and policy frameworks facilitate and encourage resource mobilization, including from the private sector.

Establishing policies that mandate developers to make provisions for the Economically Weaker Sections (EWS) and Low Income Groups (LIG) will encourage the private sector to take up Affordable Housing projects and ensure their timely delivery. Measures like ensuring availability of developed land, TDR, long tenor finance and cheaper loans, Priority Sector Lending, Viability Gap Funding and Single Window clearances will encourage private sector investment and provide much needed impetus to the Affordable Housing segment.

However, it is also necessary to balance social objectives and ensure regional parity in Affordable Housing growth. A collaborative community model should be established to gradually influence local populations into a partnership framework, enabling community entrepreneurship through effective identification of partners with complementing competencies.

In this backdrop, I am pleased to present the YES BANK-ASSOCHAM knowledge report, ‘Affordable Housing: Instrument for Inclusive Development’ which highlights key challenges and opportunities, while suggesting a holistic strategy for development of Affordable Housing in India. I am confident that the contents of the knowledge report will provide insights to policy makers, industry leaders and stakeholders in the Affordable Housing space to conceptualize and execute sustainable development models to provide better living conditions and economic security to all sections of our society.

Thank you.Sincerely,

Rana KapoorPresident Managing Director & CEO


MessageDefining affordable housing in India is a difficult task given that at every square kilometer of the country, the dynamics of the market are different. Public policies promoting affordable housing in the country represent a win-win proposition at the moment. For the real estate development business, this implies an overall expansion of the market size by extending their focus to the middle and lower-income-group (LIG) of the population. On the other hand, ‘housing for all’ remain a key priority in India’s development agenda. Low-cost housing offers a ‘world of opportunities’ to the real estate development business that could bring in much needed resilience to this sector. Affordable housing is expected to have a positive impact by improving basic quality of life.

The fact is that our cities are already overcrowded and getting worse everyday, and therefore require a comprehensive and coordinated policy and implementation effort to find decent shelters for our urban poor. Some states are pursuing a policy of mandatory allocation of land by the developers for economically weaker sections and low-income group. The public-private-partnership (PPP) model that has so far been able to work well for many infrastructure development projects could be tried out in the real estate sector also for affordable housing project.

Keeping this in mind ASSOCHAM in partnership with YES BANK has come out with a Study Paper to generate healthy discussion on issues & challenges that need to be effectively addressed for Affordable Housing in the country. I would like to express my sincere appreciation to the contributors to this document for sharing their thoughts, insights and experiences

I hope the stakeholders will find the report relevant and useful.

(D. S. Rawat)Secretary General

ASSOCHAM

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Figure 1 Urbanization Rate in India ......................................................................................15

Figure 2 Proportion of slum households to total urban households (%).................................15

Figure 3 Investment in Real Estate - Driver for Economy Growth ..........................................16

Figure 4 Lack of shelter and services – Manifold Implications ..............................................16

Figure 5 Housing Shortage (Mn)) (Condition of Housing and Infrastructure) .........................17

Figure 6 Housing Shortage (Mn) ...........................................................................................17

Figure 7 Housing Affordability .............................................................................................18

Figure 8 Affordable Housing: Cost and Location ..................................................................19

Figure 9 Housing Finance .................................................................................................... 20

Figure 10 Affordable Housing - Policy Challenges ..................................................................24

Figure 11 State-Wise Housing Shortage 2012 (mn) .................................................................25

Figure 12 Allotment Rate for Affordable Housing, Haryana ....................................................26

Figure 13 Human Resource Requirement ...............................................................................30

Figure 14 Facilitating Provision of Affordable Housing ...........................................................32

Figure 15 Statutory Approvals Required for Housing Projects (Pre-construction) .....................34

Figure 16 Urban Development Model for Development of Affordable Housing .....................35

Figure 17 Housing Policy and Inclusive Development ...........................................................36

Figure 18 REIT ....................................................................................................................... 39

Figure 19 REIT structure ......................................................................................................... 40

Figure 20 Social Equity Model for Affordable Housing ...........................................................43

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1. Urbanization and Housing Challenges in India

Urbanization is critical for the economic growth of nation. Housing and infrastructure provide the backbone for growth of urban areas, ensuring sustainable development and better quality of life for citizens. Cities have become a major locus of economic activity, and present complex challenges for provision of affordable housing, with over 300 million more people expected to urbanize over the next decade. 1

Figure 1 - Urbanization Rate in India (%)

Source: Census of India, 2011

Owing to rapid urbanization and paucity of affordable and mid-segment housing stock, the urban fabric of Indian cities is dotted with slums, (fig. 2) squatters and illegal colonies with million plus cities accounting for over 40% of the slum population. 2

Figure 2 - Proportion of slum households to total urban households (%)

Source: Census of India, 2011

Housing and construction industry is the second largest employer in the country next to agriculture, supports more than 250 ancillary industries, and contributes nearly 10% to the GDP, thereby offsetting government subsidies for the sector. (fig. 3)

1Census of India2Urban India 2011: IIHS

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Figure 3 - Investment in Real Estate - Driver for Economy Growth

Source: YES BANK Analysis

poor and economically weaker sections of the society are forced to occupy marginal lands characterized by poor housing stock, congestion and obsolescence. Housing conditions in slums and un-authorized colonies are appalling and migrants to these burgeoning slums and illegal settlements face difficulty in securing access to vital services.

Haphazard urbanization owing to lack of housing has far reaching implication for cities (fig. 4). For instance, the number of unauthorized colonies jumped from 1,432 in 2007 to 1,639 in 2012. Only 55% of Delhi’s population is served by the sewer system (planned areas), the rest is discharged into drains that lead up to Yamuna. Despite pumping in crores of rupees, pollution levels in the river have increased.

Figure 4 - Various Implications of lack of shelter and services

Source: YES Bank Analysis

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Housing and basic infrastructure catalyze the environment for the overall development and urbanization.

1.1 Twin Dilemma: Housing Shortage & Oversupply

Technical Group on Urban Housing Shortage (2012-17) has ascertained the total housing shortage to be at 18.78 million dwelling units of which over 95% pertains to the economically weaker sections and low income group categories. (Fig. 5 & 6) Estimated housing shortage includes those residing in unacceptable dwelling units, unacceptable physical and social conditions and homeless households.

Policy and institutional inefficiencies have stymied the supply of affordable shelter. Urban land shortage emerging out of planning models adopted for urban development have resulted in high price of land and formal real estate, urban sprawl, housing and infrastructure deficiency.

Mismatch between supply and demand vs. Burgeoning supply in market

In the current set-up, cities have grown to accommodate middle and rich class whereas the deficit in affordable housing has led to proliferation of slums and illegal colonies.

Figure 5 - Housing Shortage (Mn) (Condition of Housing and Infrastructure)

Source: Report of the Technical Group on Urban Housing Shortage (2012-17), (data: Census)

Figure 6 - Housing Shortage (Mn)

Source: Report of the Technical Group on Urban Housing Shortage (TG-12)

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Private developers predominantly target luxury, high end and upper middle segment, which fetch higher returns over low income housing. Shelter for the poor/EWS is primarily delivered by the government.

1.2 Defining Affordability

Housing has multifarious characteristics under its ambit such as cost, size, location, legal rights etc., each influencing the deliverables, making it difficult to define affordability. According to the Task Force on Affordable Housing set up by the Ministry of Housing and Urban Poverty Alleviation (MHUPA) in 2008, housing affordability for various segments, categorized by the size of dwelling unit is derived from household income. (Fig 7)

Figure 7 - Housing Affordability

Source: Guidelines for Affordable Housing in Partnership (Amended), MHUPA, 2011

Affordability is correlated to income and property prices. If the monthly carrying cost of a dwelling unit exceeds 30–40 percent of household income, the housing is considered unaffordable.

Land price reduces as distance from the urban centers increases, thereby reducing the price of dwelling unit (fig. 8). However, developing housing on urban fringes increases commuting distance of the poor from place of employment, making it imperative for policy makers to assess the trade-offs between various dimensions and plan holistically by inculcating more viable options such as mixed use development.

Size EMI/ RentEconomically weaker section (EWS)

Minimum of 300 sq ft super built-up area minimum of 269 sq ft (25 sq m) carpet area

Not exceeding 30-40% of gross monthly income of buyer

Low-income Group (LIG) Minimum of 500 sq ft super built-up area maximum of 517 sq ft (48 sqm) carpet area

Middle-income Group (MIG) 600–1,200 sq ft super built-up area maximum of 861 sq ft (80 sqm) carpet area

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Figure 8 - Affordable Housing: Cost and Location

Source: KPMG Analysis, Knight Frank

1.3 Making Affordable Housing Lucrative for Real Estate Developers

Bridging the Investment Gap

National Housing Board (NHB) has estimated fund requirement of INR 8, 49,440 cr for construction of affordable housing in slum and non-slum areas. Since overall government resources are limited, it is essential that administrative structures and policy framework facilitate and encourage resource mobilization from the market as well as the private sector.

The magnitude of investments clearly indicates the need to incentivize private sector and various stakeholders to undertake affordable housing projects.

Minimum Volume of Habitation

Provision of Basic Amenities Cost of the House Location of the

HouseEWS • minimum of 250

sq ft carpet area• minimum of 2,250 cu ft internal volume

• sanitation, adequate water supply and power

• provision of community spaces and amenities such as parks, schools and healthcare facilities, either within the project or in the neighbourhood, depending upon the size and location of the housing project

• cost of the house such that EMI does not exceed 30-40% of gross monthly income of the buyer

• reasonable maintenance costs

• located within 20 km of a major workplace hub (could be suburban hubs as well) in the city

• adequately connected to major public transit hubs

LIG • 300-600 sq ft carpet area• 2,700-5,400 cu ft internal volume

MIG • 600-1,200 sq ft carpel area• 5,400-10,800 cu ft internal volume

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Figure 9 - Housing Finance

Source: NHB

Non- Banking Financial Companies (NBFC) Lending and Bank Lending constitute major channels of financing affordable housing. Informal market lending is also an important source of finance for new entrants and small developers.

Priority Sector Lending by RBI

The following provisions have been made by RBI for encouraging development of affordable housing -

(i) Bank loans to any governmental agency for construction of dwelling units or for slum clearance and rehabilitation of slum dwellers subject to a ceiling of INR10 lakh per dwelling unit.

(ii) Loans sanctioned by banks for housing projects exclusively for the purpose of construction of houses only to economically weaker sections and low income groups, the total cost of which does not exceed INR 10 lakh per dwelling unit, will qualify for priority sector status. For the purpose of identifying the economically weaker sections and low income groups, the family income limit of INR 1, 20,000 per annum, irrespective of location is prescribed

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Urban Housing Fund

The scheme allows NHB to refinance various Primary Lending Institutions (PLI) depending on their eligible individual loans extended to lower income segments in urban areas across India.

Other sources of financing real estate such as compulsory convertible debentures, real estate mutual funds, sale and buy back method etc. can help bridge the housing gap.

(iii) Bank loans to Housing Finance Companies (HFCs), approved by NHB for their refinance, for on-lending for the purpose of purchase/construction/reconstruction of individual dwelling units or for slum clearance and rehabilitation of slum dwellers, subject to an aggregate loan limit of INR 10 lakh per borrower, provided the all inclusive interest rate charged to the ultimate borrower is not exceeding lowest lending rate of the lending bank for housing loans plus two percent per annum.

(iv) The eligibility under priority sector loans to HFCs is restricted to five percent of the individual bank’s total priority sector lending, on an ongoing basis. The maturity of bank loans should be co-terminus with average maturity of loans extended by HFCs. Banks should maintain necessary borrower-wise details of the underlying portfolio.

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2. Affordable Housing: Policy Framework and Financing Instruments

Development of affordable housing in India faces major challenges due to mix of economic, regulatory and urban issues. Efficient policy structure is paramount in determining the course for sustainable development. Formulating appropriate strategies to address the housing deficit is the need of the day to ensure inclusive development.

2.1 Central Government Initiatives in the Affordable Housing Sector

The first National Housing Policy was formulated in 1988. It was followed by a series of public sector interventions and related development of human settlement sector in India, with the formulation of National Housing Policy in 1994, National Housing and Habitat Policy (NHHP) in 1998 and follow-up of 74th Constitution Amendment of 1992. The policies focus on the role of public sector as ‘facilitator’, and increased role of private sector for the provision of housing. Prior to the introduction of The National Urban Housing and Habitat Policy (NUHHP), 2007, all the policies were generic and did not specifically address to the housing challenges in urban India.

With the intention to encourage and expedite urban reforms in India, JNNURM was launched in December 2005. For the housing sector in particular, its main aim was construction of 1.5 million houses for the urban poor during the mission period (2005–2012) in 65 mission cities.

Draft Model State Affordable Housing Policy for Urban Areas framed by the Ministry of Housing and Urban Poverty Alleviation (MHUPA) empowers states to pass acts pertaining to development of housing, provision of fiscal concession and inclusion of various models for land assembly and value capture.

Various other schemes for housing include Slum Rehabilitation Authority (SRA) schemes, Basic Services for the Urban Poor (BSUP), Integrated Housing and Slum Development Programme (IHSDP), Affordable Housing in Partnership (AHIP) and Interest Subsidy Scheme for Housing the Urban Poor (ISHUP).

Other policies such as Rajiv Awas Yojna (RAY) envision a ‘Slum free India’ through adopting a multi-pronged approach for slum redevelopment and construction of affordable housing. Under RAY, while the Centre gives 50% of the project cost to redevelop existing slums and create new affordable housing stock, the remaining 50% cost has to be borne by states, municipalities and the beneficiaries. RAY envisions ensuring provision of property deeds to slum dwellers. While this would empower the poor on one hand, lack of transparency and corruption might lead to proliferation of slums, squat with assurance of ownership rights from the scheme.

It is imperative to ensure effective implementation of the envisaged policies to make housing provisions for the poor.

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Figure 10 - Affordable Housing - Policy Challenges


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Land cost is the chief contributor to housing cost, particularly in large cities. There are a number of persistent structural distortions in the market for land, particularly in urban areas. Excessive control over availability and usage of land and floor area ratio (F.A.R) has led to artificial scarcity which against the high demand for shelter has led to escalating housing prices.

In order to promote home ownership, the 2013 budget allows for an additional deduction of interest up to INR 1, 00,000 from the taxable income if a person buys his first home, by taking a loan of up to INR 25 lakh from a bank. The value of the property should not exceed INR 40 lakh, and should be his first house. Controlling construction in centrally located areas has pushed development towards the periphery which has led to unfavorable consequences such as longer commuting trips, public transport becoming difficult to operate and unnecessary extension of urban infrastructure.

Institutional inefficiencies and regulatory bottlenecks have lead to asymmetry in access to information and high transaction costs to developers. Wide gap between the demand and supply along with poor management of land resources and lack of transparency in the system has led to the proliferation of slums and unauthorized colonies.

2.2 Policy Initiatives by Key States

State intervention for development of affordable housing is inconsistent and only few states have evolved policy structures in tune with the national policy. State-wise data indicates acute housing shortage in the states of Uttar Pradesh, Maharashtra and West Bengal. (Fig 11)

Figure 11 - State-Wise Housing Shortage 2012 (mn)

Source: Report of the Technical Urban Group (TG-12) on Urban Housing Shortage 2012-17, Ministry of Housing and Urban Poverty Alleviation, September, 2012

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Haryana Affordable Housing Policy introduced in 2013. The following are the key features of this

policy:

• The minimum and maximum area for such projects shall be 5 acres and 10 acres respectively irrespective of the Development Plan where such project is proposed.

• Carpet area – 28 sqm to 60 sqm.

Figure 12 - Allotment Rate for Affordable Housing, Haryana

Source: Affordable Housing Policy 2013, Haryana

Maharashtra Key objective of the Maharashtra State Housing Policy, 2007 is to promote LIG and EWS

housing. It is mandatory for developers of residential plots of 2,000 square meter and above to reserve 20

per cent of the land Local Bodies to develop infrastructures like roads, water supply, sanitation and other amenities

near the housing sites through development planning process, using Housing and Infrastructure Fund and accessing Government funding support.

Slum Development Authority Resettlement plans are being implemented under this scheme across the cities of Mumbai, Pune

and Nagpur. Mumbai Metropolitan Region Development Authority (MMRDA) is implementing various

projects under PPP mode for affordable housing development. E.g. Tata Housing Incentivizing redevelopment of old and dilapidated buildings through cluster approach. City And Industrial Development Corporation Of Maharashtra Limited (CIDCO) schemes -

‘Gharonda Housing’ and ‘Unnati Gruhanirman Yojna’

Sr. No.

Development Plan Maximum allotment rate on per sq. ft. carpet area

basis

Additional recovery against balcony of min 5ft. clear projection #

a. Gurgaon, Faridabad Panchkula, Pinjore-Kalka

Rs. 4,000/- per sq. ft. Rs 500 per sq. ft. against all balcony area in a flat adding upto and limited to 100 sqft, as permitted in the

approved building plans.b. Other High and Medium Potential Towns

Rs. 3,600/- per sq. ft.

c. Low Potential Towns Rs. 3,000/- per sq. ft.NOTE: # : Such cantilevered balconies (unsupported on three sides) shall not be part of carpet area and shall continue to be allowed free-of-FAR.

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Gujarat Affordable Housing Policy, 2014 (proposed) Gujarat Housing Board to provide land to private developers. Development of houses for economically weaker section (EWS) with an annual income below

INR 1 lakh, low income group (LIG) earning between INR 1 lakh to INR 2.5 lakh and middle income group earning INR 2.5 lakh to INR 5 lakh per annum.

The developer can also provide affordable houses on his own land as per government norms. The policy provides the private developers a floor space index up to 3 for affordable and free sale

category, and will also be permitted commercial construction up to 10% of project area. There will be no municipal charges for EWS and LIG schemes.

The government will arrange for loan facility, along with the developer, for the beneficiaries. They will not be able to sell EWS and LIG houses for seven years while MIG cannot be sold off for five years.

Memorandum of understanding with the central government for merging centrally-sponsored EWS housing scheme with the chief minister’s housing scheme.

Tamil Nadu Chennai Municipal Development Authority (CMDA) allows for 50% additional FSI for EWS units

with maximum area of 30 sqm, and 30% additional FSI for LIG units with areas less than 50 sqm.

Rajasthan Affordable Housing Policy, 2009 5 models proposed under the scheme

Model No-1: Mandatory Provisions

YES BANK Analysis, Data Source: AFFORDABLE HOUSING POLICY - 2009, Rajasthan

Rajasthan Housing Board ULB Private Sector • Construct at least 50% plots/ houses/ flats of EWS/LIG category in its schemes.

• Another 20% of the plots/ houses/ flats to be constructed for MIG-A category

• Allot/construct at least 25% plots/houses/flats of EWS/LIG category in their residential/ housing schemes.

• Another 20% of the plots/ houses/ flats to be allotted to MIG-A category.

• Private developers to reserve 15% of the dwelling units to be used for EWS/LIG housing in each of their Township/Group Housing Schemes.

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Model No-2: Private developers on land owned by them

YES BANK Analysis, Source: Affordable Housing Policy - 2009, Rajasthan

Model No-3: Private developers on acquired land


Model No-4: Private developers on Government land: (For Rental housing or outright sale basis)


Model No-5: Slum Housing – on lines of Mumbai Model for Slum Redevelopment.

Despite policy provisions, poor implementation affects the supply of affordable housing. Focus attention on integrating various programs and channelizing funds for development would help bridge the housing deficit.

Construction Allotment Incentives• EWS/LIG flats (G+2/G+3 format) on minimum 40% of the total land set apart for housing scheme under the Policy

• The built up EWS/LIG flats to be handed over to the nodal agency (Avas Vikas Limited) at pre-determined prices, to be allotted to the eligible beneficiaries by the nodal agency.

• Twice the normal FAR, TDR facility, waiver of EDC, Building plan approval fee, conversion charges, 10% of the total land allowed for commercial use, fast track approval etc.

ULB Land

Land Acquisition

Payment of compensation(Land Acquisition cost +10% Administration charges)

Private Developer Development as per model 2

Free of cost - Allotmentthrough open bidding

Allotment - developer offering themaximum number of EWS/LIG flats (Built up,G+2/G+3 formats) free of cost to the ULB

Development - Min 50%houses - EWS category Remaining land - Residential development with 10% for commercial purpose Incentives as per model 2

GovernmentLand

Private Developer

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Lay Action Plan States should formulate their housing policies in line with the National policies and Model

State Affordable Housing Policy for Urban Areas. Realistic time frame and implementation policy, in consultation with various stakeholders, detailing requirements, deliverables, financing etc. should be worked out.

Better Enforcement and Stricter Monitoring Strict monitoring of deliverables is required to ensure timely delivery of project. Framework

for evaluating the same must be established.

Facilitate Supply of Land Government plays an important role in providing serviceable land for urban development and

housing. Provision of land at institutional prices will encourage private sector to undertake affordable housing projects.

2.3 Technology transfer and Skill Development

Increased demand for housing underlines the need to evolve new materials and construction technology which is cost effective and minimizes environmental impact.

Modular construction employs factory techniques that have the following advantages:

• PreventCostEscalations–Building costs escalate significantly with project delays and increase in construction time period. Prefab construction consumes less time and hence can prevent cost hike.

Incorporating technology for faster delivery of construction projects

Case Study - Instacon- Instant Construction 10 Floors Building in 48 HoursLocation: Mohali, IndiaUtilizing pre-fabricated material, 10 storey building was erected over a period of two days in Mohali, Punjab.

• Time taken for Pre-fabrication and laying Concrete foundation - 2months. Fittings – 1 month

• Eco-friendly - The building will consume less power

• The building is also certified as earthquake shock-proof by Center for Industrial and Scientific Research (CSIR).

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• Increaseefficiencyby optimizing construction processes • QuickReturns–from rent or income from the sale of finished apartments, making it faster and

easier to repay loans • Reduce environmental impact – Prefabricated buildings are often less wasteful than other

construction projects. This may help to avoid unnecessary materials costs as well. Other benefits include recycling of waste products, less noise and dust etc.

• Improvequality–Construction components are made in controlled environment which ensures high quality. Prefabrication also allows for incorporating complex thermal insulation which improves quality of on-site construction of each individual wall and frame.

• Reducecost

Research & Development (R&D) in construction materials and technology is imperative to bring down cost of construction while improving quality. The following aspects must be evaluated:

Adding value for all players in the construction industry Creating low cost sustainable products and solutions to meet the needs of the local

market Fostering indigenous manufacturing of prefab construction modules and building

components to reduce imports.

Skill Development

Shortage of skilled manpower in India’s real estate sector can adversely affect cost and delivery of affordable housing projects. Skill development, education and training programs need to address the demand for skilled workforce.

Figure 13 - Human Resource Requirement

Source: Human Resource and Skill Requirements in Building, Construction Industry and Real Estate Services, NSDC

2.4 Facilitating PPP (Tax concession and incentives, infrastructure status, cross-subsidization, FDI etc.)

Reforms fostering development of affordable housing through Public Private Partnership (PPP) model would bring in private sector expertise and investment which would help keep pace with the emerging housing needs of cities in India.

Projected Human Resource Requirement (in ‘000)

2008 2012 2018 2022 Incremental

Real Estate 10,790 14,515 20,692 24,981 14,191

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Tax Exemption/deduction under the following sections applicable for the real estate sector are discussed below:

Section 35AD of the Act provides for deduction of capital expenditure (excluding expenditure incurred on the acquisition of any land or goodwill or financial Instrument) incurred for the following purpose :

a) Developing and building a housing project under a scheme for slum redevelopment or rehabilitation framed by the Central or State Government in accordance with the guidelines prescribed and;

b) Developing and building a housing project under a scheme for affordable housing framed by the Central Government or State Government in accordance with the guidelines prescribed.

Exemption under section 35AD would encourage private sector to undertake affordable housing projects.

Section 80 IB (10) which provides complete tax exemption in respect to income delivered by an undertaking engaged in development and construction of smaller dwelling units needs to be relaxed to promote development of housing under this segment. This section was applicable only till 2008 and needs to be reinstated to promote growth in the affordable housing sector.

Initiatives such as Credit Risk Guarantee Fund Trust (initial corpus of INR 1000 cores) which offers credit risk coverage in the form of guarantees to mortgage lenders in case a borrower defaults will foster growth of credit delivery system for low income housing in India. The step enables bank guarantees without collaterals/third party guarantee Individual housing loans up to INR 5 lakhs(housing size – carpet area up to 40 sqm) for

low income housing to be extended by banks and HFIs (registered with NHB)

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Figure 14 - Facilitating Provision of Affordable Housing


Long term funds from pension, labor and insurance companies can also be channelized towards the housing sector.

Financial Institution Private Sector Individual

Credit Risk Guarantee Fund Trust (initial corpus of INR 1000 crores) which offers credit risk coverage in the form of guarantees to mortgage lenders in case a borrower defaults

Tax Exemption - Section 35AD of the Act provides for deduction of capital expenditure (excluding expenditure incurred on the acquisition of any land or goodwill or financial Instrument)

Tax Exemption - Section 35AD of the Act provides for deduction of capital expenditure (excluding expenditure incurred on the acquisition of any land or goodwill or financial Instrument)

Section 80EE of the Act provides an additional benefit for first-time home buyers by allowing an additional deduction up to INR. 1,00,000 in respect of interest on loans obtained up to INR. 25,00,000 for the acquiring residential house property.

Way Forward

Relaxing RBI norms for lending under Priority Sector Lending (PSL)

Provide Infrastructure Status to facilitate easier access to funds

Reinstate Section 80 IB (10) which provides complete tax exemption in respect to income delivered by an undertaking engaged in development and construction of smaller dwelling units

Link credit to employment for urban poor

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Relaxing RBI norms for lending under Priority Sector Lending (PSL) - Currently RBI norms prescribe lending under PSL only if cost of dwelling unit is INR 10 lakh and household income of the beneficiary is less than INR 1.2 lakh per annum.

PSL norms with regard to the prescribed income slab needs to be rationalized, as households even with income more than INR 1.2 lakh cannot afford to invest into EWS/LIG housing.

Unit cost may work out to be more than INR 10 lakhs as price is subjected to various factors such as location and distance from urban centers making it imperative to relook at the current norms.

Cross-subsidization through sale of HIG/MIG units at higher prices or proceeds through development and sale of commercial property can be utilized for financing LIG/EWS housing. Implementation of Cross-subsidy model needs to be monitored to ensure that the deliverables are allocated to targeted EWS/LIG beneficiaries.

Encouraging investment through Foreign Direct Investment (FDI):

FDI up to 100% under the automatic route has been permitted in housing, townships, built-up infrastructure and construction development projects

FDI norms and investor friendly policies allowed foreigners to own property and have dropped the minimum size for housing estates built with foreign capital to 25 acres (10 hectares) from 100 acres (40 hectares)

Boosting investment through this channel will push growth in the real estate sector and in turn the affordable housing segment can benefit through cross-subsidization.

Simplify Processes - Multitude of statutory approvals add 2-2.5 years to the Pre-Construction Process (fig15). Single window clearance to streamline approval process needs to be in place to ensure timely delivery of projects.

Simplify Processes - Multitude of statutory approvals add 2-2.5 years to the Pre-Construction Process (fig15). Single window clearance to streamline approval process needs to be in place to ensure timely delivery of projects.

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Figure 15 - Statutory Approvals Required for Housing Projects (Pre-construction)

Source: CREDAI – Jones Lang LaSalle Real estate Transparency Survey, 2011

Regulate Model of Development to address the twin issues of housing and necessary infrastructure (fig. 16)

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Figure 16 - Urban Development Model for Development of Affordable Housing


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Infrastructure Status – The following are the benefits of providing ‘infrastructure status’ to housing sector: Easier access to funds Moratorium period on repayment of loans along with concessional rates, which would

help in making these investments attractive and the project viable.

Brownfield Development – For provision of social as well as physical infrastructure –

Transfer of Development Rights (TDR) / Accommodation Reservation (AR) facilitate provision of infrastructure without investment by the government. The process of land acquisition in urban areas for public purpose especially for road widening, parks and play grounds, schools etc., is complicated, costly and time consuming. TDR/AR is used in order to minimize the time and cost needed provide infrastructure.

Land pooling / Town Planning (TP) Schemes - Development Authorities, instead of acquiring land, bring together or “pool together” a group of owners and then plan the area by readjusting or reshaping every land parcel in a manner such that it is given a regular shape and access and in the process a portion of land parcel is appropriated to provide for roads, infrastructure, and public amenities. In the process a part of the land is sold for commercial purpose, proceeds from which are used to fund infrastructure or a betterment, levy is charged from the land owner.

Urban planning and land development are in most cases under the control of Development Authorities/Improvement Trusts or State Line Agencies which are under the direct control of state government. These institutions are not adequately accountable to elected body of ULGs in the respective cities.

Figure 17 - Housing Policy and Inclusive Development


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The local development and state line agencies due to their land development and allocation activities have access to huge amount of funds generated through sale of land, assets and services. This is not adequately shared with urban local bodies (ULBs).

Reforms to empower the municipalities and promote fiscal decentralization should include funds generated through sale of land and assets to facilitate investments in infrastructure.

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3. Innovative Mechanism

3.1 Value Capture

Unlocking value through development of commercial real estate along the infrastructure corridors especially DMIC can help offset the cost of provision of infrastructure and affordable housing.

Land Use - promote land use conversion to ensure efficient utilization of landuse. Floor Area Ratio (F.A.R) - promote flexible F.A.R, which would reduce land cost per dwelling

unit. F.A.R. values mainly determine the density or intensity of development of an area. Higher the F.A.R. value more will be floor area within the same plot. Infrastructure provisions required to support the prescribed density should be provided.

Mixed Use Development - Mixed-use development is - in a broad sense - any urban, suburban or village development, or even a single building, that blends a combination of residential, commercial, cultural, institutional, or industrial uses, where those functions are physically and functionally integrated, and that provides pedestrian connections.3 Sale of commercial property can cross-subsidize housing for the poor.

3.2 REIT

Draft regulations issued by SEBI on Real Estate Investment Trust (REIT) Regulations, 2013, can provide investors with an investment avenue, which is comparatively less risky than investing in under-construction properties and provides regular rental income which would be exempted from tax.

Benefits of incorporating REIT -

Transparency – REITs will be monitored by SEBI, and are therefore, subject to stringent monitoring. Such structures can help create a transparent mechanism for raising funds from the real estate market.

3Wikipedia

Figure 18 - REIT


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Figure 19 - REIT structure

Source: Brave New World for India’s Real Estate, EY, 2013

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Improve debt-equity balance – Through the provision of equity finance, REIT can improve the debt-equity balance in the real estate market.

Instrument for addressing NPA – Sale of NPAs to REITs will help unlock the potential of high value real estate.

Liquid asset - As compared to investing in under constructed properties; REITs provide a comparatively less risky opportunity for investment and ensures regular income. REIT also provides avenues of exit to developer/private equity firm thereby providing liquidity.

REIT has been successfully adopted in countries like U.S.A., Singapore, and Hong Kong etc. REIT model can be used for providing rental accommodation to the poor.

3.3 Collaborative Community Model for developing Affordable Housing

Brundtland Commission defines Sustainable Development as follows:

”Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs’’

“A world in which poverty and inequity are endemic will always be prone to ecological and other crises. … Sustainable development requires that societies meet human needs both by increasing productive potential and by ensuring equitable opportunities for all.”

Sustainable development encompasses economic development, environmental protection and social equity and calls for fulfilling the basic needs of all and extending opportunity to fulfill their potential. Collaborative community model for provision of affordable housing will empower community to anchor projects and spearhead initiatives.

Collaborative community model should be established to systematically put local citizens into partnership framework

Government should provide land at institutional rates/ free of cost to Non-profit organizations, cooperative sector and employer welfare associations.

Development of affordable housing through land assembly and development with government providing basic services.

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ASHOKA INNOVATORS FOR THE PUBLIC- Housing for All Program Housing Hybrid Value Chain-

Source: Ashoka Innovators for the Public

Business Sector Goals Ashoka Hybrid Value Chain Citizen Sector Goals• Access to markets• Greater profitability• Assets• Vital goods and services• Ability to operate at scale• Investment capacity• Operational capacity• Infrastructure and Logistics

• Enables collaborative entrepreneurship at a country and global level• Identifies and engages partners providing complementary competencies• Demonstrates how to deliver integrated solutions at scale• Spreads knowledge, learning and specific know-how emerging from HVC application

• Improved products/services for communities• Increased income streams•Assets• Deep knowledge of communities and consumers• Ability to aggregate demand• Social Networks• Behavior change capacit

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Figure 20 - Social Equity Model for Affordable Housing


Equity as a concept is fundamental to sustainable development, especially if the project includes land and displacement. Affordability, especially in housing is a goal that is very difficult to meet given the escalating prices of the raw materials and urban land. If the community owns and divides the cost, along with the government and the developer, it can become a reality for the population at the bottom of the pyramid.

Community enabled housing projects can empower the households to dream and also work on something they themselves own. Even as affordable housing projects for EWS have been defined at INR 10 lakh per unit, that qualifies for priority sector lending, it is beyond the reach of the low income group that we trying to address. Community development or co-ownership provides a cost sharing where the community can develop the whole unit collectively. Apart from affordability, the community led projects also offers minimum resistance for slum redevelopment projects and helps generate employment.

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4. Way Forward

Integrated habitat development is essential to ensure equitable socio-economic growth of the country. Reforms in housing policies are required to rationalize tenure, finance and land markets to bridge the housing deficit. Establishing policies that mandate developers to make provisions for EWS/LIG housing, while ensuring the following will encourage private sector to take up affordable housing projects and ensure timely delivery of the same.

Policy Impetus facilitating private sector investment: Policy measures facilitating availability of developed land/TDR, finance through long tenor and cheaper loans, PSL, VGF, tax exemptions and single window clearances would encourage private sector investment and provide much needed fillip to the affordable housing segment.

Infrastructure status: Giving housing ‘infrastructure status’would benefit the sector by providing easier access to funds. Moratorium period on repayment of loans along with concessional rates would help in making these investments attractive and the projects viable.

Urban Development:

There are a number of persistent structural distortions in land market, particularly in urban areas. Holistic development through regulating and rationalizing landuse and F.A.R is required.

Tier I cities face challenges of providing land and infrastructure, calling for large-scale urban expansion. There is a need for planning and developing new cities that incorporate provisions for affordable housing e.g. development of affordable housing in 24 Smart Cities proposed along DMIC corridors.

Collaborative Community Model: Developing Collaborative Community Model can ensure engagement and participation of local community and empower it to meet the housing needs.

Providing opportunities for linking credit to employment for urban poor can help improve access to credit. Linking employment schemes such as Urban Self Employment Programme Scheme with skill development and financial assistance will go a long way in ensuring financial inclusion of the poor.

Promoting NGO/Community led initiatives through provision of training and start-up capital can provide housing and maintenance at no-profit no-loss basis.

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Resource mobilization through tax-free bonds, municipal bonds and enhancement of fund transfer from Centre/State Government to urban local bodies (ULB) etc. can help augment financial resources of ULB.

Technology and Skill Development: Currently most of the construction material is imported and taxes are levied on it vary within the range of 20-25%. Investing into R&D for developing low cost/pre-fabricated construction technologies will not only spur development of affordable housing but also push growth of the manufacturing sector and generate employment.

Taxation & Affordability: The taxation aspect of affordable housing has two distinct perspectives: on one hand, while the housing ministry and builders seek tax sops for developers of affordable housing projects, the aspect of consumer affordability is sometimes overlooked. The current exemption limit of INR 1.8 lakh which had been initiated long back requires significant changes taking into account the fluctuations in economic activity and continuously rising inflation. In such scenario, it is worth contemplating increase in the tax exemption on affordable housing investments for the consumer, to enhance project sustainability and also increase their affordability in LIG & MIG segments.

Incorporating reforms fostering development of affordable housing can hold the potential to address housing needs of wide spectrum of society. With housing shortage of 18.78 million dwelling units, it is important that integrated habitat development is given immediate focus. Policy and institutional changes are should not only be directed towards satisfying basic housing needs but also towards fostering holistic development within the framework of a planned welfare economy.

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