Tuesday, June 15, 2021

Cover Story


- The Fortune Cookie?


As the country is slowly trying to get out of the clutches of the long-impeding lockdowns and the deeply disturbing waves of Covid-19, people have realized the growing importance of having their own houses which is affordable and eco-friendly. In the pre-Covid era, people used to migrate to urban cities to work, giving rise to rental spaces. But the year 2020 has offered us learnings that will stay with us for a long time. Moving closer to native places and spending time with the loved ones will eventually transform the scope and expanse of affordable housing in India. This Cover Story delves into the major shifts and the reciprocating government policies that are aiding in the development of affordable houses in the country… writes PRERNA SHARMA


COVID-19 pandemic has resulted in a reverse migration of urban migrants/poor in the country. While in Uttar Pradesh 21.69 lakh workers returned, Bihar and Maharashtra it was 10 and 11 lakh, respectively. These people need decent rental housing at an affordable rate at their work sites. According to a recent Grant Thornton report, 19 million units is the current housing deficit in India, which, is slated to double to 38 million units by 2030, in the absence of any meaningful intervention. 95% of this deficit is around the economically weaker sections (EWS) and low-income group (LIG)segments. Millions of Indian households currently live in cramped, poorly constructed houses/slum areas/shanties due to the lack of available housing options, combined with limited income and minimal access to home finance for low-income borrowers. They lack access to a clean and healthy environment, with even basic amenities, such as sanitation, clean water, sewage, waste management and electricity often absent. Thus, affordable housing is inevitable and soon, planned sustainable urbanization will have to be by default and not by choice.

The cluttered large-scale urbanization in India has made it imperative to identify, evaluate and address the challenges faced by the affordable housing consumers. Lack of available housing options combined with limited income and minimal access to home finance for low-income borrowers implies millions of Indian households live in dismal conditions. Affordable housing is an idea that deserves attention, as highlighted by a Grant Thornton report. Knowing the criticality of the same, the Central Government has aimed to make ‘housing for all’ a reality by 2022. The Pradhan Mantri Awas Yojana (PMAY) has recently expanded its scope to cater to the housing needs of the mid-income group, besides the economically weaker sections – EWSs and LIGs. The government envisages building affordable pucca houses with water facilities, sanitation, and electricity supply round-the-clock.



The prime drivers

According to JLL research, a healthy lifestyle has become a key criterion for homebuyers, resultantly, preferences have tilted towards larger homes in self-contained complexes with facilities like gym, green open spaces, and access to daily necessities. Moreover, with work from home becoming a reality, product metrics are likely to change. Additionally, remote working practices are expected to increase the attractiveness of suburban markets. Suburban markets offer lower-density environments and more spacious apartments at affordable rates. Since, travel to office may no longer be an everyday activity, the importance of connectivity to office hubs will no longer dictate home purchases. “Affordable housing segment has been a top performer since the last few years. The government is providing tax incentives and interest subsidy to boost demand in this segment and achieve its target of Housing for All,” stated
Mani Rangarajan, Group COO, Housing.com, Makaan.com and PropTiger.com, in their report.



Digital-first approach

Reeling under liquidity crunch and lack of activity in initial lockdown months, the sector utilized digital platforms for communicating with the buyers. The impact was immediate as buyers, who were sitting at homes and had ample time at hand, realized the importance of owning a home. The digital outreach programs resulted in increased inquiries, and quite a few developers of repute booked units using online channels. The year saw rainfall when it comes to using digital, innovative schemes, and lucrative offers. The rapid adoption of technology in Indian real estate is expected to continue with the COVID crisis expediting the entire cycle. As physical interactions are restricted, there has been a significant change in the way activities are carried out.

  • Digital marketing to become prime channel to market properties and generate leads
  • Online construction progress monitoring
  • Property videos will become a necessity instead of a luxury
  • Use of VR in processes such as site visits and closure of deals
  • Change in the way site visits happen; videos and virtual walkthrough to shortlist properties followed by site visits in the final stages of decision making


This uptrend is expected to continue in the times to come. While many may still be reluctant to make such a large purchase without physical site visit, the digital tools that were used in 2020 are sure to stick around throughout 2021.



Going affordable

The increase in home purchase affordability has been one of the most important factors driving sales and paving the way for buyers to return to the market. Residential prices have remained stagnant over the last five years while household incomes have witnessed steady growth. In 2021, even if the residential prices in certain markets move upwards, the mortgage rates are expected to remain at historical lows and annual household incomes will increase as the economy recovers. This will result in improved home purchase affordability, as evidenced by JLL’s Home Purchase Affordability Index. A combination of increased home purchase affordability and improved consumer sentiments will further lead to the translation of pent-up demand into sales.



The Policy focus

According to an insight from 99 acres survey, the affordable housing real estate segment has suffered extensively due to the COVID-19 pandemic-induced economic slowdown. The Union budget 2021-22 can be said to be focused on ‘Housing for All’, with affordable housing a priority. Providing a push to the stated goal, Budget 2021 has, once again, announced incentives for affordable housing, thus giving a boost to this space.


The Central Government has proposed to extend the exemption available for buying affordable homes and to provide tax exemption for affordable housing projects. Finance Minister Nirmala Sitharaman has proposed to extend the benefit of `1.5 lakh on the interest component paid on affordable housing loans by one year, to March 31, 2022. The same was extended last year by another year to March 2021 from March 2020 earlier.


Affordable housing projects have been provided with a deduction under Section 80 (IBA) of the Income Tax Act. The Finance Minister has proposed to extend the date of loan sanction for availing this extra deduction by a year to March 2022 from earlier March 2021 to make sure that more people avail this tax benefit.


In addition, to shore up the supply of affordable housing, the Finance Minister has proposed that affordable housing projects can avail a tax holiday for another year, that is, till March 21, 2022. This is a significant move as it will help bring up more supply of affordable houses in the country and work to reach towards the Central Government’s goal of ‘Housing for All’.


The Ministry of Housing and Urban Affairs (MoHUA) initiated Affordable Rental Housing Complexes (ARHCs) scheme to address the issue of housing for the workforce through a comprehensive policy push to enable both the Public and Private Entities for their proactive participation in the scheme. The Union Cabinet approved Affordable Rental Housing Complexes (ARHCs) as a sub-scheme of the ongoing Pradhan Mantri Awas Yojana– Urban (PMAY-U). The scheme is designed on the lines of achieving the avowed goals of an AatmaNirbhar (Self-Reliant) Bharat. It also encourages the entrepreneurial initiatives in this sector and promotes organized rental business in the country.


Creation of ARHCs will promote attractive investments. Government of India has extended the benefit of project finance Credit facility at lower interest rate through concessional window Inclusion of ARHC under Harmonized Master List (HML) of Infrastructure Sub-sectors coupled with RBI permitting issue of long-term bonds by banks for financing of Infrastructure and affordable housing will facilitate long term project loan requirements for affordable housing in India at lower interest rate. Further, Entities can avail loans at lower rates from banks under Priority Sector Lending (PSL) Window or from Housing Finance Companies (HFCs) under Affordable housing fund (AHF) at lower interest rate. Refinance under AHF will be available to eligible institutions from National Housing Bank.


As part of the policy push for business innovation in rental housing, incentives and benefits are being extended to the Entities such as concessional project finance to Entities through concessional window under AHF; exemption in Income Tax & GST on any profits and gains derived from operation of ARHCs; provision of Use Permission changes for houses on vacant land and free 50% additional FAR/FSI through necessary changes in local planning and Development Control Regulations; trunk infrastructure up to the project site by States/UTs; municipal charges at par with residential property and Single window and time bound (within 30 days) approval of all ARHC projects.


Besides, Ministry of Housing and Urban Affairs (MoHUA) has also initiated Global Housing Technology Challenge India (GHTC-India), which aims to identify and mainstream globally best available proven construction technologies that are sustainable, green and disaster-resilient to enable a paradigm shift in affordable housing. Under this initiative, Light House Projects (LHPs) at six places in the country namely Indore (Madhya Pradesh); Rajkot (Gujarat); Chennai (Tamil Nadu); Ranchi (Jharkhand); Agartala (Tripura) and Lucknow (Uttar Pradesh) are being constructed using six distinct innovative technologies identified under GHTC-India. The LHPs comprise about 1000 houses at each location along with allied infrastructure facilities. These LHPs will demonstrate the merits of the world-class innovative construction technologies. These projects will demonstrate and deliver ready to live houses at an expedited pace within twelve months, as compared to conventional brick and mortar construction, and will be more economical, sustainable, of high quality and durability.


LHPs showcase the best of new-age alternate global technology. This technology revolution is cost-effective, environment-friendly and promotes speedier construction. The initiative will prove to be a major push towards technical transformation in India.


In November 2019, the Centre had announced setting up the `25,000 crore SWAMIH Investment Fund to provide relief to developers with unfinished projects to ensure delivery of homes to buyers. The aim was to help complete over 1,500 stalled housing projects, including those that have been declared non-performing assets (NPAs) or had been admitted for insolvency proceedings. The fund has 14 investors, with the government holding 50% in the fund, Life Insurance Corp. and State Bank of India each having 10%, and the rest with public and private-sector players.


A distressed real estate fund, set up by the Centre under the Special Window for Affordable and Mid Income Housing (SWAMIH) scheme to complete stalled projects, is gearing up to deliver its first batch of 17 housing projects, comprising more than 6,000 units by the end of fiscal 2022. It has also sanctioned around 165 projects for completing 1 lakh housing units over the next few years. Of these, 55 have received final approvals for completing 35,000 units.



Green affordable housing

Around 46% people in India are willing to pay a premium to lease space in a certified green building as compared to 51% globally. This is a positive outlook and can be leveraged with the right policies and push. The International Finance Corporation (IFC), a member of the World Bank, pointed out that by 2030, in emerging markets like India, green buildings will offer a $24.7 trillion investment opportunity, which will spur economic growth and accelerate sustainable development. Some state governments, includingWest Bengal, Rajasthan, Punjab, Haryana, Uttar Pradesh, Himachal Pradesh, Jharkhand and Maharashtra (Pune) are offering additional floor area ratio (FAR) ranging from five to 15% for the Indian Green Building Council’s (IGBC’s) silver, gold and platinum-rated projects to boost green housing.



The drift & the shift

As per studies, affordable housing constitutes more than 35% of the supply across India’s seven major cities. Further, the trend of work-from-anywhere is being adopted at a rapid pace, and the demand for affordable houses with a ticket size of below `45 lakh shall be likely to increase in Tier 2 and 3 cities. This phenomenon will lead to an increase in prices in such geographies. Therefore, the extension of the income tax benefit by another year for affordable housing for both real estate developers and home buyers shall work to support the demand for affordable housing significantly. As per a recent JLL research, nearly one-third of the newly launched projects across the top seven markets catered to affordable housing in 2020 and this proportion is only expected to increase.There has been a sequential growth of 51% in the residential sales during the last quarter of 2020, according to a recent report ‘India Real Estate Outlook – A new growth cycle’’ by JLL. The evolving COVID-19 pandemic has influenced short-term decision making with job security cited as the biggest concern when contemplating the purchase of a home. “In the second quarter of FY 2020-21 when the GDP showed higher than expected recovery, the housing market showed some initial signs of recovery, with sales increasing by 34% on a sequential basis. In Q4 2020, there were growing uncertainties around the economy with reducing jobs, which led to an increase in the pace of recovery in residential real estate. New launches and sales across the seven key markets under review witnessed a significant jump,” Dr. Samantak Das, Chief Economist & Head Research & REIS, JLL.


The affordable housing segment, on the other hand, survived the onslaught merely because it caters to the price bracket that has maximum demand. Several factors worked in favor of affordable housing, including `3.74-lakh crore liquidity infusion announced by the RBI on March 27, 2020, the CLSS extension announced in May, relief under EPF, etc. The biggest takeaway for the buyers, however, was the unprecedented cut in the repo rates, which resulted in home loan interests coming down to sub-7%. The tragedy also came as a blessing in disguise for the sector, especially the affordable housing segment, as the middle class was facing challenges in staying at rented accommodations.


The sector made a comeback in Q3 with sales and new launches rebounding to almost 70% of the pre-COVID-19 levels. Maximum sales were seen in the Mumbai Metropolitan Region (MMR), National Capital Region (NCR), and Pune; all three regions accounted for almost 80% of the sales in the July-Sept quarter. The reduction of stamp duty charges in Maharashtra followed by Karnataka coupled with developers’ incentives and all-time low home loan interest rates became the catalyst of recovery for the real estate sector. Though new supply in NCR was not much, it still contributed almost 15% of the overall launches that happened this year. The affordable housing segment comprised almost 70% of the total new supply in the July-Sept period in major cities.


“The market is promising, and with the apex bank being optimistic about the economic growth, the real estate sector would see a marked change in 2021. The measures taken by the RBI would help the sector reap rich dividends as the sector is riding high on the increased demand in the post-COVID-19 situation. The market for affordable housing is robust, and in the coming months, there will be more movement. People have realized the importance of owning a home, and this feeling is going to persist,” highlighted Pradeep Aggarwal, Co-founder & Chairman, Signature Global, and Chairman, National Council on Affordable Housing, ASSOCHAM, in a statement.



Innovation abounds

India’s first 3D-printed home may provide a solution to the country’s shortage of affordable housing, using a technology that is quicker, cheaper and more efficient than traditional construction. The single-storey home, measuring about 56 sqm (600 sqft), was built by Tvasta Manufacturing Solutions in the southern Indian city of Chennai, in collaboration with home-building charity Habitat for Humanity’s Terwilliger Center for Innovation in Shelter. A home can be built in just five days and be customized, so the technology is suitable for the government’s affordable housing program, as well as for disaster resettlement, according to Adithya Jain, Tvasta’s Co-founder & CEO.


Large-scale 3D printing is gaining steam around the world, with some projects producing a home in just 24 hours of printing time for a few thousand dollars. Unlike other uses of 3D printing - such as medical devices - the process, also known as additive manufacturing, typically uses some form of quick-drying concrete laid precisely by a computer-controlled extruder. About a dozen companies are working on 3D-printed houses worldwide, with the global market for 3D-printed construction projected to grow to more than $1.5 billion by 2024, according to a study from consultancy Research and Markets. Tvasta’s technology, developed in India, not only reduces construction time, but also cuts waste and is about 30% cheaper than traditional construction, said Jain. The homes are also designed to withstand the country’s tropical weather conditions.



Way forward

There are nearly 1 million urban homeless in India, according to census data, although charities estimate the actual number to be three times higher. About 65 million people live in India’s slums, which have become hot spots for corona virus infections. Creating affordable housing to tackle inequality is one-way governments can help economies recover from the corona virus crisis, according to economists.

The objective of creating affordable housing is to provide adequate shelter to all. Creation of affordable housing should encompass both – enabling people to buy and to rent, for which there is a need to put an institutional structure in place.

Grant Thornton research enlists three main groups that require to work in sync with each other to make affordable rental housing are following:


Enablers: Self-help groups, NGOs and registered societies are the first institutions to identify the genuine user groups, which help to establish common interests and channels of communication


Providers: such as ULBs, financial institutions, government departments and research institutes would be needed to provide the target groups with approvals, incentives and technical and financial support


Executors: enterprises such as private developers, public sector undertakings (PSUs) and public private partnership (PPP) firms would be required to hold and maintain rental accommodation with adequate support from the first two groups.


Incentivize developers to develop affordable housing: ULBs and UDAs can develop guidelines by giving free sale areas, extra Floor Space Index (FSI) and other policy measures so that real estate developers are incentivized to develop affordable housing. Schemes for redevelopment and slum rehabilitation should be developed with incentives that generate sufficient returns for the developers whilst controlling the development density. The cost-benefit analysis of regulations should be carried out from a development perspective to ensure that schemes to facilitate the development of affordable housing are feasible.


Streamline land records to improve planning and utilization of land: Adequate availability of land should be ensured for housing and infrastructure by computerization of land records, use of Geographical Information Systems, efficient dispute redressal mechanisms and implementation of master plans.


Formulate policies for greater participation from private sector in the way of technological solutions, project financing and delivery: Disruptive innovation in terms of technological solutions, project financing and delivery is required, which reduces costs of construction significantly despite rising costs of inputs.


As construction costs form a significant portion of the selling price of affordable housing units, the savings in construction can immensely benefit the occupier.


With such measures in place and the proactive government at the helm, the affordable housing segment is sure to witness a growth resurgence in the post - Covid world.


Fast Facts

  • Affordable housing constitutes more than 35% of the supply across India’s seven major cities.
  • MoHUA has initiated Global Housing Technology Challenge India to identify and mainstream globally best available proven construction technologies that are sustainable, green and disaster-resilient to enable a paradigm shift in affordable housing.
  • To shore up the supply of affordable housing, the Finance Minister has proposed that affordable housing projects can avail a tax holiday for another year, that is, till March 21, 2022.
  • Large-scale 3D printing is gaining steam around the world, with some projects producing a home in just 24 hours of printing time for a few thousand dollars.



One of the key challenges faced by developers in the affordable housing segment is the rising upfront costs due to fluctuating prices of raw materials. In addition to this, logistical hindrances within the supply chain can lead to delays in the procurement of these materials. Furthermore, a delay in receiving approvals coupled with the price of land where the project is planned, can add on to the hurdles on completing a project at nominal costs.



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