Can the aspirations of 100 million people be possibly ignored?
First, consider the statistics. India's urban population has grown at a compounded annual growth rate of 2.8 percent over 2001-2011, resulting in an increase in urbanisation. Out of India's billion-plus population, 377 million people are urban dwellers. According to Ministry of Housing and Urban Poverty Alleviation the urban housing shortage is estimated at nearly 26.53 million households for the 11th Five Year Plan.
According to the Report of the Working Group on Urban Strategic Planning, the country is expected to witness more than 50 per cent urbanisation (or an urban population of more than 700 million) in the next few decades. If the expression "next few decades" seems a bit stretched and hazy, a Ficci study says cities would witness a net increase of 900 million people by 2050. Further, over 2012-2050, the pace of urbanisation is likely to increase at a CAGR of 2.1 percent — double than that of China.
THE URBAN ASPIRER
So, can the aspirations of 100 million people be possibly ignored?
A bulk of this vast amount of population would be made up by what the Boston Consulting Group calls 'Urban Aspirers'. BCG's figures put this aspirer class at 34 million households or 14 per cent of the country's 240 million-strong households; they generate annual household incomes between $7,400-$18,500 and can be divided into two categories – 'Urban Aspirers' (19 million households) and 'Rural Aspirers' (14 million households).
An integral part of the 'aspiration' is to own a home which they can afford. While affordability is relative to a household's income, spending and saving behaviour, and also the geographical location of the chosen residence, there is consensus that a proper residential unit within urban limits anywhere across metro cities will cost Rs 25 lakh or more.
The question is: Can Urban Aspirers afford a house which carries a minimum price-tag of Rs 25 lakh? Taking a bank loan would be an obvious choice. Since most banks consider 5.1 times annual income as the maximum affordability of a household, they can easily apply for loans anywhere between Rs 19 lakh and Rs 47 lakh. This settles the question on the ability to afford.
IS SUPPLY ENOUGH?
But, are real estate companies building enough 'affordable' houses to meet this demand?
According to Jones Lang LaSalle, private developers are primarily looking at luxury, high-end and upper-mid housing segments since these fetch a premium vis-à-vis the modest affordable housing units. However, to be fair to the builders' community, it's not always been a case of higher profitability that has driven them away from affordable housing; restrictive civic laws limiting Floor Space Index (FSI) levels and high realty rates in metro cities have actually made affordable housing unviable for builders. Our cities — with their haphazard urban sprawl — have the lowest FSI in the world.
To accommodate future urbanisation, it is absolutely crucial that city planners redraft archaic building density regulations in urban areas on a priority basis. Planners really need to pursue strategic densification, including relaxing FSI limits. Extra FSI will ensure that developers get decent margins, and provide decent apartments. This would also bring down property rates, which would in turn would facilitate affordable homes.
The Union government must simultaneously issue directives and introduce incentives that encourage state governments and cities to revamp their strategy. The focus should be on vertical expansion instead of the current horizontal development and planners should also facilitate a mixed land use policy. However, all of these need to go hand in hand with infrastructure development, including a world-class public transport system which is accessible, fast, reliable and affordable.
The role of state governments in facilitating affordable housing cannot be stressed more. States play a large role in releasing land for development. However, as the Deepak Parekh committee report 'Affordable Housing For All' points out, the focus of the state governments, till now, has been limited to auctioning land to private players. This practice has contributed to escalation of land prices, which is detrimental to the concept of affordable housing.
State governments should establish a single-window clearance system, which serves the three principal objectives: realistic price discovery, land allotment and granting approvals in a time-bound manner. 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.
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). Therefore, for realty players promoting affordable housing, a tax incentive would be very welcome.
Other financial incentives could include capital subsidy for PPP initiatives, regulated lower interest rates, discounts or waivers in stamp duty and registration, and priority sector credit for home loans up to Rs 25 lakh.
Also, many prospective buyers among this class would stand to gain if the subsidy for home loans in metros and tier-1 cities are increased for houses up to Rs 35 lakh, up from the current limit of Rs 25 lakh. Instead of having a single national benchmark of Rs 25 lakh, the government should map markets and implement different slabs.
The government has taken a step towards encouraging affordable housing by make funding more accessible for developers and housing finance companies.The inclusion of slum rehabilitation projects will address the need for better urban planning.
Affordable housing is sustainable business model and presents a good opportunity for developers to address the needs of an emerging class that would eventually demand affordable housing as a fundamental right.
—The author is MD & CEO, Tata Housing