Why in­fra­struc­ture sta­tus will help the realty sec­tor

Move likely to help the sec­tor at­tract funds from in­surance com­pa­nies and qual­ify af­ford­able hous­ing projects for rais­ing funds through tax-free in­fra­struc­ture bonds

HT Estates - - HTESTATES - HT Es­tates Cor­re­spon­dent HT Es­tates Cor­re­spon­dent

The Cen­tral gov­ern­ment aims to pro­vide hous­ing to all its cit­i­zens by the year 2022. As per an es­ti­mate, the vi­sion en­tails de­vel­op­ment of about 11 crore hous­ing units, in­clud­ing the cur­rent short­age of about 6 crore units

The hous­ing need is almost equally dis­trib­uted in ur­ban and ru­ral ar­eas in the range of 5 to 6 crore units, and pri­mar­ily con­sists of af­ford­able houses. It is con­cen­trated in nine states. Es­ti­mates re­veal that 70% of the hous­ing needs un­til 2022 would be con­cen­trated in just nine states. Th­ese states are Ut­tar Pradesh, Bi­har, Ma­ha­rash­tra, West Ben­gal, Mad­hya Pradesh, Andhra Pradesh ( in­clud­ing Te­lan­gana), Ra­jasthan, Tamil Nadu, and Kar­nataka.

Ur­ban af­ford­able hous­ing re­quires ur­gent at­ten­tion. As per es­ti­mates, de­vel­op­ment of such large quan­tity of houses may re­quire in­vest­ments of over US$2 tril­lion. This trans­lates to about US$ 250 to 260 bil­lion an­nu­ally, more than dou­ble the an­nual in­vest­ments wit­nessed in the fi­nan­cial year 2014. About 85 to 90% of the to­tal in­vest­ments would be re­quired for de­vel­op­ing ur­ban hous­ing, where de­vel­op­ment costs are high due to fac­tors such as land prices, con­struc­tion cost, fees, and taxes, ac­cord­ing to a NAREDCO-KPMG in In­dia study, De­cod­ing hous­ing for all by 2022 - In­dia’s com­mit­ment to in­clu­sive, sus­tain­able, and af­ford­able de­vel­op­ment.

Wi t h i n u r b a n h o u s i n g , af­ford­able hous­ing (houses for EWS/LIG house­holds) re­quire at­ten­tion on pri­or­ity ba­sis, as it alone would re­quire about half of the to­tal in­vest­ments and 70% of ur­ban hous­ing needs en­vis­aged. Th­ese in­vest­ments need to be com­ple­mented with ad­di­tional in­vest­ments of about US$1.5 tril­lion in ur­ban in­fra­struc­ture and com­mer­cial real es­tate. Thus, a to­tal in­vest­ment of over US$3.5 tril­lion may be re­quired for ur­ban hous­ing and sup­port­ing in­fra­struc­ture.

Though, hous­ing deficit is much wider in ru­ral ar­eas com­pared to ur­ban ar­eas, it re­quires only a small por­tion of to­tal in­vest­ments en­vis­aged till 2022, which can be meted out with­out much dif­fi­culty. The Cen­tral gov­ern­ment with par­tic­i­pa­tion from state gov­ern­ments, draft­ing a plan of de­liv­er­ing three crore houses in ru­ral ar­eas with an in­vest­ment of ₹ 3.45 lakh crore (US$58 bil­lion) by 2022 is a good start.

Strength­en­ing pri­vate sec­tor par­tic­i­pa­tion in ur­ban af­ford­able hous­ing could help achieve the Hous­ing for All by 2022 vi­sion. Cen­tral and sev­eral state gov­ern­ments in the past have un­der­taken steps to mit­i­gate the ur­ban hous­ing deficit, largely in part­ner­ship with the pri­vate sec­tor. Th­ese ef­forts have yielded no­table re­sults. While the ef­forts of gov­ern­ments (both Cen­tral and state) taken in the past are com­mend­able, they need to be ac­cel­er­ated to elim­i­nate hous­ing deficit in the coun­try.

With the cur­rent set of hous­ing de­vel­op­ment poli­cies in place and as­sum­ing an an­nual growth in in­vest­ments by about 5% to 6% in the hous­ing sec­tor (as wit­nessed since fi­nan­cial year 2008), the re­quired in­vest­ments may fall short by about US$500 to 600 bil­lion. This gap in fund­ing would l ikely be re­stricted due to sev­eral struc­tural is­sues in the sec­tor such as high ges­ta­tion pe­riod of hous­ing projects, limited and ex­pen­sive liq­uid­ity, spi­ralling land and con­struc­tion cost, high fees and taxes, un­favourable de­vel­op­ment norms, and af­ford­abil­ity vis-àvis hous­ing prices for EWS/LIG house­holds.

Mo­bil­i­sa­tion of such huge re­sources (fund­ing, con­struc­tion ca­pac­ity, labour, tech­nol­ogy, etc.) for mass scale af­ford­able hous­ing de­vel­op­ment by the Cen­tral and state gov­ern­ments may be dif­fi­cult, with­out par­tic­i­pa­tion of the pri­vate sec­tor.

The pri­vate sec­tor, which is of­ten bet­ter in terms of man­ag­ing con­struc­tion risks and project de­liv­ery, should be en­cour­aged by the Cen­tral and state gov­ern­ments, by ad­dress­ing sev­eral struc­tural is­sues.

Struc­tural is­sues re­strict par­tic­i­pa­tion, in­vest­ments, and de­vel­op­ment of ur­ban af­ford­able hous­ing. Since the be­gin­ning of the 21st cen­tury, a slew of reg­u­la­tory re­forms such as al­low­ing for­eign di­rect in­vest­ments, im­prov­ing ac­cess to credit by house­holds, pro­vid­ing tax in­cen­tives on hous­ing loans, de­vel­op­ing spe­cial eco­nomic zones and thrust on in­fra­struc­ture de­vel­op­ment, cou­pled with high eco­nomic growth, have pro­pelled pri­vate sec­tor par­tic­i­pa­tion in ur­ban hous­ing de­vel­op­ment. How­ever, it has largely re­sulted in the de­vel­op­ment of mid­dle in­come group (MIG) and high in­come group (HIG) hous­ing, lead­ing to sig­nif­i­cant short­age of EWS/LIG or af­ford­able houses.

As per the re­port of the Tech­ni­cal Group on Ur­ban Hous­ing Short­age, EWS/LIG houses con­sti­tute more than 95% of the hous­ing short­age in 2012. The de­vel­op­ment of ur­ban af­ford­able houses has been limited due to sev­eral struc- tu­ral is­sues mak­ing it un­fea­si­ble business propo­si­tion for the pri­vate sec­tor.

Agenda for ac­tion based on six themes needs to be in­tro­duced. Th­ese in­clude en­cour­ag­ing pri­vate sec­tor par­tic­i­pa­tion in ur­ban af­ford­able hous­ing de­vel­op­ment. This could re­quire a co­or­di­nated ef­fort from Cen­tral and state gov­ern­ments.

A key role of the Cen­tral gov­ern­ment in the Hous­ing for All by 2022 vi­sion would be that of a fa­cil­i­ta­tor by cre­at­ing an en­abling en­vi­ron­ment through: In­tro­duc­ing statu­tory and reg­u­la­tory re­forms in land ac­qui­si­tion, and a real es­tate reg­u­la­tor, and re­view ar­chaic reg­u­la­tions gov­ern­ing the real es­tate sec­tor Stream­lin­ing clear­ances and ap­proval pro­ce­dures re­quired from Cen­tral gov­ern­ment agen­cies such as the min­istry of en­vi­ron­ment and for­est, and the min­istry of civil avi­a­tion Chan­nelis­ing higher and longterm in­vest­ments in the sec­tor by pro­vid­ing nec­es­sary tax and non-tax in­cen­tives The ex­e­cu­tion re­spon­si­bil­ity would lie with states as, ac­cord­ing to the In­dian con­sti­tu­tion, hous­ing and ur­ban de­vel­op­ment is a state re­spon­si­bil­ity. States should con­sider de­cen­tral­is­ing decision-mak­ing by em­pow­er­ing ur­ban lo­cal bod­ies and stream­lin­ing the ap­proval process by in­tro­duc­ing a sin­gle-win­dow clear­ance mech­a­nism.

Both the Cen­tre and the states can take mea­sures to en­cour­age pri­vate sec­tor par­tic­i­pa­tion to ex­pe­dite af­ford­able hous­ing de­vel­op­ment. Th­ese could in­clude the fol­low­ing:

Strate­gic ini­tia­tive for fur­ther im­pe­tus

Grant in­fra­struc­ture sta­tus to the af­ford­able hous­ing sec­tor.Hous­ing de­vel­op­ment in­volves un­der­tak­ing large scale ur­ban in­fra­struc­ture de­vel­op­ment projects. It in­volves pur­chas­ing of land and de­vel­op­ing it for the pur­pose of con­struc­tion of houses, mul­ti­storey build­ings, and cre­ation of phys­i­cal and so­cial in­fra­struc­ture. Hence, hous­ing de­vel­op­ment has dra­matic sim­i­lar­i­ties to the in­fra­struc­ture sec­tor.

Grant­ing in­fra­struc­ture sta­tus to the hous­ing sec­tor, es­pe­cially af­ford­able hous­ing, could as­sist in open­ing cer­tain ad­di­tional fund­ing av­enues in ad­di­tion to di­rect tax ben­e­fits avail­able to the in­fra­struc­ture sec­tor, ac­cord­ing to a NAREDCO-KPMG in In­dia study, De­cod­ing hous­ing for all by 2022. This move may help the sec­tor at­tract funds from in­surance com­pa­nies, who are man­dated to invest 15% of their funds in so­cial and in­fra­struc­ture sec­tors (as per the In­surance Reg­u­la­tory and De­vel­op­ment Au­thor­ity reg­u­la­tions).

It may con­sider qual­i­fy­ing af­ford­able hous­ing projects to raise funds through tax free in­fra­struc­ture bonds.

Yet another step could be to form a nodal agency for co­or­di­nat­ing ef­forts of var­i­ous stake­hold­ers.The Cen­tral gov­ern­ment could ex­plore form­ing a nodal agency un­der the min­istry of hous­ing and ur­ban poverty alle­vi­a­tion to fa­cil­i­tate fast track de­vel­op­ment of af­ford­able hous­ing projects.

This nodal agency could be a co­or­di­nat­ing agency amongst the pri­vate sec­tor, con­sumers, lend­ing in­sti­tu­tions, in­vestors, var­i­ous hous­ing reg­u­la­tory agen­cies and in­fra­struc­ture sec­tor min­istries, and state gov­ern­ments and ULBs. This spe­cial nodal agency could act as a fa­cil­i­ta­tor in stream­lin­ing ap­proval pro­ce­dures for hous­ing, for­mu­lat­ing PPP pol­icy, and co­or­di­nat­ing the ef­forts of dif­fer­ent min­istries for large-scale hous­ing projects.

It could also as­sist in di­rect­ing funds to­wards the af­ford­able hous­ing sec­tor by co­or­di­nat­ing the ef­fort tof the Na­tional Hous­ing Bank (NHB), Hous­ing a n d U r b a n D e ve l o p m e n t Cor­po­ra­tion (HUDCO), bank­ing in­sti­tu­tions, hous­ing fi­nance com­pa­nies, For­eign Di­rect In­vest­ments (FDI) and Ex­ter­nal Com­mer­cial Bor­row­ings (ECB). It could be fur­ther re­spon­si­ble for iden­ti­fy­ing the avail­able land as­sets with Cen­tral and state gov­ern­ments, ULBs and pub­lic sec­tor en­ter­prises, which are suit­able for de­vel­op­ing af­ford­able hous­ing.

Make strate­gic in­vest­ments

Pro­mote the PPP frame­work ef­fec­tively to ad­dress ma­jor is­sues. PPP projects can play an im­por­tant role in bridg­ing the gap be­tween the hous­ing need and sup­ply as they can be in­stru­men­tal in at­tract­ing pri­vate cap­i­tal for fi­nan­cially vi­able af f ord­able hous­ing projects. The PPP frame­work can be ef­fec­tively used to ad­dress some is­sues in hous­ing de­vel­op­ment such as land avail­abil­ity, ap­proval de­lays, fund­ing, and af­ford­abil­ity.

Ad­van­tages of PPP model in af­ford­able hous­ing are: Land ac­qui­si­tion and con­sol­i­da­tion. As per es­ti­mates, ur­ban hous­ing need would re­quire about 1.7 to 2.0 lakh hectare of land to meet the hous­ing need till 2022. Ex­pe­dited and eas­ier land ac­qui­si­tion, made pos­si­ble by the pub­lic sec­tor, could en­able re­duc­tion in project costs.

Reg­u­la­tory ap­provals: PPP mech­a­nism can help en­sure timely clear­ances of reg­u­la­tory ap­provals.

Im­proved fi­nanc­ing. A joint pool of pri­vate and pub­lic funds may be more ef­fec­tive and ef­fi­cient in f inanc­ing hous­ing projects. Fur­ther, a PPP project with gov­ern­ment guar­an­tee may help se­cure lend­ing from in­sti­tu­tional lenders at lower cost.

Im­proved af­ford­abil­ity. With some re­lief on stamp duty and de­vel­op­ment fees, and tie- up with bank­ing i nsti­tu­tions, the af­ford­abil­ity of houses by eco­nom­i­cally weaker sec­tion/ lower in­come group sec­tions could be im­proved.



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