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Indian Real Estate News
Affordable Housing Needs Customised Lending Models
Source: Realty Plus Mag Nov 22, 2013
The low-cost housing segment has got some boost in the last few years largely after the retrenchment of the housing market in 2008-09 but there is still a long way to go and there is a need for comprehensive steps from the government. One of the most important prerequisite for solving the housing challenge is to identify the beneficiaries. Given the country’s vast population, it is certainly of utmost importance that platform such as the Unique Identification Authority of India (Aadhar) or the National Population Register is effectively utilized to recognize the target segment as per their social and economic categorization.

Lending institutions need to develop customized lending models that take into consideration the buyer’s ability to pay, so that it will enable people from these groups to buy low-cost houses, typically in the range of Rs. 5-20 lakh. The government can also explore the rental model and create funds to channel finance into Lower Income Group (LIG) and Economically Weaker Section (EWS) households. Innovations should be explored while laws should be simplified in the realty market. More clarity and transparency are required in land titles, so that the government can identify illegal ownership and free up additional inventory.

In 2008, when the demand for houses in the higher-end segment was falling down, the focus turned to the affordable housing for low-income groups and weaker section of the society. The paramount contributor towards the success of affordable housing was the engagement between the developer and the community. Now, again the development organizations and other financial organizations are working to fill the void between these groups.

This segment now seems to be a pawn of market slowdown. It receives an incentive from the real-estate developers so long as there is a recession. Affordable housing started well when there was a slowdown. However, the last two years has again seen the market move towards mid and high-income housing but now has finally witnessed a new start. This segment of housing would channelize more bank funds into the realty market—considering infrastructure and construction being the priority sector in the country for employment to urban poor, especially construction workers.

Some of the key aspects of affordable housing in India are location of the project, property specifications, services provided, price identified and finally the ticket size of the project.

Now some new schemes will be introduced in the realty sector while some traditional major schemes will be modified to make this market more people-friendly. This move by the government will cascade into more demand for construction material like steel, cement, etc. Moreover, it will also seek to encourage State Governments to make provision for land to meet the acute shortage of affordable housing and to work in the partnership model with the private players.

For this to happen, the government has already started banking on public private partnerships (PPP). This implies that government will set up the enabling framework and private sector players like developers and microfinance institutions (MFIs) will partner to deliver the affordable housing units. Traditionally private sector has been observed a little slow to tap this market as it seemed easier and profitable for developers to make money with mid and high segment housing.

This segment of housing has to be supported by the government as the cost of land is a critical issue in the construction industry. There needs to be a regulator and some policies to regulate this market. One of the main factors for the general neglect of this sector was the lack of governments’ initiative. There are vast tracts of land in almost every city lying vacant. This land should have been used for housing as the adverse impact of current economic downturn is generally experienced by Lower Income Group. Policies do not incentivize development of a vacant plot. However, there is an immediate call for a policy already working in states like Rajasthan and Madhya Pradesh for affordable housing.

Then financing was another issue. Even if developers were willing to build appropriate housing structures for the poor, they found it difficult to come up with suitable structures to finance them. Now, given the fresh optimism in the market, it seems like affordable housing is an idea whose time has come.

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