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Guest Column

6 points to take advantage of an estimated 6 Lakh Crores Affordable Housing market

JLL-RealtyMyths (1)
Chief Operating Officer, Strategic Consulting, JLL, India

Chief Operating Officer, Strategic Consulting, JLL, India

– Partnership, Investment, Location, Monitoring, Technology & Single Window Clearance

By A Shankar

Chief Operating Officer, Strategic Consulting, JLL, India

Rapid urbanisation is a reality for emerging markets and India is no exception to this phenomenon. Urban India today houses 377 million people making up 32% of the country’s population. This is expected to increase to 40% with close to 600 mn urban dwellers by 2030.

Ushering in the much-needed change is imperative in bridging the gap between housing deficit and the ongoing supply of housing units across the country. The expansion and growth of the sector is the need of the hour. India is on the right track with its recent initiatives in the sector. An array of policies and strategies including facilitating PPP in Affordable Housing have served as catalysts to the growth of the sector. Reinforcing these measures and applying innovative methods to implement these provisions will further help streamline our approach in tackling the prevailing housing issues. Expansion of the sector and a faster growth rate may be achieved through a plethora of innovative mechanisms of implementation.

Affordable housing finance is estimated to be a 6 lakh crore business opportunity by 2022, by when the Government seeks to achieve housing for all citizens. It must be borne in mind that planning mechanisms play a major role in ensuring sustained growth of the Affordable Housing sector. Long term and short term measures necessary to produce a comprehensive and effective environment for private sector provision of affordable housing must be made part of the agenda to achieve an upward trajectory in the sector. This is crucial for securing land for development and maximizing the outcomes of existing and envisaged financial subsidies and incentives. While the current policies serve the right backdrop for the desired growth of the sector, propelling innovative initiatives to achieve sustained growth rate is imperative.

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The following 6 key factors of success if paid heed to and considered while planning Affordable and Social Housing projects on PPP mode, will pave way for a smooth, accessible and efficient market for the sector.

1. Strong Partnerships

Government partnering with private players is a key success driver in the development of affordable housing projects through a commercially viable project structure. A policy pool that caters to innovative implementation methods that foster healthy competition between strong developers in the market will ensure effective and sustained growth of the sector. Partnering with a developer with credibility and experience in the market will translate into accelerated growth of housing units of acceptable quality, delivered within the scheduled timelines to the end users.

2. Innovative finance mechanisms

Innovative Public Private Partnerships (PPP) models which make room for finance mechanisms that provide relief to the Private Developers and provide a thrust in the right direction to the Affordable Housing sector to encourage the private developers to participate in the affordable housing. Effective risk management via management of unforeseen additional capital expenditure by the public sector, deleveraged capital structures facilitated by public sector co-investment, mechanisms allowing for long term institutional financing, encouraging alternative financing sources including loan and credit support products provided by commercial banks, etc. will help balance the risk burden on the private player and hence provide a more favourable environment to developers.

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Apart from this, incentivising the development process via land acquisition, construction technology (adoption of innovative and low cost technology), project timelines and management can offset major losses that cut into the profit of the developer.

3. Optimized Demand analysis and favourable project locations

Optimized allocation of the planned housing stock to the right section of the population is a key growth retardant to the number of vacant and unsold inventory. A part to whole approach that takes into account the distribution of beneficiary population and the ratio of mix in the areas identified for development of housing units (to understand the actual demand in an area) is imperative to successful implementation of a project from inception to sale / rental.

Location plays a pivotal role in the success of any affordable housing project. Developing affordable housing units with access to modes of transportation, better connectivity, quality healthcare and education, proximity to community services, etc. is the need of the day. Factoring in location and connectivity will ensure appropriate returns to investors while catering to the basic needs of the target population.

4. Single window clearances and smooth conflict resolution

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Recent social housing schemes across the globe aim to quicken the pace of development of housing units to bridge and secure the gap between supply and actual housing demand. A recent trend involves provisions for single window clearances. This measure will stimulate the supply of viable affordable housing by minimizing construction cost overruns (owing to delay in approvals) to substantial levels. Policies and schemes facilitating smooth conflict resolution to ease the burden on all stakeholders will have a major positive impact on timely construction and quality of units.

5. Low cost, high quality yielding construction technology

Leveraging the benefits of new advancements in the construction industry will have long term implications on cost, quality and safety of the housing units. Adopting low cost construction technology such as pre-fabrication will help developers construct units at lower costs and at a quicker pace. The higher initial cost of technology is compensated by lower labour costs and higher efficiency in construction.

6. Performance standards, monitoring and innovativeness in maintenance

Introducing monitoring mechanisms to ensure delivery of quality homes to the beneficiary population will not only imply enhanced living standards but also strengthen sector values. Guidelines prescribing standards for construction methods, technology, material as well as execution and implementation along with efficient monitoring mechanisms will help streamline the project right from activation to the sale / rent of property to the target population.

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Innovative maintenance mechanisms result in sustainable development and longer life of affordable housing units. Setting maintenance standards to curb rise in number of dilapidated properties, providing subsidies to occupants for adopting energy saving material to retro-fit homes, regulating a pool of maintenance and repair services to reduce costs, sourcing non-profit companies for financing O&M of homes, etc. are few of the measures that are bound to bring a transformation in the sustainability factor of the sector.

Conclusion

Affordable housing reflected a growth of 27% between January to September, 2017 (y-o-y). Out of the total supply, the share of housing supply in the Housing segment with capital value below INR 4,000 per sq. ft has increased to 28% in 2017 from 23% in 2016. Needless to say that the Affordable Housing segment is on an upward growth trajectory. The recent growth in the sector can be attributed to the mission-mode implementation of the PMAY-HFA; affordable housing’s new found infrastructure status; as well as much-improved inflow of formal credit (NBFCs and banks) to the segment. The housing shortage, earlier projected at 18.78 million in 2011, has been revised downwards to about 10 million units as of 2017 through subsequent assessment carried out by the MoHUA. This comes with the assurance of provision of housing for all by 2022, in alignment with the PMAY-U programme objectives. In the long run, a wider set of policies and Innovative mechanisms for achieving a renewed role of the PPP model in Affordable Housing will create a solid foundation for uplifting livelihood of the vulnerable section and thereby provide the thrust required for the transformation of ‘Affordable Housing’ from mere budget housing units to the provision of ‘more than just a home’.

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