Additional 25 million affordable units will be required by 2030, estimates RICS – Knight Frank Report

New Delhi, 30th July, 2019:RICS (Royal Institution of Chartered Surveyors)in association with international property consultant Knight Frank today released a report “Brick by brick- Moving towards ‘Housing for All’. The current estimate of housing shortage in urban areas is around 10 million units. Most of the housing shortage lies in the Economically Weaker Section and Lower Income Group Segment. As of July 2019, 8.36 million houses have been sanctioned under the “Housing for All” initiative.  Construction for 4.9 million units has begun and 2.6 million units of which have been completed. Given the past trend, additional 1.64 million houses are likely to be sanctioned by December 2019, making it highly possible to achieve the 10 million houses target by 2022. Projected subsidy disbursement over the next 3 years for the same is projected to INR 1 trillion.

The latest RICS – Knight Frank report estimates that by the year 2030 more than 40% of the Indian population will live in urban India as against the current figure of 34% which is likely to create a demand for 25 million additional affordable units. However, to address the huge demand, a subsidy-based approach may not be enough for maintaining sustained growth in the affordable housing segment. India’s urban housing shortage is being primarily driven by the EWS and LIG categories. An analysis of the demand-supply shows, that on average, nearly 0.6 million homes are required every year in the top eight cities versus a supply of 0.2 million units per year. There is a huge supply gap for urban housing and more so in the EWS and LIG category, i.e. houses with ticket sizes less than 2.5 million. Whereas, the demand in the EWS and LIG category is around 0.34 million. Shortcomings leading to a shortage of affordable housing are unavailability of urban land for affordable housing and lengthy statutory clearance and approval processes

Financing for affordable housing can be broadly classified into- debt, equity and subsidy. From Fresh disbursals of HFCs and Scheduled Commercial Banks (SCBs), it is evident that the share of the EWS sector in new disbursals has come down each financial year from 21% in FY 2013 to just 10% in FY 2018. Moreover, even the share of LIG sector in fresh disbursals has also declined from 39% in FY 2013 to 33% in FY 2018.

HOME LOAN DISBURSALS

Source: Knight Frank Research

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Since 2014, around USD 34 billion has been invested in Indian real estate across debt and equity. Commercial segments, which comprise office, retail and warehousing, have garnered a majority share of this in the form of equity investments. The residential segment had a 31% share and most of it was in the form of debt.

PRIVATE EQUITY TRENDS IN RESIDENTIAL

	2014	2015	2016	2017	2018	H12019
Investment into residential as a percentage of overall PE investments	41%	51%	50%	24%	16%	17%
Affordable housing Advertisement (as a percentage of PE investment into residential)	–	11%	3%	20%	60%	62%

Source: Knight Frank Research, Venture intelligence

RENTAL HOUSING MARKET- Missing piece of the puzzle

The report also touches up Rental Housing Market and as per Census 2011, over 21 million (27.5%) urban households live in rented accommodations. The rental housing market is therefore projected to grow at a faster rate than the rate of urbanization over the next 20 years. The population living in rental housing has no willingness to own and landowners find rental housing unattractive due to Low residential yields, high risk of property litigation and cost of the transaction, which leads to a high number of vacant houses in large urban centres

VACANT HOME

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Source: Knight Frank Research

The report further goes to suggests strategies that can be adapted for developing rental housing in urban India.

• Channelising Government-Owned Land for Rental Housing Development: The government has significant volumes of underutilized lands, if a portion of these landmasses is utilised by the government or its agency for the development of rental housing properties, the incremental cost to the government would be limited to only the construction cost.
• Rental Management Companies to Pool Private Houses: There is an opportunity for promoting public/private rental housing management companies, who in turn pool private properties to a common marketplace, where prospective tenants can select the properties of their choice, this would significantly bring down the risks through professional management and lower pooled risks.

Knight Frank experts highlight that with “Housing for All” insight and the government moving to achieve the target, it is imperative to address the root cause of future housing shortage and suggests some counters to attack the challenge.

• Transitional buffer housing stock: Metro cities in India welcome thousands of migrants every day who come to urban centres for job opportunities, education or simply for a better lifestyle. Migrants belonging to lower-income groups find it very difficult to find shelter in the city due to the high price of urban houses. Transitional buffer housing or short-term housing can be an appropriate solution to address this issue.
• Shorter tenure titles:  Properties, if offered with an initial tenure of 30 years with an option to extend the lease for an additional period of 30 years on payment of renewal premium, can be priced 20% lower than a similar long tenure property. Such a tool can be effectively used in subsidized housing on the principle of government subsidizing the housing need of a household for a period of 30 years, post which the housing unit can revert to a common pool of public housing
• Rent to own: Often the prospective buyers do not have sufficient funds to complete the equity component of a transaction. In all such situations, rent-to-own contracts can come in handy. They allow a person, even if one is unable to afford a mortgage on the whole of the current house value, to purchase a partial share of the house and pay rent on the remaining share.
• Housing boards 2.0 -Rental development and management companies: Prime government-owned land parcels continue to be under sub-optimal usage in the hands of port trusts and agricultural collages If housing boards are able to mobilize a fraction of these underutilized lands for the development of rental housing developments, the incremental cost to the government would be restricted to the construction cost of these properties.