Affordable housing needs customised lending models

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Given the target segment and the large social imbalances, it is critical for the government to create a self-sustainable ecosystem of affordable housing where all stakeholders are benefited. More public private partnerships (PPPs) in affordable and low-cost housing will be of supreme help

The low-cost housing segment has got some boost in the past 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 in this regard. One of the most important pre-requisites 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 (Aadhaar) or the National Population Register is effectively utilised to recognise the target segment as per their social and economic categorisation.

Lending institutions need to develop customised 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 dropping, the focus turned to the affordable housing for low-income groups and weaker sections of society. The paramount contributor towards the success of affordable housing was the engagement between the developer and the community. Now, again the development organisations and other financial organisations 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 past two years have again seen the market move towards mid and high-income housing but now has finally witnessed a new start. This segment of housing would channelise more bank funds into the realty market – considering infrastructure and construction being the priority sectors 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 lead to more demand for construction material like steel, cement etc. Moreover, it will also seek to encourage the state governments to provide 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 always been a little slow to tap this market as it seem 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 government initiative. There are vast tracts of land lying vacant in almost every city. This land should have been used for housing as the adverse impact of current economic downturn is generally experienced by the lower income group. Policies do not incentivise development of a vacant plot. However, there is an immediate need for a policy already working in states like Rajasthan and Madhya Pradesh for affordable housing.

Financing is another issue. Even if developers are willing to build appropriate housing structures for the poor, they find 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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