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 housing units, according to a report titled Brick By Brick: Moving towards ‘Housing for All’, by RICS (Royal Institution of Chartered Surveyors), in association with international property consultant Knight Frank. However, to address the huge demand, a subsidy-based approach may not be enough, for maintaining sustained growth in the affordable housing segment, the report adds.
The report estimates that the current housing shortage in urban areas is around 10 million units. Most of the housing shortage lies in the Economically Weaker Section (EWS) and Lower Income Group (LIG) segment. It quotes that as of July 2019, 8.36 million houses have been sanctioned under the ‘Housing for All by 2022’ initiative. Construction for 4.9 million units has begun and 2.6 million units of which have been completed. Given the past trend, an additional 1.64 million houses are likely to be sanctioned by December 2019, making it highly possible to achieve the target of 10 million houses by 2022. The projected subsidy disbursement over the next three years for the same, is projected to be Rs 1 trillion.
Nimish Gupta FRICS, managing director, south Asia – RICS said, “It is heartening to note that the government is set to achieve the target of 10 million by 2022, which is an unparalleled achievement, globally. Going by the rate of urbanisation, this requirement will grow by two-and-a-half times to 25 million urban affordable houses. Hence, the sector has to devise a sustainable growth model, with private and public development agencies collaborating, to create an ideal ecosystem. The proposed mechanism should provide the ideal bridge between the crying demand for housing and the willingness of the developers to meet that in the regulated environment, through professional practices.”
EWS, LIG segments hardest hit by urban housing shortage
India’s urban housing shortage is being primarily driven by the EWS and LIG categories. An analysis of demand-supply shows that on an 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 a ticket size of less than Rs 2.5 million. Whereas, the demand in the EWS and LIG category is around 0.34 million. The shortcomings that result in 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 the LIG sector in fresh disbursals has declined from 39% in FY 2013 to 33% in FY 2018.
Shishir Baijal, chairman and managing director of Knight Frank India, adds: “Affordable housing is a high potential segment that private development companies are yet to explore its potential. Unlike other segments of housing, affordable housing poses an interesting challenge, involving strategies at all levels. Given the requisite volume, this category may need to look at innovative solutions, right across the stages of development, including statutory clearance, design, building and construction management, along with marketing and sale. We feel, a differentiated approach towards affordable housing, will hold the key to its ultimate success and profitability.”
Home loan disbursals
| Fresh disbursals of HFCs | FY 2013 | FY 2014 | FY2015 | FY2016 | FY2017 | FY 2018 |
| Share of EWS sector | 21% | 16% | 14% | 12% | 14% | 10% |
| Share of LIG sector | 39% | 38% | 37% | 37% | 35% | 33% |
| Total disbursals (million) | 19,96,210 | 24,59,110 | 28,18,260 | 31,58,583 | 37,99,906 | 48,23,538 |
Source: Knight Frank Research
Since 2014, around USD 34 billion has been invested in Indian real estate, across debt and equity. Commercial segments, which comprise of office, retail and warehousing, have garnered the majority share of this, in the form of equity investments. The residential segment had 31% share and most of it was in the form of debt.
Private equity trends in residential real estate
| 2014 | 2015 | 2016 | 2017 | 2018 | H1 2019 | |
| Investment into residential as a percentage of overall PE investments | 41% | 51% | 50% | 24% | 16% | 17% |
| Affordable housing (as a percentage of PE investment into residential) | – | 11% | 3% | 20% | 60% | 62% |
Source: Knight Frank Research, Venture intelligence
Rental housing market: The missing piece
As per the Census 2011, over 21 million (27.5%) urban households lived in rented accommodations. The rental housing market is projected to grow at a faster rate, than the rate of urbanisation 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 transaction, which leads to a high number of vacant houses in large urban centres.
Vacant homes across India
| City | Mumbai | Delhi | Bengaluru | Pune | Ahmedabad | Jaipur |
| Number of vacant houses | 5,00,000 | 3,00,000 | 3,00,000 | 2,00,000 | 2,00,000 | 1,20,000 |
| City | Hyderabad | Kolkata | Bhopal | Gurugram | Lucknow | Ghaziabad |
| Number of vacant houses | 1,00,000 | 80,000 | 75,000 | 75,000 | 65,000 | 55,000 |
Source: Knight Frank Research
Strategies for developing rental housing in urban India
- Channelising government-owned land for rental housing development: The government has significant volumes of underutilised lands. If a portion of these land masses is utilised by the government or its agencies, 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.
Measures that could address the root causes of future housing shortage
- Transitional buffer housing stock: Metro cities in India attract thousands of migrants every day, who come to urban centres for job opportunities, education, or simply for better lifestyle. Migrants belonging to lower income groups find it very difficult to find a shelter in the cities, due to the high prices 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 a renewal premium, can be priced 20% lower than a similar long-tenure property. Such a tool can be effectively used in subsidised housing, on the principle of the government subsidising the housing need of a household for a period of 30 years, after 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. It allows 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.
- 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 colleges. If housing boards are able to mobilise a fraction of these underutilised lands for the development of rental housing developments, the incremental cost to government would be restricted to the construction cost of these properties.
- Zoning reforms, to address land market imperfections: Land use zoning can be used as a successful tool, to create an inclusive urban fabric. Inclusionary Zoning (IZ) is a land-use planning tool, which reserves land or earmarks zones to be exclusively used for affordable housing.
Housing News Desk is the news desk of leading online real estate portal, Housing.com. Housing News Desk focuses on a variety of topics such as real estate laws, taxes, current news, property trends, home loans, rentals, décor, green homes, home improvement, etc. The main objective of the news desk, is to cover the real estate sector from the perspective of providing information that is useful to the end-user.
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