Considering the significant housing deficit in the country, achieving the government’s vision of ‘Housing for all by 2022’ will require overhaul of the funding mechanism in the real estate sector.

A recent study titled ‘Funding the vision – Housing for all by 2022’ by the National Real Estate Development Council and KPMG in India estimated that in order to overcome the housing shortage and achieve the vision of housing for all, 30,000 – 35,000 housing units need to be developed per day for the next 8 years requiring an investment of more than $ 2 trillion.

Currently, the housing shortage in urban areas is estimated at 19 million units. The Economically Weaker Sections and Low Income Group households who cannot afford houses costing above Rs. 15 lakh account for 95.6 percent of the shortage.

The study said that a significant number of EWS and LIG households could get pushed to a higher category supported by the strong growth in household income in urban areas. By the year 2022, it added, majority of demand for housing was expected from LIG and MIG segments of households, constituting 50 percent of the total housing demand.

The study pointed out that though the total investment required for urban housing was about $ 2.3 trillion, occupation of 9 million vacant houses could help reduce the housing need and bring down the total investment required to $ 2 trillion.

At present, Rs. 9.5 trillion is getting invested in the real estate sector annually, of which, housing development accounts for 80 percent or Rs. 7.5 trillion.

The study emphasized that investment in housing needs had to be doubled through steady increase in investments by 12 to 13 percent per annum. Adjusting for inflation at 6 percent per annum, the government should target for an effective increase of 18 to 20 percent per annum as against a growth of 13 to 14 percent witnessed in the last six to seven years, it said.

Since the rural housing need of about 53 million affordable housing units require an estimated investment of only $ 100 – 150 billion over the next eight years, the study stressed that more than 90 percent of the investment needed to be made for development of urban housing.

In addition to the $ 2 trillion required for housing development, an investment requirement of $ 1 trillion has been estimated for the period 2011 – 2030 to upgrade and develop suitable urban infrastructure and another $ 500 billion for commercial real estate development.

The study observed that several roadblocks were preventing the real estate sector from achieving the desired level of investment and sought immediate introduction of reforms for increasing capital flows.

As of now, a number of factors restrict the availability of funds to the real estate sector. These include weak financial markets, weak global and local economy, lack of institutional funding over long term, lack of real estate dedicated financial instruments, no formal lending sources available to developers for acquiring land and unfavorable regulations such as Rent Control Act which deter investment in the rental housing sector.

Highlighting that less than a decade remained to achieve the vision of ‘Housing for all by 2022’, the study recommended the government grant infrastructure status to the real estate sector, provide direct support to private developers or include them in its housing programme, promote PPP in real estate sector by releasing land parcels for housing development, streamline the approval mechanism to help reduce costs and schedule overruns in real estate projects, set up long term funding mechanisms such as National Housing Bond or allocate certain percentage from large funds such as insurance, pension or provident funds towards housing development, address ambiguities in several direct and indirect tax provisions, popularize housing loans more by increasing tax incentives to individuals and regularly release important housing data. It also suggested increase in tenure of home loans from the current 20 years to 30 years to improve affordability, tie-ups between housing finance companies and developers to extend long term funding and reduce project risks, improvement of credit appraisal mechanism for both households and developers to reduce default, increase in allocation towards real estate sector and opening up of the External Commercial Borrowing mechanism for real estate projects.


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