Re-Imagining India’s Informal Housing Challenge
Via
convergence of Housing for All and Smart Cities missions
By Mr. A. Shankar, JLL India
The year 2016 turned out
to be a year of transition, particularly for real estate – a sector that has
been directly or indirectly affected or altered by most policy reforms
introduced by the state or central governments.
Some of these policy
changes might seem disadvantageous in the short run; however, they will render
the entire system more mature, organized and transparent.
The recently-announced
Union Budget 2017-18 has yet again emphasized the importance of housing, and
has accorded infrastructure status to this sector.
It is important to
attract the attention of all stakeholders to this sector, particularly those
who influence supply – developers and banks.
Given the benefits
offered in the budget, the clearer definition of affordable housing in terms of
area, relaxation of construction timelines for affordable housing projects, and
tax incentives, it is evident that India is moving towards significantly
reducing its share of homeless people.
The traditional factors
influencing housing demand keep fluctuating due to policy interventions; yet,
consumers keep investing in real estate. This is evidenced by the fact that
housing sales velocity has not dropped significantly anywhere in India due the
various policy reforms.
Moreover, today’s market
primarily consists of buyers (as much as 80%) who depend on loans for financing
their housing needs.
Of all the policy initiatives,
the Housing for All (Pradhan Mantri Awas Yojana)
and the Smart Cities Mission are two major
flagship policies that have affected the demand and supply trends of
residential real estate, and have a huge impact on addressing the issues of
informal housing / housing for the urban poor.
The recent Real Estate
Regulatory Act does not concentrate on incentives to promote informal housing,
though it increases transparency in the formal residential market. Affordable
housing shortage continues to be a major concern in the country today, and can
be correlated with the rate of urbanization taking place.
According to the Census
of India 2011, India’s urban population increased to 377 million, reflecting
the rise in urbanization from 27.8% to 31.2% between 2001 and 2011.
This rate of
urbanization has led to many issues such as land shortage, housing shortfall,
severe pressure on available infrastructure, transportation deficits and stress
on basic amenities like water, sanitation and healthcare.
At present, there is a
shortage of 18.8 million homes across urban centers of India, of which 15
million are needed in the LIG (Low Income Group) category. Large-scale budget
housing projects are definitely the need of the day to address the mammoth shortfall.
The Housing for All
mission envisions a multitude of strategies such as tax rebates, monetary
support, relaxed development regulations, discounted interest rates, etc. to
provide Housing for All by 2022.
The Housing for All and
Smart Cities missions, through convergence, use the benefits given to each
other and also compensate for shortcomings by leveraging their advantages.
While Housing for All
concentrates on funding and incentives for developers and buyers, the Smart
Cities mission focuses on leveraging land availability, implementation under
single entity SPVs (Special Purpose Vehicles), and strengthening basic
infrastructure facilities.
As part of the Smart
City initiatives, some Indian cities have planned convergence with the Housing
for All scheme to address the informal housing sector.
Some of these
initiatives would include housing for economically weaker sections or
affordable housing, slum redevelopment, rental housing, working women’s
hostels, shelters for the homeless, etc. as part of the Smart City plan.
All these would be
developed through the PPP model with the involvement of private developers.
This has been
successfully adopted in Bhubaneshwar Smart City,
which ranked number 1 in the Smart Cities Challenge competition by the Ministry
of Urban Development, Government of India and JLL India, which was the
consultant for preparation of the smart city proposal for Bhubaneshwar.
There is a huge
opportunity for private developers to get involved in the development of
housing for the informal sector.
Aspects which would form the basis for the
success of the convergence agenda and will address the housing shortage issue
of India in a big way through private participation are:
(1) Land as a resource
Land price is the major
component of any housing project in urban areas, and currently forms an average
of 30-50% of the cost of a project within city limits (depending on the
location and applicable FSI). This cost plays a major role in the pricing and affordability
of residential units.
Smart Cities leverage
available Government-owned land parcels within the specified areas for
development for housing for the urban poor and the informal sector. Utilizing
such land parcels at a subsidized rate will drastically reduce the pricing of
the resultant housing units.
(2) Technology intervention in construction
Another major component
is the cost of construction and escalation of the cost during the construction
period. To address this issue and make housing for the informal sector more
feasible, it is important to reduce construction costs and construction
timelines.
However, a majority of
developers use conventional construction methods, which are time-consuming.
Projects often face time and cost over-runs, and increase in the construction
period increases the cost of financing.
Technology intervention
in construction such as prefab technology will definitely address the gap
between time, efficiency and funding for mass housing projects which are part
of the Smart Cities initiative.
(3) Redevelopment within city limits
Most of the smart cities
in India have adopted the redevelopment model for ABD (Area Based Development).
These areas are either the CBD or areas which are located well within the city
limits.
This gives an
opportunity to address the housing needs of the informal sector by redeveloping
the area with quality housing, since most of the existing urban informal
housing is in such locations.
Redevelopment of various
other areas could also have housing as one of the options, or as one among
various products, with the cross-subsidization model to provide more housing
units and reduce the existing shortage.
(4) Improved Infrastructure
The Smart Cities mission
aims to create and maintain high-quality, 100% efficient civic infrastructure.
The efficiency of the utilities in our cities has been an elusive factor so
far, thanks largely to inadequate monitoring and responsiveness.
Electricity, sewerage,
storm water drainage and water supply will be strengthened in Smart Cities,
relieving the stress that large-scale housing projects invariably create on a
city’s infrastructure. Service delivery at the level of the Urban Local Bodies
is another area where major improvements are sought.
(5) Multiple financing options
Smart Cities not only
depend on their own funding (i.e. contributions from central and state
governments) but also act as the base for lot of other financing options apart
from FDIs.
Availability of funding
is ensured through convergence with other government schemes, funds raised from
the state governments, municipal debt, Real Estate Investment Trusts (REITs),
infrastructure debt funds, and the PPP vehicle.
A stable cash flow will ensure successful completion of the project, which is a major concern in most other initiatives where projects are stalled due to lack of funding.
This will open up lot of
avenues for investment from other countries and various financial sources. This
would be an essential component to make housing for urban poor a successful
model
(6) Increased involvement of private players
There is a huge
opportunity for private players, since the Smart Cities mission encourages
participation of private entities under monitored terms and conditions, thereby
increasing the productivity and quality of the projects.
This will provide an
integrated platform for private players such as housing developers and
infrastructure service providers.
Since the funding and the revenue system are
distributed across projects within Smart City initiatives, the mission proves
profitable for all involved service providers.
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| A. Shankar, JLL India |
(7) Easy implementation through SPV
Smart Cities are
implemented through Special Purpose Vehicles – and if a housing component is
included, the implementation becomes smoother and encourages private developers
to participate since SPV will plan, appraise, approve, release funds,
implement, manage, operate, monitor and evaluate all Smart City development
projects.
SPVs will ensure a
substantial revenue stream for all the projects included within the Smart City
proposals, also ensuring effective utilization of funds.
As India’s urban
population continues to grow, there will be an increasing number of urban poor
and informal housing settlements – addressing their housing needs is going to
become critically important in the years to come.
India is struggling to
implement a ‘right project at right time’ approach, and getting the basics
right at this point in time can help the country cope with the pressures of
informal housing and rapid urbanization.
The convergence of
schemes such as the Housing for All and Smart Cities missions will be most
appropriate to achieve optimal results with proper implementation. Isolated
policies will yield much lower results.
Overall, the goals for
urban development in India should be to create sustainable, inclusive and smart
urban centers with good housing standards and participation of the private
sector.
About the author..
Mr. A. Shankar is National Director & Head of
Operations – Strategic Consulting at JLL India
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