Budget proposals: Leg up for affordable housing

Jul 19 2014, 09:09 IST
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Govt has earmarked Rs 4K cr up from Rs 2K cr last year to NHB for giving credit to housing finance cos for lending requirements of urban poor. Govt has earmarked Rs 4K cr up from Rs 2K cr last year to NHB for giving credit to housing finance cos for lending requirements of urban poor.
SummaryGovt, RBI liberalise financing for housing sector, but hurdles remain on path from banks to buyer.

houses in urban India is estimated at close to 19 million as per NHB data.

Given the staggering proportions of the demand, it would take more than cheaper loans to fill this gap. The supply of houses at affordable price points needs to increase, which is easier said than done.

However, the demand in this segment is huge and presents an opportunity waiting to be tapped. Monitor Deloitte, a consultancy, in a recent study on the low income housing market, has estimated the number of households with a monthly household income ranging between Rs 7,500 Rs 25,000 at 2.2 crore, which translates into an opportunity worth Rs 1.1 lakh crore.

The study, however, says that the market remains underserved due to policies and lack of financing options for such home buyers.

Raghav Garg, director of Landcraft Developers agrees. Existing government regulations and development norms discourage private sector participation for low income housing. There is a need to bring in private sector participation in this sector, says Garg, whose company has built an affordable housing project called Dinesh Nagar in Pilkhuwa, 50 km from Delhi, with home prices in the range of Rs 7 lakh to Rs 10 lakh.

Almost all states have affordable housing policies where housing for low income groups is done with the state as a partner, leaving little room for private players to enter the space.

In Uttar Pradesh for example, the target beneficiaries are identified by the state and the home prices too, are fixed by the state. Essentially they are state government projects, and a private player can enter this space mostly as a construction partner.

In fact, the regulations are so regressive that it is far easier to build slums and get them regularised rather than enter the low-income housing space, adds Garg, whose project was approved under the affordable housing scheme of the Uttar Pradesh government, and claims that home prices in his project are lower than government low-income housing schemes.

Even in cities where private players are active in the affordable housing space, the Monitor Deloitte study has found that 70 per cent of such buyers are in the informal sector but need access to loans in order to buy the house.

Banks are not active in this space, but housing finance companies are. The drawback, however, is that housing finance companies borrow at high costs and consequently their lending rates vary anywhere between 11 per cent to

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