Affordable housing lends momentum to sector

The affordable segment has emerged as the main driving force of the real estate sector and may help revive the market in the near future.

The affordable segment of housing – 2BHKs of around 1,000 sq ft in the price range of Rs 3035 lakh may help revive the real estate market in the country, especially in the Delhi NCR region, reports say.

A report by consultancy firm Cushman & Wakefield says that the affordable segment has emerged as the main driving force of the sector and may help revive the real estate market, which has been facing turbulent times for the past few years, due to delay in giving possessions.

The report by Cushman & Wakefield said that the residential market, which saw a slump in launches in 2015, registered a comeback in the January-March quarter of 2016, backed by a 62% rise in launches in the affordable housing segment – 4,600 units against 2,800 units in the same period last year. The affordable segment constitute of around 41% of the total launch in the NCR.

The report said that in a bid to increase the attractiveness of affordable housing, developers have reduced the average ticket price by 10% in the January-March quarter of 2016, compared to the same period in 2014, in the NCR.

This drop in launch price of affordable units was brought about by a mixed strategy of lowering the average launch prices and by resizing the units. The average launch price registered a decline of 2% in the first quarter of 2016, to Rs 3,190 per sq ft, combined with an 8% decline in the average size of the units, to 1,030 sq ft, compared to the first quarter of 2014, the report said.

The conscious effort by developers to increase the attractiveness of the affordable segment comes at a time when launch of affordable units remains comparatively high.

“Over the last few quarters, the share of affordable housing has constantly increased, as developers and investors view this segment more favorably.

“With the NDA government laying strong emphasis on affordable housing and extending tax incentives to this segment, coupled with the cautious approach by end users in other segments, developers are betting big on the affordable segment,“ Shveta Jain, executive director (residential services) of Cushman & Wakefield, said.

The Union Budget has offered an additional tax incentive to buyers of affordable houses, costing less than Rs 50 lakh, on a loan of up to Rs 35 lakh. Under this, buyers will be allowed an additional deduction of Rs 50,000 on account of interest payment on home loan from their taxable income. This is over and above the Rs 2,00,000 deduction allowed on interest payment on the home loan.

Another consultancy firm, JLL India, also said that things are now looking up with the pace of economy gathering steam and through various initiatives announced by the NDA government.

Ashwinder Raj Singh, CEO (residential services) of JLL India, said that 2015-16 saw traction in urban demand and that the current financial year is expected to usher in growth in the rural economy, on the back of a favorable monsoon. Agriculture accounts for 15% of the country’s GDP and, with 2016 being declared a La Nina year, further growth is more or less assured, Singh said.

Hopes of a favorable monsoon this year, coupled with the recent rate cuts by the RBI, are compelling reasons for growth in the realty sector in the near future, says Aman Nagar, director of Paras Buildtech.

Source: Epaperbeta.TimesofIndia.Com


7 bottlenecks that hold back affordable housing in India

Incentivizing developers to enter the affordable housing segment and including mass housing zones in city master plans are must.

Large-scale affordable housing in cities is the greatest necessity of urban India today. Because Indian cities have such a severe shortfall on this front, we are seeing the proliferation of slums and unorganized real estate. These are detrimental to planned growth of our cities.

Large-scale urban developments – the only way to create affordable housing in the required magnitude in our major cities – are becoming increasingly difficult due to lack of land parcels, congested transit routes, lack of finance, rising input costs and regulatory hurdles.

If we take a bird’s-eye view of the problems plaguing this sector, the vision of Housing for All by 2022 becomes a hazy one at best. It is vital that these issues are addressed on a priority basis so that a comprehensive framework can be established for ensuring the development of affordable housing.

On analyzing the bottlenecks that currently hold affordable housing in India to ransom, it emerges that any approach towards a workable solution will have to encompass these functions.

1.) Formulate guidelines for identifying right beneficiaries:

It is important to formulate guidelines that will identify the appropriate beneficiaries for affordable housing projects. This is critical, as the involvement of speculative investors in such projects defeats the whole purpose. The National Population Register and issuance of unique identities via the Unique Identification Authority of India will become crucial elements in identifying the right beneficiaries if they are linked with income levels.

2.) Innovate on micro-mortgage financing mechanisms to ensure a larger reach:

Effective financing through micro-mortgages by utilizing the reach of self-help groups (SHGs) and other innovative financing mechanisms can ensure that housing finance is available to large sections of lower income groups (LIG) and economically weaker sections (EWS). Flexible payment mechanisms should be put into place, as households in low-income groups typically have variable income flows.

3.) Incentivize developers to enter affordable housing segment:

Urban local bodies can develop guidelines by giving free sale areas, extra floor space index (FSI) and other policy-level incentives to real estate developers, thereby attracting them to develop affordable housing. Schemes for redevelopment and slum rehabilitation should be developed with incentives that generate sufficient returns for the developers, while simultaneously controlling the development density.

A cost-benefit analysis of regulations should be carried out from a development perspective to ensure that schemes to facilitate affordable housing development are actually realistic and feasible.

4.) Streamline land records to improve planning and utilization of land:

Adequate availability of land for housing and infrastructure can be ensured by computerization of land records, use of geographical information systems, efficient dispute redressal mechanisms and implementation of master plans. The central government and some state governments have already begun work on this front, but there is still a lack of required pace.

5.) Include mass housing zone sin city master plans:

Additionally, ensure that these zones are developed within a pre-determined schedule, accounting for the future requirement of affordable housing. Some cities have already dedicated zones for development of affordable housing in their master plans. This needs to be replicated in other cities and towns – with a sharp focus on development timelines.

6.) Deploy well-researched rental housing schemes in urban areas:

Authorities like the Mumbai Metropolitan Region Development Authority (MMRDA) have experimented with rental housing schemes in the past. However, these have not been very successful as a proper framework for such schemes was missing. The most visible limitations were that development of rental housing took place in farflung areas which are not suitable for affordable housing, and the lack viable means to identify the right end-users.

7.) Formulate policies for greater participation from private sector:

The private sector can play a big role in affordable housing, most notably in terms of providing technological solutions, project financing and delivery. Disruptive innovations on these fronts, with a specific focus on affordable housing, are the need of the hour. We need imaginative, workable solutions to reduce the costs of construction in the face of rising input costs. As construction costs account for a significant portion of the selling price of affordable housing units, savings accrued on the back of such innovations can immensely benefit the occupier. The author is chairman and country head, JLL India.

Source: Hindustan Times (Estates), Apr 16, 2016, Page 03

Incentives to rejuvenate India’s housing sector

The Union Budget for 2016-17 provided a significant push to the housing sector. The government extended quite a few incentives targeted at the Affordable Housing segment under the Pradhan Mantri Awas Yojna (PMAY). It announced 100% tax exemptions for private players constructing affordable housing of 30 sq m in the four metros and of 60 sq m in other cities, approved during the June 2016 to March 2019 period, to be completed within three years of construction approval. Minimum Alternate Tax, however, will apply to these undertakings.

Apart from the 100% investment-linked tax deductions for development firms launching affordable housing projects, service tax of 5.6% has also been exempted on services for the construction of such projects under the urban Housing for All Mission or PMAY. These moves attempt to address the supply side constraints of developing affordable housing to plug the significant demand gap in this realty segment.

Encouraging Private Players:

Hopefully, such tax incentives should encourage private players to participate in larger numbers in the construction of projects under the Affordable Housing in Partnership component of PMAY.

In addition, the government has also clarified that the unit sizes of such housing projects may not exceed a carpet area of 60 sq m. These broad guidelines have also been extended to low cost housing schemes of state governments.

The finance minister has, moreover, announced 100% excise duty exemption for Ready Mix Concrete, which is also expected to aid in easing supply side constraints of the real estate sector by bringing down construction cost to some extent. On the demand end of the housing spectrum, an additional rebate of 50,000 per annum has been announced on housing loan interest for first time home buyers in the affordable housing segment. This announcement, however, is applicable for home loans not exceeding 35 lakh, and for properties not exceeding 50 lakh. This move is likely to fuel affordable housing demand, especially among home buyers in the country’s tier II and III towns and cities.

HRA Increase:

The finance minister also provided a boost to the rental housing market with an increase in House Rent Allowance (HRA) deductions. Those not owning a house and not receiving any HRA from their employers previously, can now avail a standard deduction of ` 24,000 per annum; while for those already availing HRA, the limit has now been raised to `60,000 per annum towards rent paid for their homes.

The recent passage of the Real Estate (Regulation and Development) or RERA Bill is also expected to have positive implications for the housing sector in India. It will hopefully help regulate the sector and promote transparency. If implemented in the right spirit, it could facilitate greater volumes of domestic as well as overseas investment flows into the sector. Above all, home buyer confidence in the property market is likely to revive with the Bill coming into effect. Moves such as incentivizing the developer community with tax exemptions, as well as incentivizing the end-user by providing tax breaks will hopefully rejuvenate the sluggish residential market.

Source: Hindustan Times (Estates), Mar 19, 2016, Page 05

Urban affordable housing offers Rs 75,800 cr opportunity for pvt builders

Urban affordable housing segment presents a $11.8 billion (Rs 75,800 crore) opportunity for the private sector, estimates real estate consultant Cushman & Wakefield in a report released in association with realtors body CREDAI.

The consultancy, in a report released at NATCON 2015 held in Istanbul, pegs demand for affordable housing at 535,400 units for homes in the price range of Rs 20-50 lakh in Delhi-NCR, Bengaluru, Chennai, Hyderabad, Kolkata, Pune and and Rs 50-70 lakh in Mumbai (MMR). “This spells immense opportunity for the private sector to explore urban affordable housing in India through various models, which can be profitable for all stakeholders,” said Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield.

Urban affordable housing has long been neglected in India due to various reasons such as high land prices, delays in getting approvals and low margins in the segment. “Now with renewed focus from government, we expect this segment to gather momentum going forward,” Dutt added.

Real estate developers are also well aware of the opportunity in this segment, with around 7,000 affordable units launched in the top cities in the June quarter, an increase of 320% on a quarter-on-quarter basis. Around 60% of the total units were launched in the National Capital Region (NCR) alone, comprising Delhi, Gurgaon, Noida and Faridabad, during the June quarter.

The overall new launches, however, rose a tepid 14% in the April-June quarter, compared to the previous quarter.

The central government is placing strong emphasis on the ‘Housing for All by 2022’ initiative lately. Getamber Anand, President, CREDAI National, feels the residential market can offer a multitude of opportunities if innovative housing models that would address challenges of specific target segments are adopted. “The affordable housing segment that is now backed by a strong mandate of the central government currently witnesses a demand-supply mismatch and it is imperative that public-private-partnerships be given an impetus to achieve desired scale,” he added.

Private real estate players have shied away from this segment due to low margins. “Incentivizing the sector by making land available, reducing raw material prices, providing additional Floor space index (FSI) for such developments, etc, are bound to give a thrust to development of low cost housing units,” said the report.

Source: ETRealty.Com

RBI allows airlines, affordable housing project developers to tap overseas funds till March next

The RBI has extended to March 2016 the facility of raising funds overseas by airline companies and affordable housing projects.

In April 2012, the central bank had allowed aviation firms and in June 2013 low-cost affordable housing projects to borrow funds under the external commercial borrowings (ECBs) route based on cash flow, FOREIGN EXCHANGE earnings and capability to service the debt.

“On a review, it has been decided that the scheme of raising ECB for working capital for civil aviation sector will continue till March 31, 2016, with the same terms and conditions,” the RBI said in a notification on Thursday.

In a similar notification, the central bank said, “…it has been decided that the scheme of raising ECBs for low-cost affordable housing projects will continue for the financial year 2015-16.” It allowed real estate developers and housing FINANCE companies to raise $1 billion through ECBs, which could be used either for developing low-cost housing projects or for providing loans up to ₹25 lakh to individuals for buying units with a price tag of ₹30 lakh or less.

The ECB ceiling for the entire civil aviation sector would be $1 billion and the maximum permissible ECB that can be utilised by an individual airline company will be $300 million. This can be raised with a minimum average maturity period of three years.

Source: CredaiNCR.Org