The country is in desperate need of affordable housing, and the government is aware of it. National Housing Bank (NHB) and private estimates suggest the shortage of homes is around 18.66 million. Of these, the overwhelming shortage – 17.84 million units – is staring at the face of the poor and economically weak. The middle classes have a ‘manageable’ shortage of just 8.2 lakh units.
To achieve ‘Housing for All By 2022’ the ambitious Prime Minister Awas Yojana (PMAY) for the urban poor aims at building 20 million homes across 305 cities with a humungous investment of $30 billion. This translates into constructing 37.5 lakh homes every year. A tall order, indeed! Union minister for housing and urban poverty alleviation M Venkaiah Naidu’s statement in the Rajya Sabha recently conceded that only 82,048 units had been constructed since the scheme kicked in, in June 2015. At this rate, the ‘Housing for All Mission’ may not see completion even after a century!
Roping in private builders
Who, then, will construct these huge numbers? Government Housing Boards at best account for 10-15 per cent of the supply, and it is the private building industry that has to deliver the bulk. Therein lies the catch: private builders don’t want to enter the mass/low-cost segments as they perceive the margins to be too thin and marketing task to the poor a veritable nightmare. They are happy to build high priced homes for the middle classes and the rich, even though sales are sluggish.
The irony of the situation can be seen in the burgeoning inventory of unsold stocks at the ‘rich’ end, while there is a huge, unsatiated demand at the ‘poor’ end of the market. When the Maharashtra Housing & Area Development Authority (MHADA) advertised last September for buyers for 4,275 homes in Mumbai’s distant suburbs, it received an eye-popping 1.65 lakh applications for these low cost homes!
No wonder, there is a desperate bid to rope in private developers. The latest February Union Budget has enlarged the definition of ‘affordable’ homes – 30 sq meters (323 sq feet) for the 4 big metros and 60 sq metres (646 sq ft) for other cities – as ‘carpet’ area compared to the earlier smaller ‘built up area’ definition.
Builders making these homes can now claim 100 per cent deduction of profits under Section 80-1BA of the Income Tax Act, and projects under this scheme have been given up to five years for completion instead of three years earlier.
What is affordable?
But, can size define what is affordable? A 320 sq ft carpet area in south Mumbai today costs Rs 1.2 crore and a 645 sq ‘affordable’ home in Bangalore’s city centre will carry a tag of Rs 1.4 crore. Hardly ‘affordable’!
Ultimately, affordability is the ‘cost’ to the buyer. The accepted norm is: a home should cost no more than 4-5 times a person’s annual income. Beyond that, it becomes unaffordable.
By this definition, an income earner of Rs 10,000 a month cannot ‘afford’ a home above Rs 6 lakh; and at the top range, a Rs 30,000 a month earner, can muster up Rs 18 lakh for a home, if he wants to keep aside money for other needs such as education and food. That’s the earning range of 90 percent of Indians, and therefore ‘affordability’ for the poor means a price range of Rs 6 to Rs 20 lakh. Size has to bow to cost!
There are builders who are servicing this end, and for them success is all about price points. P Suresh, managing director of Arun Excello Realty, says his company has been constructing small, low-cost homes in Chennai and marketing them at just under Rs 3,000 a sq ft, and still making a profit. His target is the rickshaw driver, and anyone who earns in the Rs 10,000-20,000 per month range.
Similarly, Sanjay Shah, founder of DBS Communities, has sold over 4,000 homes in projects spanning Ahmedabad, Surat and Vadodara -- all in the price range of Rs 7 to Rs 17 lakh.
Suresh of Arun Excello, however, insists the government can do more. “Stamp duty, registration and other taxes add Rs 90 per sq ft to my sale price, or a jack up of about 12.5 per cent. Multiple permissions cause six to 18 months of delay that add five per cent in admin costs. Take these two away, and the home can be 20 per cent cheaper!”
It is obvious that both the central and state governments need to do a lot more before ‘affordable’ homes become mainline construction.
(The writer is a senior journalist)