Till a year ago what rankled Anshu Pathak most about her ramshackle rented house was, having to share the 28 sq. ft. bathroom with three other families. Within the house there was no space or privacy and outside there was no safe place for her children to play.
Prime Minister Modi’s Housing For All 2022 program, which envisages construction of 1 crore houses will have a transformative impact on the likes of Anshu. It is also a Rs. 10 lac crore market opportunity, a bulk of which will be generated by private industry leading to greater tax collection. Industries linked to housing such as housing finance, construction and manufacture of housing materials will stand to gain. Given how labor-intensive construction is (employing almost 7% of India’s workforce) and that most construction materials are manufactured domestically, ‘Skill India’ and ‘Make in India’ missions will also benefit.
A key challenge is approvals. Even projects falling within residential zone of a city’s masterplan may not receive approvals due to scores of factors for which no information is publically available (e.g., government’s yo-yoing road widening plans or on-paper presence of an invisible water-body). To avoid being saddled with undevelopable land, developers use 100-point checklists as part of their due-diligence and yet run into years of delays before receiving approvals.
For fast-tracking approvals digitization of land records is therefore critical but is itself a time consuming project. For quicker results, empowered committees need to be set up comprising of representatives of each department that grants approvals and charged with unblocking approval obstacles that stall projects and notifying construction-ready lands in each state.
Paradoxically, sales, which is a function of aggregating demand is also a challenge in EWS/LIG housing. Home purchase is the biggest decision in the life of a low-income buyer and therefore a time consuming, involved process that entails him visiting the project multiple times, conferring with the extended family, checking his loan eligibility and finally clobbering together the down payment for the home. Customer acquisition is therefore a long and costly affair.
For the usual acquisition time and cost of a single medium income customer, the developer must acquire several low-income customers. Cancellation rates also are relatively higher in this segment because of the customer’s inability to plan finances or to absorb unexpected financial shocks. Many EWS/LIG customers are often also un-bankable despite the slew of new cash-flush non-banking financial companies (NBFCs) in the market.
Awarding government departments and PSUs that facilitate the most number of house purchases from amongst their employees (currently 2.15 crore are employed) would push the pace of sales and therefore construction of homes.
Multiple surveys have indicated that the government’s age-old model of public-private partnerships where the land belongs to the state, construction is outsourced to a private contractor and allottments are supervised by the state, has met with little success because nobody’s incentives are aligned with that of the customers. For one, because the contractor does not have to face the post-possession music from the allottees, the quality of construction is often sub-standard. Two, such projects suffer from abysmally low possession rates, (making the colonies further uninhabitable) because of government’s notorious delays in providing necessary infrastructure such as water, power, sewage disposal and post-sales maintenance services. Three, homes are often designed in tragic variance to what the customer actually needs, again adding to non-occupancy.
Government should simply auction state-owned land to private companies that will design, construct and sell EWS/LIG homes on market lines. Applicability of Real Estate (Regulation and Development) Act, 2016 (RERA) will automatically ensure conformity to the auction conditions.
Allowing 90% withdrawal from EPFO accounts for home purchase and the credit-linked subsidy of upto Rs.2.67 lacs are excellent measures to bridge affordability. However, paying for a house that exists only on paper is not easy for EWS/LIG buyers. To create constructed homes government can extend construction finance loans for two years on a rolling basis at discounted rates of 6% to developers constructing only EWS/LIG homes. Additionally, a moratorium of three years from the date of RERA registration to pay the approval fee will greatly reduce the upfront equity burden making the economics of the model more attractive.
Today Anshu is the proud owner of a two-room house that she purchased for Rs. 8.5 lacs in Shubhashray’s gated colony in Bhiwadi, Rajasthan. On her husband’s monthly income of Rs.18000 she is able to afford the Rs. 4,500 EMI (post-subsidy). Her children spend the day at the nearby school and then at the park within the premises, giving her plenty of time to learn to use a computer at the colony’s learning center.