The increase in demand for urban housing has been driven by the burgeoning population coupled with rising urbanisation. Between 1961 and 2012, India’s urban housing shortage increased at a compound annual growth rate (CAGR) of 2.4 per cent. Several estimates suggest India will need around 40 million urban houses between 2010 and 2030.
Over the years, there has been a continuous increase in credit demand for housing. The gross bank credit deployment to housing almost doubled between March 2014 and March 2015. Over Rs 6 trillion worth of bank credit was outstanding, as of March 2015. While overall bank credit growth remained sluggish, during the first four months of calendar year 2015, commercial banks’ exposure to the housing sector posted robust growth.
Construction cost accounts for a share of about 40-60 per cent of total cost. As per estimates, the labour cost has the highest share of about 27 per cent in total construction cost. Construction costs see an upward movement year on year in the range of 15-20 per cent.
Role of private players
In addition to government initiatives focused on the mobilisation of investment in the sector, private investment is also expected to create substantial opportunities. In the past six to eight months, several big-ticket private equity transactions have been witnessed in the residential segment.
Based on the projects tracked by India Infrastr ucture Research, the housing sector offers a pipeline of at least 270 projects as of October 2015. These are projects that have been launched by key real estate developers across the country. These projects most commonly offer two/three-bedroom-hall-kitchen (BHK) units. These are spread across 13 states with the majority of the projects located in Maharashtra, West Bengal, Tamil Nadu and Karnataka. The majority were launched in the first six months of 2015 and are likely to be completed and offered for possession post-2018. These offer a lucrative opportunity for entities such as construction contractors, equipment and material providers, service providers, etc. The majority of the projects and the concomitant opportunities lie in Mumbai, Kolkata, Chennai, and the National Capital Region.
Housing for All by 2022 Mission – A potential game changer
The mission, which was launched in June 2015, aims to construct 20 million houses by 2022. The mission will cover the entire urban area consisting of 4,041 statutory towns with an initial focus on 500 Class I cities. It will be implemented in three phases. Phase I will cover 100 cities to be selected from states/union territories (UTs) between April 2015 and March 2017; Phase II will cover an additional 200 cities between April 2017 and March 2019; and Phase III will cover the remaining 200 cities between April 2019 and March 2022. The mission will cover all beneficiaries belonging to the economically weaker section (EWS) and lower-income group (LIG) categories. States/UTs are required to undertake demand assessment (Housing for All Plan of Action) to arrive at the actual housing demand.
The key components of the Housing for All Mission include “in situ” rehabilitation of existing slum dwellers using land as a resource through private participation, credit-linked subsidy for LIG and EWS, affordable housing in partnership, and subsidies for beneficiary-led individual house construction, or enhancement.
As of October 2015, 15 states have signed memorandums of agreements with the Ministry of Housing and Urban Poverty Alleviation (MoHUPA) committing themselves to implement six mandatory reforms essential for making the housing mission successful in urban areas. As of December 3, 2015, 1,183 cities had been selected in 23 states under the mission. These states include Tamil Nadu (191), Punjab (139), Bihar (134), West Bengal (125), Madhya Pradesh (74), Gujarat (57), Odisha (42) and Rajasthan (40).
Another 174 projects for the construction of 230,403 houses for the EWS category in 98 cities of six states have been granted in-principle approval under the Affordable Housing in Partnership (AHP) and Beneficiary Led Construction Scheme (BLCS) components of the Housing for All Mission.
Besides this, a few newly launched initiatives by the government should also stimulate housing demand. For instance, the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) entails provision of basic services (for example, water supply, sewerage, urban transport) to households and development of amenities in cities.
The Smart Cities Mission, covering 100 cities, will drive economic growth and improve the quality of life of people by enabling local development and harnessing technology in a bid to create smart outcomes for citizens. The coverage for the Smart Cities Mission, AMRUT and Housing for All Mission, will complement each other. Affordable housing is a part of the area-based development component of the Smart Cities Mission (a list of 98 proposed smart cities was announced recently). The nine states that have identified 305 cities for housing for urban poor also account for 26 smart cities and 136 AMRUT cities. In those 136 AMRUT cities, housing projects will also be undertaken.
Housing demand at the state level
Several states have laid emphasis on the launch of city/district-level housing schemes to bridge the demand-supply gap. These schemes focus primarily on serving the affordable housing segment. States such as Gujarat, Rajasthan, Uttar Pradesh, Odisha, Delhi and Karnataka have outlined long-term and large-scale housing development schemes. For instance, Gujarat has unveiled a target of developing 1 million dwelling units by 2018 through various state government and public-private partnership (PPP)-based schemes. Meanwhile, Madhya Pradesh’s Vision Document – 2018 targets the creation of 500,000 affordable housing units in urban areas (250,000 units under PPP, 150,000 under centrally sponsored scheme and 100,000 under state-sponsored schemes).
Key concerns
Land acquisition continues to be a primary issue for undertaking infrastructure projects. There is no certainty regarding the amendments to the new Land Acquisition Bill. Meanwhile, the cost of acquiring land has gone up significantly. Further, there is also a dearth of developable land with basic infrastructure in Indian cities. Arranging funds for real estate projects is another major challenge. The Reserve Bank of India has set sector exposure limits for banks. There is an absence of other sources of long-term funding for real estate. In December 2014, the government eased foreign direct investment norms for the real estate sector which is expected to increase inflows.
As per industry experts, the process of obtaining approvals is among the major reasons contributing to delays in real estate projects. As per the report of the Committee on Streamlining Approval Procedures for Real Estate Projects set up by the MoHUPA, a developer has to follow at least 34 regulatory processes for obtaining construction permits, which involves an average of 227 days.
In addition, the construction sector faces shortage of manpower since it is dependent on manual labour and projects entail long timelines. Further, technology penetration is very limited at the moment.
Demand outlook
Urbanisation is an irreversible trend. Increased demand for affordable housing will boost the Indian housing market. Between 2001 and 2011, India’s urban population grew at a CAGR of about 3 per cent. This is close to the growth in urban housing shortage which increased at a CAGR of about 2.3 per cent during the same period. By 2021, India’s urban population is expected to cross the 500 million mark. As per India Infrastructure Research, Indian urban housing shortage is expected to increase to at least 25 million by 2021.
That said, massive investments of over $2 trillion are required to cover the housing needs by 2022. 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 is now backed by a strong mandate of the central government; it is imperative that PPPs be given an impetus to achieve the desired scale. Under the Housing for All Mission, funds to the extent of Rs 40 billion have been allocated in the budget estimates for 2015-16.
