Urban Housing : A Story Of Growth And Rejuvenation
Sameera Saurabh
India is heralding in an era of New Transformation, which has enormous prospects for growth. We are expected to become a $5 trillion economy by 2024-25 and aspiring to become a $10 trillion economy by 2030. There is huge potential for entities to play a transformational role. New India that is taking shape has humongous opportunities for large-scale development to meet the aspirations of the Young India. Between now and year 2030, approximately 700 to 900 million square meters of urban space every year will required to be constructed. India is witnessing rapid urbanisation. According to Census 2011, India's urban population was 37.7 crore, which is projected to grow to about 60 crore by 2030. Urbanization in India has become an important and irreversible process, and it is an important determinant of national economic growth and poverty reduction.
Importance of Real Estate Sector
The Real Estate Sector is one of the largest contributors to the economy and the second largest employer. Real Estate Sector contributed around 7% to India’s GDP in 2018-19 and its share is expected to grow to around 13% of India’s GDP in 2025. Besides, as per Economic Survey 2017-18 this sector employed around 4 crore people in 2013, which is estimated to be around 5.5 crore in 2020. Clearly, growth of Real Estate Sector has several socio-economic gains to offer. Real Estate is an important sector with strong forward and backward linkages, particularly with the core sectors of the economy, such as steel, cement and other buildings materials. It directly/ indirectly impacts 270 different industries. On 5th October 2021, Hon’ble Prime Minister Shri Narendra Modi while inaugurating Azadi@75 Conference and Expo at Lucknow highlighted the importance of technology.
He said that: “In 21st century India, the most important way to revive cities is the maximum use of technology. The institutions involved in the development of cities and the city planners will have to give top priority to technology in their approach.”
… …. “The huge change in the urban sector in India in the last 6-7 years has been made possible only due to technology.”
Real Estate Resurgence- Post Covid:
Due to COVID-19 global pandemic, along with other sectors, the real estate sector was also affected. Pandemic has paved the way for innovation and change, necessitating a relook at the real estate portfolios by builder and buyers both. The first quarter of FY 2020-21 witnessed low sales/launches. However, the situation has improved significantly thereafter and sales are almost back to pre-Covid levels.
As indicated in various reports and surveys, there are positive signs of demand as market fundamentals continue to remain strong under transparent and accountable regulatory regime of RERA. Various confidence-building measures by Central Govern-ment have also supported the sector when most needed. It has been observed that for residential real estate, the change in buyer preferences such as the need for additional space, demand for amenities, and the sudden realization of owning a house in troubled times cemented the revival. Going ahead, digitization and online presence are the keys for real estate sector. It is evident that property purchase is becoming affordable due to various reasons such as- housing loans being available for interest rates as low as 6.65%, reduction in stamp duty, circle rates, single window system etc.
Sales Trends
Due to various measures taken by the Government as a result of learning from first wave and use of smart lockdown at local level, sales volumes during Q2 2021, though lower in absolute numbers, were still higher as compared to Q2 2020. V-shape recovery of the economy gives confidence that sales figures for Q3 & Q4 of 2021 will be much better.
New Launches Trends:
Similarly, launching of new projects in Q2 2021 was hit due to second wave of COVID-19. Even then, volumes in Q1 & Q2 of 2021 were 20% higher than Q1 & Q2 of 2020 period.
Its expected that result of Q3 will be more positive in comparison to Q2, as our vaccination drive has crossed 181 crore doses, 81.6 Crore have been fully vaccinated. Economic activities are back on track.
Under the visionary leadership of Hon’ble Prime Minister, Central Government has taken various Reforms for the Real Estate Sector in last 6-7 years, including Regulatory, Fiscal & Financial measures. Amongst many such steps taken, the key steps are:
Real Estate (Regulation and Development) Act [RERA]- A Game Changer
In pre-RERA era, Indian Real Estate sector was largely unregulated till the year 2016, which led to many anomalies resulting in various unfair practices, which ultimately affected the homebuyers adversely. Therefore, a need was being felt for long time to regulate the sector in such a way so as to ensure transparency and accountability. RERA marked the beginning of a new era in the Indian real estate sector and a step towards reforming the real estate sector in India, encouraging greater transparency, citizen centricity, and financial discipline.
Transformation in Rental Housing
Model Tenancy Act
The Technical Group on Urban Housing Shortage in its report submitted in the year 2012 estimated urban housing shortage of 187.8 lakh. On the other hand as per Census 2011, nearly 1.1 crore houses were lying vacant in urban areas across country. The existing rent control laws are restricting the growth of rental housing and discourage the owners from renting out their vacant houses due to fear of losing repossession. As a result, stakeholders are led towards black and uncontrolled rental housing markets.
Rental housing is preferred option for different segment of society such as poor migrants, labour, young workers, working professionals and especially students. Acknowledging the importance of requirements of rental housing, the Ministry of Housing and Urban Affairs, Government of India drafted a Model Tenancy Act to balance the interests and rights of both landlords and tenants to promote rental housing.
MTA aims to balance the interests and rights of both the landlord and the tenant in an accountable and transparent manner. MTA prescribes a speedy dispute resolution mechanism. It is hoped that MTA will enable unlocking of vacant premises for rental purposes and create a vibrant and sustainable rental market for housing. After approval of Union Cabinet on 2nd June 2021, MTA has been shared with the States/Union Territories (UTs) for adoption either by legislating a new law or by amending existing rental laws suitably. States of Tamil Nadu, Andhra Pradesh and Uttar Pradesh have already notified Tenancy Acts based on earlier draft of MTA and these States have been requested to align their tenancy laws with the latest version of MTA. Recently, Assam Tenancy Act, 2021 has been enacted in the State of Assam also. MoHUA is in constant touch with all the States and UTs to ensure adoption of MTA across the country by March 2024.
Affordable Rental Housing Complexes (ARHCs)
In the wake of COVID-19 pandemic, aligning to the vision of “AtmaNirbhar Bharat” Ministry has initiated Affordable Rental Housing Complexes (ARHCs) for urban migrants/ poor. A first of its kind in the country this initiative will not only improve the living conditions of urban migrants/ poor from EWS/ LIG categories including labour, urban poor but also obviate the need for staying in slums/ informal settlements/ peri-urban areas etc. ARHCs will play a vital role in wealth creation, development of infrastructure, and provide dignified living with all basic amenities to the urban poor/migrants.This scheme will be implemented through two models- one, by utilizing existing Government funded (Central or State) vacant housing complexes in cities by converting them into ARHCs under Public Private Partnership (PPP) mode or by Public agencies and two, by incentivizing Public/ Private Entities to construct, operate and maintain such complexes on their own available vacant land.
Need for Promotion of Affordable Housing in India
As the Indian middle class expands, the demand for affordable housing is likely to increase even further. Consequently, the potential market size for affordable housing in urban India is forecasted to grow about 1.5 times from an estimated 25 million households in 2010 to 38 million in 2030.With the adoption of the PMAY policy in 2015, the Government of India has targeted to meet a demand of 11.22 million homes. Since the launch of the policy to 31st March 2021, 11.3 million houses have been sanctioned, out of which, 4.8 million have been completed to date.The need for affordable housing in the growing urban sprawls of India has caught the attention of many developers, who are seeking to exploit this growing demand. Over 50% of all India residential launches in the top eight cities in the last 5 years have been in the sub-Rs 50 lakh segment.
Affordable housing refers to housing units that are affordable for those with income below the average household income. In India, affordable housing is provided for low income people, middle income people and economically weaker sections who have considerably low levels of income (urban areas).Affordable housing is a key issue in developing countries like India where majority of the population is not able to buy houses because of the high market price. Affordable housing in rural and urban housing sector need differently tailored policies as land is the main constraint in the urban areas.
As our country is going through an economic transition characterised by demand for better housing facilities, there is a widening gap between the demand for houses and its availability. Both in the urban and rural areas, there is lack of proper housing facilities.
As per the Report of the Technical Group on Estimation of Urban Housing Shortage (2012), there is a huge gap in demand and supply of housing both in the urban and rural areas.
According to the Technical Group Report, two low income categories – economically weaker sections (EWS) and lowincome group (LIG) accounted for 96 per cent of the total housing shortage in India.Given the need for houses and increasing trend of urbanisation, housing facilities in urban areas have to be expanded. With the current progress of urbanisation, around 40% of the country’s population is expected to live in urban areas by 2030.
Recognising the importance of providing housing to the poor sections, Government has initiated a group of measures over the last fifteen years. As a beginning, the National Urban Housing and Habitat Policy (NUHHP), 2007 has set the objective of Affordable Housing for All as a key focus. Later, the government has set 2022 as the target year to realize this objective by making specific initiatives for the promotion of housing. Two components under Pradhan Mantri Awas Yojana – the PMAY (Urban) and PMAY (Rural) were launched by the Government for achieving housing for all by 2022.
Government measures to support Affordable Housing
There are several government initiatives some of them working for helping poor people to build new houses. Many of the supporting measures were launched in the past budgets. In the Union Budget 2017-18 the government:
1. Granted infrastructure status to affordable housingInfrastructural status will help affordable housing developers to avail funds from different channels, like external commercial borrowings (ECB), foreign venture capital investors (FVCI) and foreign portfolio investors (FPIs).
2. Increased the time for project completion to affordable housing promoters from earlier three years to five years;
3. Provided one-year time to developers to pay tax on notional rental income on completed but unsold units;
4. Reduced the tenure for longterm capital gains for affordable housing from three to two years;
5. Revised the qualifying criteria for affordable housing from saleable area to the carpet area;
6. Enhanced the refinancing facility by National Housing Bank (NHB) for individual loans for the affordable housing segment.
As per the RBI incentive measures, the cost of affordable residential property should be less than Rs. 65 lakh in metro cities and Rs. 50 lakh in nonmetros.
The central bank’s definition is based on the loans given by banks to people for building a house and buying flats.
The RBI also gives loans to affordable housing under priority sector lending.
RBI allowed banks to issue long term bonds (of minimum 7 years maturity) to finance loans to affordable housing.
PROGRAMMATIC MEASURES
Pradhan Mantri Awas Yojana- Urban: Ministry of Housing and Urban Affairs is implementing the Pradhan Mantri Awas Yojana- Urban (PMAY-U) to fulfil the vision of Hon’ble Prime Minister- ‘Housing for All’ by 2022. PMAY-U adopts a cafeteria approach where a beneficiary can choose one out of the four verticals of the Mission: Beneficiary Led Construction (BLC), Affordable Housing in Partnership (AHP), Credit Linked Subsidy Scheme (CLSS) and In-situ Slum Redevelopment (ISSR).
The Mission has registered outstanding success as evident from the fact that about 1.14 crore houses have been sanctioned for its beneficiaries, out of which around 89 lakh houses are grounded and around 52 lakh have been completed.
The houses sanctioned under the Mission involve an investment of Rs. 7.38 lakh crore with Central Assistance of Rs. 1.82 lakh crore. As of now, over Rs. 1.06 lakh crore of Central Assistance has already been released. Infusion of such a large amount of funding has propelled the economy. The current investment made by the Government in the sector, has created almost an estimated 705 crore person days of employment translating into around 252 lakh jobs and led to consumption of 380 Lakh MT of cement and 86 Lakh MT of steel.
Sustainable Development Goals (SDGs): PMAY-U addresses the SDGs for Reduction for Poverty (Goal 1), Women Empowerment for Gender Equality (Goal 5), Ensuring Clean Water and Sanitation (Goal 6), Access to basic services, energy, housing for making Sustainable Cities and Communities (Goal 11) and investment in low carbon development through Technology Sub-Mission for Climate Action (Goal 13).
In Union Budget 2021-22, to boost the Real Estate Sector, various measures had been taken, the key measures were:
· Extension of Income Tax Exemption for Affordable Housing Project: In line with Hon’ble Prime Minister’s vision of “Housing for All”, the benefit of 100% exemption from income tax on profits earned from affordable housing projects under Section 80-IBA of the Income Tax Act has been extended by another year i.e.upto 31st March, 2022.
· Extension of additional deduction of Rs. 1.5 Lakh on Home Loan Interest: In order to provide impetus to affordable housing, the benefits of additional deduction of Rs. 1.5 Lakh for the homebuyers interest paid on home loan (over and above Rs. 2 Lakh under section 24 of Income Tax Act) has been extended for another year i.e. upto 31st March, 2022 under Section 80EEA of Income Tax Act.
· To promote REITs (Real Estate Investment Trusts), Tax Deduction at Source (TDS) for dividend payments to holders of REITs has been exempted.
Various policy initiatives taken by Central Government to boost the Real Estate Sector:
· Reduction in GST from 8% to 1% (with no input tax credit) for Affordable housing and for other housing projects from 12% to 5% (with no input tax credit).
· Affordable Housing Fund established in National Housing Bank in 2018, with backlog of priority sector lending to reduce interest burden on Affordable Housing.
· National Urban Housing Fund: EBR of Rs. 60,000 Cr approved in February 2018, wherein Rs. 53,000 Cr has already been drawn.
· Benefits under Section 80 IBA of IT Act extended for one more year, till 31st March 2022. Also, size limit of Affordable Housing Unit for section 80-IBA has been increased from 30 to 60 sq mtr in Metropolitan regions and 60 to 90 sq mtr in nonmetropolitan regions for affordable housing unit valued upto Rs. 45 lakh.
· Infrastructure status has been accorded to Affordable Housing by including it in Harmonised List of Infrastructure.
· 100% FDI allowed under automatic route in construction projects.
Key Measures under ‘Atmanirbhar Bharat’ campaign during Covid-19 Pandemic:
· Advisory issued by Central Government to all States/UTs for granting extension to RERA registered projects.
· Lower Repo Rate and Reverse Repo Rate: To increase liquidity in the market, RBI lowered the repo rate considerably to 4% and Reverse Repo Rate has been reduced to 3.35%. This step encouraged the banks to deploy surplus funds in investments and loans in productive sectors of the economy.
· The issue of liquidity being faced by NBFCs, HFCs and MFIs is largely being addressed by infusion of Rs. 75,000 crore.
· Rs. 18,000 Crore Additional outlay of for PMAY (U): A sum of Rs 18,000 Crore has been provided for PMAYUrban over and above Rs. 8,000 Cr already allocated. This is helping to ground 12 Lakh houses and complete 18 Lakh houses, create additional 78 Lakh jobs and improve production and sale of steel and cement, resulting in multiplier effect on economy.
· In order to give relief to homebuyers, developers and other borrowers, RBI permitted lending institutions to grant total moratorium of 6 (3+3) months on payment of current dues falling between 1st March, 2020 to 31st August, 2020.
· In Union Budget 2022-23, reiterating the commitment towards providing Housing for All, Government allocated Rs. 48,000 crore for affordable housing.
· This financial commitment will not only provide shelter but also add dignity in the lives of 80 lakh beneficiary households, benefitting around 4 crore citizens of the country. Out of these 80 lakh, around 27 lakh houses will be in the urban areas of the country.
Special Fund to revive the Stalled Projects:
· Alternate Investment Fund (AIF)- Special Window for Affordable and Mid-Income Housing Fund (SWAMIH) Investment Fund was established to provide last mile funding for projects that are net-worth positive and registered under RERA, including those projects that have been declared as NonPerforming Assets (NPAs) or are pending proceedings before the National Company Law Tribunal (NCLT) under Insolvency and Bankruptcy Code (IBC).
· As per last update (as on 14th February, 2022), 249 deals aggregating to Rs. 23,778 Crore have been approved and this will benefit more than 1,46,946 homebuyers and unlock projects worth Rs. 66,163 Crore.
With all these reformative steps, it is hoped that resurgence of Real Estate will lead to overall and cascading impact on economy.
(The author is Director, Ministry of Housing and Urban Affairs, Government of India. She can be reached at sameera.saurabh@gmail. com)
Views expressed are personal