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Re-imagining India’s Informal Housing Challenge

Monday, February 20, 2017
By A. Shankar

National Director & Head of Operations, Strategic Consulting, JLL India

The year 2016 turned out to be a year of transition, particularly for real estate – a sector that has been directly or indirectly affected or altered by most policy reforms introduced by the state or central governments. Some of these policy changes might seem disadvantageous in the short run; however, they will render the entire system more mature, organized and transparent.

The recently-announced Union Budget 2017-18 has yet again emphasized the importance of housing, and has accorded infrastructure status to this sector. It is important to attract the attention of all stakeholders to this sector, particularly those who influence supply – developers and banks. Given the benefits offered in the budget, the clearer definition of affordable housing in terms of area, relaxation of construction timelines for affordable housing projects, and tax incentives, it is evident that India is moving towards significantly reducing its share of homeless people.

The traditional factors influencing housing demand keep fluctuating due to policy interventions; yet, consumers keep investing in real estate. This is evidenced by the fact that housing sales velocity has not dropped significantly anywhere in India due the various policy reforms. Moreover, today’s market primarily consists of buyers (as much as 80%) who depend on loans for financing their housing needs.

Of all the policy initiatives, the Housing for All (Pradhan Mantri Awas Yojana) and the Smart Cities Mission are two major flagship policies that have affected the demand and supply trends of residential real estate, and have a huge impact on addressing the issues of informal housing / housing for the urban poor. The recent Real Estate Regulatory Act does not concentrate on incentives to promote informal housing, though it increases transparency in the formal residential market.

Affordable housing shortage continues to be a major concern in the country today, and can be correlated with the rate of urbanization taking place. According to the Census of India 2011, India’s urban population increased to 377 million, reflecting the rise in urbanization from 27.8% to 31.2% between 2001 and 2011. This rate of urbanization has led to many issues such as land shortage, housing shortfall, severe pressure on available infrastructure, transportation deficits and stress on basic amenities like water, sanitation and healthcare.

The Housing for All and Smart Cities missions, through convergence, use the benefits given to each other and also compensate for shortcomings by leveraging their advantages. While Housing for All concentrates on funding and incentives for developers and buyers, the Smart Cities mission focuses on leveraging land availability, implementation under single entity SPVs (Special Purpose Vehicles), and strengthening basic infrastructure facilities.

As part of the Smart City initiatives, some Indian cities have planned convergence with the Housing for All scheme to address the informal housing sector. Some of these initiatives would include housing for economically weaker sections or affordable housing, slum redevelopment, rental housing, working women’s hostels, shelters for the homeless, etc. as part of the Smart City plan. All these would be developed through the PPP model with the involvement of private developers. This has been successfully adopted in Bhubaneshwar Smart City, which ranked number 1 in the Smart Cities Challenge competition by the Ministry of Urban Development, Government of India and JLL India, which was the consultant for preparation of the smart city proposal for Bhubaneshwar.

The convergence of schemes such as the Housing for All and Smart Cities missions will be most appropriate to achieve optimal results with proper implementation. Isolated policies will yield much lower results. Overall, the goals for urban development in India should be to create sustainable, inclusive and smart urban centers with good housing standards and participation of the private sector.

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