India has been witnessing rapid urbanization since the past decade and a half. As per the 2011 Census, 30% of India’s population lived in urban areas, which is expected to reach 40% by 2030. People from India’s rural areas, home to 833 million people, are migrating to urban centers as they prefer to stay within the city where there is access to work opportunities and other social and physical infrastructure. This rapid migration coupled with an increase in income levels and the changing demographic leads to an ever-increasing demand for housing in the country’s urban areas.
The Federation of Indian Chambers of Commerce (FICCI) estimates that by 2050, the country’s cities would witness a net increase of 900 mn people. Furthermore, from 2012-2050, the pace of urbanization is likely to increase at a CAGR of 2.1% -double than that of China.
Urban Housing shortage exists due to a big gap between demand and availability of housing in the cities, both in terms of number and quality. As per the technical study conducted by MHUPA (Ministry of Housing and Urban Poverty Alleviation), the urban housing shortage in India is currently estimated at ~19 mn. This gap is expected to further widen to an estimated 38 million homes by 2030 largely due to the rising population and increased urbanization.
The Indian housing market continues to struggle with supply-side management for housing. Scarcity of developed and encumbrance-free urban land, increased cost of construction, absence of viable rental market and master-plan restraints have lowered the potential growth of the formal housing market in India.
Affordability can be achieved by adjusting factors like land cost, construction cost and financial support. Implementation is the key here given that there is substantial scope for profit to be made in these projects.
Land availability: There is a growing need to revisit previously conceived government regulations which have created an artificial land shortage and pushed up land prices in India, especially in urban areas. Without Government support, the limited availability of land in urban areas makes it unviable for developers to take up housing projects. Further, the substantial non-marketable urban lands used by Government-owned entities such as railways can be used more efficiently. A number of these land parcels are present in centrally located urban areas.
Single Window Clearance for Housing Projects: Developers often face several hurdles on the regulatory approvals front, after having invested substantial equity towards land acquisition. Developers have to coordinate with multiple government and municipal departments which translates to a substantial delay in commencing construction of the project and effectively causing cost escalations. Better co-ordination among the multiple authorities in dealing with various permissions/approvals or measures like single window clearances and reduction in time consumed for providing clearances can encourage real estate developers to invest in housing projects and thereby address the demand of urban housing.
Financial support: Real estate developers are also grappling with funding challenges particularly at the land acquisition stage. Financing support from Private Equity and Alternative investment funds to real estate developers towards early-stage investments such as land acquisition and approvals will definitely improve the supply side situation of homes in urban centres. Initiatives such as single window clearance for approvals and a more predictable timeline for receipt of such approvals from government agencies will definitely encourage both private equity and alternative funds to provide such financing.
Regulatory intervention: The Government has also intervened at multiple levels to increase affordability across various segments of society. A few important initiatives are –
 Pradhan Mantri Awas Yojana (PMAY) with its credit linked subsidy scheme (CLSS) was introduced to provide its beneficiaries an interest subsidy to avail loans to purchase or build a house. This scheme is primarily targeted towards the EWS and LIG segment wherein by providing an interest subsidy of 6.5% the effective interest rate for home loan works to be 5%-6% p.a. (assuming home loan of 10-12 lacs)
 As per latest data available in the PMAY records, ~12.3 mn houses have been sanctioned under the scheme, of which ~6.3 mn houses have been completed with total investment of INR 8.3 lakh Cr.
 Goods and Service Tax of 1% was provided on unit-to-unit basis. It does not define affordable projects. Any unit in a project (per Income Tax definition) with agreement value less than or equal to 45 lacs. This tax saving of 4% on agreement value is substantial
 Income Tax benefit of deduction worth additional INR 1.5 lacs under section 80 EEA for housing falling under criteria for affordable segment. This further reduces the effective interest rate
 Government has provided income tax benefit to developers under section 80IBA for development of affordable segment projects. The deduction provided is 100% of profits from such projects
 ECBs are permitted in affordable housing projects as per RBI’s approval
The above incentives have provided a strong base for increasing housing affordability for buyers and making the projects more viable for developers. Though the PMAY + CLSS scheme provides incentive to EWS / LIG segment, the government should provide push to MIG segment as well which currently gets subsidy of 3% only which yields an effective interest rate of 8% p.a. only (assuming home loan of 45-50 lacs). This, coupled with extending tax incentives to MIG segment shall improve the overall housing affordability across the landscape.


Visit to know more: https://www.rprealtyplus.com/interviews/rising-urban-housing-shortage-in-india-107879.html

About WSB Real Estate Partners Pvt Ltd:
WSB’s Management team has an average of 20+ years of professional experience, including a tenure of over 13 years working together, where they helped build Walton Street Capital’s India debt business since inception, and are ably supported by a deep bench of talented professionals each with a diverse industry and functional experience.

The overall team brings on board a cumulative experience of 100+ years advising, managing real estate investments in India across multiple asset classes. With strong stakeholder relationships, institutional mindset to investing and hands-on approach to asset management, the team is well equipped to manage and grow the investment portfolio efficiently.