The recently released operational guidelines on Affordable Rental Housing Complexes (ARHC) is a step forward towards the mission of Housing for All, even if it fulfils part of it, but high cost of land in urban areas remains a challenge, says a new report by Savills India.
If implemented via one of the two models, rental housing availability can begin in less than two years, the research report, titled 'Rental Housing in India: A Study of the Upcoming Wave’, said.
The guidelines have laid a clear roadmap for investors looking at stable long-term returns. ARHCs can match the risk-return profiles of offshore wealth, insurance and sovereign funds, and give them a strong foothold in the large residential market of the country. ARHCs also open the prospects of having a residential real estate investment trust (REIT) in the country, it said.
It noted that rapid urbanisation, migration to cities and the rising cost of home ownership are the three key demand drivers for affordable rental housing in India. As per the 2011 census, urban households on rent stood at over 21 million, which is around 20 percent of the total number of houses in urban India. Almost 80 percent of the rental housing market in the country is concentrated in urban centres.
The operational guidelines for ARHCs, were released in July by the Ministry of Housing and Urban Affairs. Two models have been laid down so far. The first model envisages the operation of vacant government funded houses as ARHCs by a concessionaire for 25 years, the second model provides for public and private entities to create ARHCs on their own vacant lands.
Some challenges still remain. These include high land costs in urban areas that may hinder private participation if not carved out carefully and new social and security set-ups in proximity will require municipal and development authority’s active role, the research report said.
Large public and private sector organisations including HMT Bearings (14.48 acre in Hyderabad), Hindustan Antibiotics 62 acres in Pune), HEC (60 acres in Ranchi), IDP in Gurugram, MTNL, Air India, and several others, could lead the way in demonstrating the efficacy of the model.
The report noted that while rental housing in India is in its infancy, there is a tremendous upside potential for the market participants to explore. Much like REITs, India can take a leaf out of the immense learning experience worldwide. Singapore, Hong Kong, Germany and UK have mature rental housing markets.
In due course, the Indian market should explore some of the concepts in play in these countries, such as 99-year lease models, Greater private and community ownership of assets, and negative gearing, which is a concept in use in Australia.
Why is affordable rental housing required?Demand is likely to move increasingly towards renting than buying – as has been regularly manifested in India. The stumbling block, however, has been the high rental values, which remain out of bounds for the largest segment of India’s urban population.
"By 2030, India may well be the most populous nation, with urbanisation touching 40 percent from the currently estimated 34 percent. Cities have not grown significantly, and the pace of population addition beats the former by a significant margin," the report said.
Migration is another factor. It is evident that the cities are not merely growing, but they are growing at an increasingly rapid pace. Hyderabad, for example, has grown by nearly two-and-a-half times between the previous two censuses. Bengaluru and Chennai have similarly more than doubled in this time. Larger cities like Mumbai and Delhi have also added populations at significant pace.
Rising cost of ownership. The most interesting, if worrying, part of the urbanisation puzzle lies in the movement of incomes over a long period as compared to house prices. Whilst a correction has been in the making, prices still remain almost 8-9 times the sweet spot (which is about 5 times the annual income).
It is worth noting that the acceleration on the policy came about as the nationwide lockdown due to COVID-19 pandemic steeply aggravated living conditions of the urban poor. These were often the migrant labour, whose economic conditions slid rapidly during the lockdown, spanning almost three months. At the end of July, the central government’s announcement of operational guidelines for ARHCs has created the necessary traction for rental housing creation.
“Rental housing is another market that is yet to be tapped, especially in the urban areas, which have seen prices of homes go beyond the cusp of most city dwellers. The recently released operational guidelines on ARHCsare a long-awaited giant leap in the right direction,” said Anurag Mathur, CEO, Savills India.
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