A home is a treasured asset. Its importance has increased after COVID-19 pandemic as people have realised the comfort and security it provides us. A few decades after Independence, lack of proper planning and policies, especially the absence of a national housing policy together with massive shortage of funds proved to be a stumbling block in providing housing to all.
An organised and structured policy initiative was taken in the post-liberalisation era of 1990s when a framework of National Housing Bank (NHB) and Housing Urban Development Corporation (HUDCO) evolved and a mega urban renewal mission (JNNURM) was launched. As an enabling measure, a law for 100 percent FDI in real estate/construction was brought in to meet the massive funding needs of the capital intensive housing sector.
While these were welcome initiatives, they did not lead to desired results, simply because the FDI policy had gaps and an incentivised policy to ensure greater participation of private developers for construction did not exist. Drawing from these policy drawbacks, the Modi government initiated a series of reforms and policy measures to provide a fillip to housing. It liberalised the FDI law to attract the much-needed foreign funding in housing. Today, despite two waves of COVID-19, a record 2.7 billion of foreign investment has flown into the real estate in H1 2021, amounting to 53 percent of total assets created in 2020. The construction and infra development sectors respectively received FDI inflows of $25.93 billion and $26.08 billion between 2010 and H1 2021.
The far- reaching reforms of demonetisation and Benami Property Act were undertaken to clean up the opaque real estate and housing market by stamping out the circulation of unaccounted /black money. The promulgation of landmark Real Estate Regulation Act (RERA) 2016 helped in regulating the largely unorganised property market.
Prior to RERA, unscrupulous private developers resorted to pre-launching housing projects without any licensing and regulatory approvals. This resulted in artificial hike in prices, depriving the common man of shelter as home prices were beyond reach. The urban development bodies joined in too. Instead of performing their primary role of providing affordable housing to masses, they resorted to large scale profiteering by auctioning land to private developers. This led to rampant and unchecked increase in property prices, making real estate unaffordable for homebuyers. RERA helped bring an end to pre-launches and put a check on rising prices.
The Pradhan Mantri Awas Yojana (PMAY) launched by the Modi government to attain its flagship mission of 'Housing for All', restricted housing-related incentives to first time homebuyers. This effectively helped in checking manipulation by investors/speculators, thereby keeping home prices under check.
Realizing that cheaper homes for the masses was a key to successfully put an end to homelessness, the central government came up with supply side and demand side policy initiatives to promote low cost housing and boost affordability for homebuyers. The states also adopted affordable housing policies. On the demand side, under PMAY, an interest subsidy incentive of up to Rs 2.67 lakh was provided to first time homebuyers of affordable and mid-segment homes priced upto Rs 45 lakh.
Affordable housing buyers were also given income tax incentives amounting to Rs 5 lakh. These include tax deduction under section 24 of IT Act for home loan interest paid up to Rs 2 lakh in a year, Rs 1.5 lakh yearly deduction against principal repayment under Section 80C and additional deduction of up to Rs 1.5 lakh under section 80EEA for interest paid on affordable housing. By introducing the MCLR system, RBI also ensured faster transmission of interest rate cuts to home buyers.
The home loan revolution ushered in by RBI's policies triggered competition among PSU, private banks and financial institutions including HFCs, resulting in an all time low interest rate between 6-7%. Home loan disbursals touched Rs 15,647 crore in pre-corona period, though it dropped to Rs 12,731 crore in 2020-2021. All this together with stagnant home prices due to real estate regulation, have significantly contributed to home affordability. By bringing in GST, the biggest tax reform of independent India, the government successfully brought down the transaction cost of home. On affordable homes, there is just 1% of GST while ready homes come with 0% GST.
The income tax incentive to developers in the form of 100% tax deduction for affordable housing projects under section 801BA of IT Act, has not only helped boost supply of affordable housing but also made it much more cost effective.
The Knight Frank Affordability Index 2020, just bears testimony to it. The Affordability Index tracks the EMI to income ratio of an average household. For Mumbai, the most expensive housing market, the affordability index has improved from a high of 93% in 2010 to 61% in 2020. Ahmedabad is the most affordable market with an affordability index of 24% followed by Pune and Chennai at 26% each. The rising affordability is clearly evident as today under the PMAY and under affordable housing policy of state governments, 2B/R and 3B/R lifestyle homes are respectively available between Rs 5-25 lakh and Rs 25-35 lakh. For the benefit of home buyers , there is an all inclusive price of Rs 4,000 ps under Haryana government's affordable housing policy which has not been raised for the last 5-6 years.
However, despite all these initiatives, the critical 'Housing for All' mission , aiming at providing shelter to every citizen by 2022 lags behind its target, with the Corona pandemic also significantly contributing to it. Initially, the government set a target of 50 million houses by 2022 including 30 million rural and 20 million urban housing units. It was later revised with a near term target of 21.4 million houses under PMAY-Rural and 11.2 million houses under PMAY. But under PMAY-Urban, against the target of 11.2 million houses, only 43% (4.8 million) houses have been completed. Under PMAY-Rural, against the target of 21.4 million houses, 14.16 million houses have been completed. As such meeting the target of Housing for All by 2022, certainly looks an uphill task.
It is a big paradox of housing in India that amidst massive home shortage, 11.09 million houses remain vacant/locked. On the other hand, people from economically weaker sections and lower income groups are unable to afford decent, cost-effective houses. Because of poor income and inability to get a home loan due to weak credit worthiness, they need reasonably decent and cost effective rental housing. But the risk of property litigation and low rental yield are a deterrent which have made rental market unattractive.
Fully realizing the need for a healthy rental housing market to end housing shortage and to achieve the goal of 'Housing for All', the government has introduced the Model tenancy Act 2021, to unlock more empty houses by streamlining dispute resolution between landlords and tenants. It has also come up with a policy initiative of Affordable Rental Housing Complexes (ARHCs) under PMAY-Urban for urban poor and migrant workers. Proposals from public/private entities for 80,000 units have been received and over 2,500 units under ARHCs have already been made operational.
Going forward, institutionalised rental housing and PPP mechanism to build rental housing for the urban poor will play a significant role in achieving the goal of providing shelter to every Indian.
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