SCOPE OF THE STUDY:

AFFORDABLE HOMES: NEED OF THE HOUR

India faces the huge task of providing affordable homes to an estimated 38 million by 2030.It can be done
with some pragmatic measures, writes V Nagarajan

With the urban awakening and the resultant surge in home prices, affordability is a major issue facing the
masses. India faces the mammoth task of providing affordable homes to an estimated 38 million by 2030
who will not be able to afford a market-priced house, says a survey by McKinsey Global Institute
(MGI).No other country has provided affordable housing on this scale. Nevertheless, MGI's analysis
suggests that India can bridge the gap between price and affordability.

A detailed analysis by MGI shows that a combination of higher floor area ratio (FAR) of up to one on land,
an infrastructure grant to the municipal body, and interest subsidies can together create a surge in affordable
housing stock. The report says 30 percent of all affordable housing should be available on rent. Other
potentially useful measures could include a favourable tax regime and a national mortgage guarantee fund. If
India adopts a broad swath of such measures, it could significantly step up the building of affordable housing
as much as 10 times to two million units a year.

Globally, housing is considered affordable if a basic housing unit that provides a minimum amount of
personal space and basic amenities is accessible at 20 to 40 percent of gross monthly household income for
either rent or mortgage. The government has defined basic housing units as being between 250 and 275 sqft
.In 2008, the task force set up by the government suggested that affordable housing for low income groups -
the segment with an annual income of less than Rs 90,000 - should be 300 to 600 sqft in area and be
accessible at 30 percent of gross monthly household income.

A number of leading developers have ventured into the affordable housing segment by floating subsidiaries
across the country. Several developers have already launched and built projects successfully in the segment.
Realising the immense potential of a surge in demand for affordable housing where volume can ensure
profitable margins, a number of leading developers and private equity funds are keen to invest in huge tracts
of land to plunge into the affordable housing segment.

The low cost housing (having a ticket size of less than Rs 10 lacs) has not so far been fully embraced at a
large scale by the private estate development players in India, says a survey by Jones Lang LaSalle.
However, due to the large shortfall of housing units in this particular segment, the demand for housing units
by the economically weaker sections remains high and the segment is critical for increasing home ownership
in India.

Property developers are aiming to reduce costs through design standardisation, subcontracting construction
panels and extensive mechanisation. A few state governments have also announced availability of cement at
reduced rates through fair price shops if the size of the apartment does not exceed the prescribed criteria.
Vendors manufacturing construction panels with global technology are flush with orders for affordable
housing projects. As the lead time involved is comparatively lesser with standardisation and extensive
mechanisation, more leading developers are closely watching the developments in affordable housing before
taking a plunge with investments in select cities across the country.

Housing Shortage in Urban India at 24.71 Million Dwelling Units

The Ministry of Housing and Urban Poverty Alleviation has said in a press release that a Technical
Group constituted by the Ministry in 2006 to assess the urban housing shortage in India has estimated that at
the end of the 10th Five Year Plan (2007-08) the total housing shortage in the country stands at 24.71
million dwelling units.

Out of this 21.78 million or 88.14% pertains to Economically Weaker Sections (EWS) including the Below
Poverty Line (BPL) households. State-wise details indicating breakup of housing shortage of 24.71 million
is given below.

No Homes for the Poor

The Government of India is currently implementing various  new schemes for providing affordable housing
to India’s urban poor. A new scheme – Interest Subsidy Scheme for Housing the Urban Poor (ISHUP) has
been launched for providing interest subsidy on housing urban poor to make the housing affordable and
within the repaying capacity of Economically Weaker Sections (EWS)/ Low Income Group (LIG).

The scheme encourages poor sections to avail of loan facilities through Commercial Banks/Housing Finance
Companies for the purposes of construction/acquisition of houses and avail 5% subsidy in interest payment
for loans upto Rs. 1 lakh.
Another scheme called the Affordable Housing in Partnership launched in 2009 with an outlay of Rs. 5000
crores, seeks construction of 1 million houses for EWS, LIG, Middle Income Group (MIG) with at least 25%
for EWS Category.

Furthermore, the Government has announced a new scheme called Rajiv Awas Yojana (RAY) for providing
support to States that are willing to provide property rights to slum dwellers. The Government Of India
hopes to make India slum free through the implementation of RAY.
(Urban Housing Shortage at the end of the 10th Five Year Plan (dwelling units in million)

State/UTs Housing Shortage

Andhra Pradesh 1.95
Arunachal Pradesh 0.02
Assam 0.31
Bihar 0.59
Chhatisgarh 0.36
Goa 0.07
Gujarat 1.66
Haryana 0.52
Himachal Pradesh 0.06
Jammu & Kashmir 0.18
Jharkhand 0.47
Karnataka 1.63
Kerala 0.76
Madhya Pradesh 1.29
Maharashtra 3.72
Manipur 0.05
Meghalaya 0.04
Mizoram 0.04
Nagaland 0.03
Orissa 0.50
Punjab 0.69
Rajasthan 1.00
Sikkim 0.01
Tamil Nadu 2.82
Tripura 0.06
Uttaranchal 0.18
Uttar Pradesh 2.38
West Bengal 2.04
A&N Islands 0.01
Chandigarh 0.08
Dadra & Nagar Haveli 0.01
Daman & Diu 0.01
Delhi 1.13
Lakshadweep 0.00
Pondicherry 0.06
All India 24.71

Budget Proposal Boosting Affordable Housing Projects

MUMBAI (Reuters) - The budget proposals for 2011/12 held out hope for real estate firms focused on
affordable housing, boosting sector stocks, but analysts were unsure if these would translate into gains for
the broader sector.
In his Budget speech, the finance minister on Monday proposed raising the limit on housing loans eligible
for a 1 percent subsidy in interest rates, and widened the scope for housing under "priority-sector lending"
for banks, making interest rates cheaper on these.

Shares in Housing Development Infrastructure Ltd, Godrej Properties, DB Realty and Parsvnanth
Developers closed 2-5 percent higher on hopes of higher demand in the affordable segment. The sectoral
index rose 1.3 percent.

"Raising the priority home loan limit is good news for the low income group segment, but will do nothing to
ease the pain in the metropolitan cities where prices and demand for affordable housing is highest," said
Anuj Puri, chairman, Jones Lang LaSalle India.

Property prices in major Indian cities like Mumbai and Delhi have more than doubled over the past 18
months, spurred by rising incomes and a firm stock market, but sales volumes are down by a third from a
year ago as high prices and rising borrowing costs deter buyers.

The Reserve Bank of India (RBI) has raised interest rates seven times since March 2010 to curb stubbornly
high inflation, further hurting demand.

"(This) is definitely a giant leap so as to boost the demand for affordable housing," Parsvnath Developers'
Chairman Pradeep Jain said.

"This will certainly help the lower income group of buyers who plan to buy a home through bank loans."

The Budget proposed raising 1 percent interest subvention for housing loans of 1.5 million rupees from 1
million rupees now, for homes valued at 2.5 million rupees from 2 million rupees now.

It also raised priority loan limit to 2.5 million rupees from 2 million rupees.

"During the last one year the prices of residential real estate has increased by 10-20 percent across several
cities. This enhanced limit for interest subvention will ensure continued benefit to the buyers of this
particular segment," Pranab Datta, Vice Chairman and Managing Director of Knight Frank India said.

However, the industry was far from happy.

"The housing industry would have been delighted if the finance minister had extended infrastructure status to
the housing sector," Omaxe Ltd Chairman and Managing Director Rohtas Goel said.

"We expected the government to announce special schemes for affordable housing giving relief. We also
expected relief and clarity through (tax) amendments for 80 IB (Housing) and 80 IA (IT Park)," Jain said
Affordable housing project scope:
The preference regarding unit sizes was found to be positively correlated with income, with higher income
households desiring larger houses. Amongst the Rs.3-10 lakh income group, the unit size preferences
among all the cities range from 550-1200 sq.ft. built up area. Given the apartment size preference across
income groups, most of the prime residential locations in the cities covered are unaffordable for the Rs.3-10
lakh income group. However, if consumers in this income group are willing to compromise on their
preferred unit sizes, their options in terms of housing locations increase. Overall, our research revealed that
Mumbai, NCR and Bengaluru are the most unaffordable locations, while Kolkata and Pune offer the
maximum number of affordable locations to middle income consumers.
Table 51
Market Size of Housing Requirement by 2011

Rs.3,300
The housing requirement for the Rs.3-10 lakh income group across the 7 cities
(Mumbai,Pune,NCR,Bengluru,Chennai,Hyderabad,Kolkatta) is approximately 2.06 million housing
units by 2011, which assuming an average household size of 800 sq.ft. translates to a requirement of 1,650
million sq.ft. of residential space. Assuming a price of Rs.2,000/sq.ft., which is par for the demand being
catered to, this total space requirement translates to a market size of approximately Rs.3,300 billion, or
USD 66 billion. Of this total, the market size constituted by the Rs.3-5 lakh income group is expected to be
Rs.2,675 billion (USD 53 billion), while the market size contributed by the Rs.5-10 lakh income group is
expected to be Rs.625 billion (USD 13 billion). The NCR accounts for 26%, the largest share, of this
requirement. It is evident that the extent to which the total housing requirement as of 2011 is catered to will
depend largely on the extent to which the requirements and specifications of the Rs.3-5 lakh income group
are satiated.