Affordable Homes: How Govt Can Make Them Feasible For Developers

With its 'Housing for All by 2022' scheme, the Prime Minister Narendra Modi-led government at the Centre plans to build affordable homes, which would provide residence to the country's low-income groups (LIG) and economically weaker sections (EWS). While the scheme is widely appreciated, not many developers are coming forward to participate in this, especially in urban areas.

By a standard definition, an affordable home is a unit that costs under Rs 50 lakh. However, the definition varies from city to city due to difference in purchase power parity and costs of living. Most of these fall in the Rs 25-50 lakh range, and can be afforded by the middle classes. To provide homes to LIGs and EWSs, prices will have to be reduced further.

The vision to build affordable homes could revive the real estate sector, which has seen a slow growth in past two years. The increasing demand for affordable urban homes can turn into an opportunity of over $10 billion for real estate developers, a number which few can ignore. PropGuide looks at why despite such an opportunity, developers are not very keen:

The red tape

Some private developers have been trying to transform Mumbai's Dharavi area, known as Asia's largest slum, with homes for slum dwellers as well as other commercial and residential establishments. That project has been stuck at various levels of bureaucracy. A slow government approval system has led to developers shying away from such initiatives.

Rigid rules

Many developers point out that the government is not doing much in terms of relaxing floor area ratio (FAR) rules, making real estate an expensive game. Floor area ratio is the ratio of a building's total floor area to the size of the piece of land upon which it is built. Developers have been demanding higher FAR for homes meant for LIG and EWS.

Land support

When affordable homes are constructed on a government-owned land, prices of the homes could be low. To encourage private developers to undertake such projects, the government needs to provide cheaper land. However, this may not be easy.

“There is a disconnect between Central and state governments on affordable housing, as land is a state subject,” says a real estate report by Kotak Institutional Equities.

All stakeholders will have to be on the same footing to ensure that affordable housing becomes a reality, and that requires a major policy change.

Tax rebates

At present, real estate developers pay heavy amounts as taxes. Since very few homes being sold to LIG and EWS can expect large advances at the planning stage, they seek loans at lower interest rates from banks to execute these projects.

A look at what developers can do to make affordable homes a reality:

New models

By adopting innovative models, developers can make affordable homes a reality. Among the models for such housing that are popular in the West is the micro homes model, where the size of a unit ranges between 100 and 500 sq ft. These units can have common bathrooms, kitchens and dining areas either for the entire building or one such utility room in each floor. In the US, many buildings have common laundry rooms for the entire building.

Many chawls in India already follow this model with common bathrooms and needs to be extended to other utilities to free up space. This model can be popular in space-starved cities such as Mumbai where many people insist on living close to their work places. Many large cities in the US have semi-rental accommodation like boarding houses which also provide a residential option for migrant labour.

There are also community buildings possible where a number of people from a community come together and decide the specifications necessary for their homes. This is important for country like India with specific eating and living habits.

New building technologies

Indian real estate players are also yet to adapt new-age technologies of building homes. Using pre-fab technology and material for mid-income housing could be useful as such constructions do not require much customisation. This method, which evolved in the UK to quickly house military personnel during the World War-II, can help cuts costs and time. The technology is scalable and was designed to build a large number of units, apt for resettlement of slums.