Housing alongwith shelter and food is recognised as one of the essentials for overall human development. K G Krishnamurthy, HDFC’s General Manager - Technical Services discusses with Jayashree Jakhade of FE-Thinktank. Excerpts:
Why should housing be given a push?
Today for India to achieve overall balanced economic development it is essential to boost the housing activity. And the government is rightly doing so. Giving a push to housing will not only help India achieve a higher GDP growth, it will also help enhance the standard of living of the masses which in turn will help improve labour productivity.
What initiatives has the government taken in the housing sector?
The government is recognising the fact that housing is an important economic activity and serves multifarious roles. It not only promoting growth but being a labour-intensive industry it creates employment opportunities as well.
Over the years, the government has rightly in every budget given a boost to housing so as to make housing more affordable for the common man. Not only monetary benefits but fiscal concessions have also been announced in the past which has substantially helped in reducing the overall housing shortage in the country.
The government had fixed a target of building 10 million houses per year. But, it has been falling short of its set target over the years. It has set upon itself the task of providing one house per person which in the present context seems slightly impossible. With a growing population and rising urbanisation and government’s attempts todecongest the metros to reduce pollution levels will only make the task more difficult.
What has the government done so far to boost housing?
The government has increased the slab from Rs 75,000 to Rs 1 lakh in the current budget. But the housing authorities expected it to double which would have been in line with the rising rate of inflation and made housing access more feasible and real. The biggest boost to housing will come from the government announcing a 40 per cent depreciation for industry to claim while providing housing to its employees. The government more than a year back had announced repeal of the much controversial Ulcra which was perceived to be a stumbling block for housing growth by the builders.
In many states Ulcra is being implementation at snail’s pace. However, many proactive states like Maharashtra which wanted Ulcra to be abolished in toto have today turned the tables and are not willing to implement the same. If the government really wants to make housing a dream for all, it will first have to simplify the laws and reduce the time consuming legal hassles. It should do away with corruption. Bureaucratic delays should be eliminated and transparency introduced into the system.
The government is trying its utmost best to reduce the time delays in clearing of project and their implementation. But, faulty setups at the root administrative level is hindering progress.
Is housing finance expensive?
Well, today housing is more affordable than in the past. Housing finance companies have set up a housing finance networks that operates efficiently throughout the country and provide finance at all levels of incomes.
Rural centres have also been set up. Slabs of loan provisionsstart from Rs 50,000 to Rs 1 lakhs and above which helps the lower income groups too as they are eligible to apply for loans. Housing loans are available at 12-12.5 per cent interest rates which is overall uniform throughout the country. Housing finance rates normally follow the general trend in the monetary policies of the government.
Too much of cross-subsidisation will only make the structure of housing finance rates unviable and unproductive for the finance providers. Installment payments considering the applicant’s income is also to some extent making finance more attractive. Today housing finance companies are not only providers of finance but have diversified their role and help in locating houses suiting individual requirements as well.
The government focuses on housing as a social sector and has rightly accorded it industry status. Emphasis is mainly on rehabilitating the rural population by providing them with pucca houses. 80 per cent of India’s population lives in the villages rural areas and thus the right focus. There is a lot of cross-subsidisation as regards rural housing finance as incomes are very low and repayment capacity not up to the said standards.
Why did real estate prices crash?
It was way back in September - October 1995 that the real estate prices which were at a peak started crashing. There were several reasons cited for this fall:
Most importantly, the Bandra-Kurla complex - 400 hectare of land developed - viewed as the future financial centre of the country resulted in most corporates like ICICI and Citibank shifting their offices there vacating their south Mumbai offices. This saw Nariman Point prices crashing and the Bandra Kurla complex prices soaring. There was a time when transactions were executed at Rs 18,000 per square feet. But today the real estate prices have crashed and land is available at Rs 8,000 per square feet at Nariman Point.The government embarked on the policy of providing free housing facility to the slum dwellers under the slum rehabilitation programme wherein around 8 lakh slum dwellers were to be provided free housesat an estimated cost of around Rs 30-35 crore. But this failed as there was no demand as land which was already allotted for the programme became surplus and resulted in prices coming down.The government announced that it would allow free transfer of the development rights. This saw many large industrial houses transferring property to various regions in the country resulting in an imbalance in the demand/supply situation with more than 3-4 million square feet of land remaining unutilised. This further supported the trend towards falling land prices.There was an overall recession in the economy and industries were unable to perform well. Their balance sheets showed a severe cash crunch. No substantial surplus investments were made in land as they did not even have the basic investment money to pump into their existing businesses. Hence, land became a redundant entity with no forthcoming demand resulting in a price fall.What is the emerging scenario in housing?
Despite the government allotting industry status to the housing sector, it has not allowed foreign direct investment (FDI) to come in. Today with the housing shortage in the range of 20-32 million units on an all India basis and 23,000-31,000 for Mumbai alone a huge funds would be required to fulfill this target. With the domestic investors facing a cash crunch and government finances depleting, it is only the foreign investors who could bring in the much required money. If NRI investments is allowed in housing. But what is more important is FDI.
Probably the local developers and builders are still not geared up to face foreign competition as they may not be able to face or afford the foreign modern technology for building houses. The government should then facilitate the flow of FDI into the housing sector and help reduce the shortage. Today most of India’s shortage is in the rural areas and with no adequate infrastructure like pucca roads, highways, bridges, railway lines and telecommunication it is still not advisable for the private players to enter.
Today the municipalities are also playing a more active role in developing their urban boundaries. Today Mumbai does not end at Borivali. It extends till Dahisar. Such moves will help decongest land and corporates will move towards the north which will become centres of economic activity.
The government is also trying to protect the tenant and making eviction laws more liberal to protect both the owner and tenant. In the future, a time will come when the total commercial activity will come down and the band for appreciation and depreciation in property prices will narrow. There will be no scope for speculation and areas such as Nariman Point which till today is the centre of economic activity will in the next 20-25 years become a spot for tourist attraction.
Most coporates have set up offices which are not centred in Mumbai and function from other states and districts too having only liaison offices in Mumbai. This way all the hype about rising property prices in the future will phase out and a time will come when there will not be much demand as decongestion will provide a lot of free land which will in the long run help reduce the land shortage.
Thus, in the future there will exist no distinction between rural and urban land as more focus will be not on developing houses but on developing townships.
What will be the role of state development authorities and municipalities in the future?
Today the boundaries of urban limits has expanded beyond the traditionally set limits on both the western and central suburbs. More and more development projects and housing activities are coming up in suburbs and extention of railways lines, telecommunication services and availability of social infrastructure like housing, hospitals and educational facilities will not only help reduce the existing housing shortage but will also help in decongesting the land. Today New Mumbai, Panvel, Kalyan, Thane have all the basic anemities available making more affordable.
Will simplifying tenancy laws solve housing shortage?
The government today is trying its level best in making housing easily affordable. Provision of low cost housing and easy availability of finance with less paperwork and cumbersome procedures has to some extent achieved its goals.
Today most of the urban metros are congested and availability of land has become a growing constraint. Unlike in the past there is a fading need for owning a house. If rentals are bought down and tenants rights are well protected, there is no doubt that people will opt for rental houses. But today eviction laws and insecurity to tenants is making this an unattractive proposition.
Today India has improved on the qualitative structure of its housing and today all modern ammenities are provided which include banks, postal services, a local market, dispensary which are more in line with township planning.