Job creation will be India’s single biggest priority over the next 20-30 years. One of the major sectors that will always be at the forefront of the economic landscape of India is the housing sector. Over 150 industries are connected to the construction, sale and occupancy of homes, plus each rupee invested in housing adds an overall `2.84 to GDP. Yet, housing and construction’s biggest strength lies in its labour-intensity: as per a 2014 NCAER study, more than 99% of the jobs in the housing sector are informal in nature. For a country with 800 million-plus unskilled and semi-skilled citizens, this statistic is gold dust.
It isn’t surprising then, that housing has finally captured the imagination of policy makers. In FY16, 11 housing finance licences were awarded; in the 2017 budget, affordable housing received infrastructure status; and key government schemes now aim to address India’s housing shortage. Home loans are gradually becoming cheaper. Surplus liquidity from demonetisation has allowed banks to reduce rates, while an interest subvention for small ticket housing loans has eased firsthome purchases. In fact, the National Housing Bank estimates that around one-third of the new home loans have ticket sizes of less than Rs 10 lakh.
For decades, India’s housing sector was like the Wild West. Poor regulation spawned a fragmented market with poor business practices, and a “parking lot” for black money/benami transactions. Even policy liberalisation didn’t quite have the desired impact; for example, when 100% FDI was permitted, international money began to flood the market and many builders/developers overstretched themselves; it became common to see real estate companies begin projects without even consolidating land.
Now, though, a new dawn has emerged. The RERA Act seeks to bring in efficiency and transparency in the sale/purchase of real estate; it also creates a framework for speedy and timely approvals, and establishes an adjudicatory mechanism for the speedy redressal of disputes. In March, the Bureau of Indian Standards released a revised version of the National Building Code; this code aims to make safety and building codes more transparent and practical. These can be used by local bodies for framing building bylaws. The code also lays out a framework for modern construction and moots an integrated approval process.
To be sure, no policy or legislation is perfect. For example, certain aspects of RERA concerning force majeure (acts of god outside their control) could result in a shortage of labour. Similarly, developers who aren’t a central repository of land titles/deeds—might be penalised for no fault of theirs. Likewise, the revised National Building Code, which places a high premium on safety, adds significantly to the cost burden—and this militates against the government’s mission of affordable housing.
Despite a few warts, recent reform measures can become game changers, provided there is emphasis on implementation. In the case of RERA, it is now up to the states to formulate rules and establish their regulatory authorities in time, and ensure there isn’t just paper compliance. Though they represent an important starting point, such policies and legislative initiatives are not a comprehensive panacea. Several other interventions—both from the government and the private sector—are required. First, there is a need for a sharp reduction in intermediation costs across the entire housing value-chain. The rollout of GST is a positive development; the black money component in real estate could come down drastically as construction material will have to be sourced from registered vendors to get input tax credit.
But cost reduction on many other fronts is required. Today, housing loans account for less than 2% of the NPAs with banks as compared with 30% relating to infrastructure—yet risk weights for home loans are disproportionately high. In June, RBI lowered the risk weights and standard asset provisioning for housing loans in select loan-size categories; but more needs to be done in this area.
Costs can also be brought down by allowing higher FSI/FAR—this will increase the built-up area per unit of land. Of course, allowing higher FSI/FAR would mean additional infrastructure to manage the denser population. So, city peripheries have to be developed—making it crucial to link affordable housing with the smart cities programme.
A stronger legal framework will also help prune costs. Digitisation of land records, and transfers of land deeds are a must, along with transparency in contracts. The terminology and rights of possession, plus rights to standard quality as a basic minimum from the buyer/user’s perspective needs to be brought in. This aspect has been addressed to a large extent by the introduction of regulator, but the implementation and execution holds the key.
The real estate industry in India today must professionalise quickly through a cohesive view on efficiency, productivity, customer service and timely delivery. There is a need to act, think, plan and executive like India’s automotive industry—and became a world beater.
Infrastructure requirements must be standardised, as must manpower. A quality movement, similar to what was begun in the manufacturing sector in the 1990s must evolve, with a focus on high quality equipment, technology, eco-friendly materials, human friendly and ergonomic design and architecture along with progressive engineering.
Also, today, there is great variation in norms between states. Lack of homogeneous standards is making it tough for companies successful in one state to go national or even international. Having a larger footprint helps companies help improve their exposure and knowledge resources—which in turn help them get better, more efficient and competitive in their home markets.
In a nutshell, to unleash the next stage of growth in the housing industry, norms must be fair and well-priced for financiers, industry players, suppliers and most importantly, the home buyers themselves. The road ahead should not be a challenge, but a huge opportunity to create India’s next sweet spot for growth.