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Providing ‘Infrastructure Status’ to Affordable Housing Key to Spurring India’s Socioeconomic Development

Govt. Must Prioritise Real Estate Regulation Bill in Upcoming Winter Session

October 19, 2015: As India urbanizes at an unprecedented pace, over 300 million people are expected to shift to urban cities over the next decade, which will result in a housing shortage of epic proportions. Nearly 28% of India’s population lives in cities and urban areas, and this figure is expected to rise to 40% by 2020, while the total housing shortfall is estimated at approximately 19 million units, of which over 95% are for the Economically Weaker Sections and Low Income Groups.

The solution to this critical component of holistic socioeconomic development of our country lies in exponential growth of the Affordable Housing Sector; which will have a significant multiplier effect by improving the living standards of citizens and contributing towards making our cities pillars of comfort, efficiency and security.

While Government led initiatives such as Pradhan Mantri Awas Yojana (PMAY), Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and Housing Mission have been established with the sole purpose of catering to growing housing and infrastructure demands, it is essential that administrative structures and policy frameworks facilitate and encourage resource mobilization, including that from the private sector.

According to the Reserve Bank of India (RBI), an investment of INR 70 trillion is required mainly for construction of affordable housing, urban roads and modern transportation over the next 2 decades. The next level of economic transformation will require some BOLD Steps to revive growth in India’s Infrastructure sector. In this regard, it is essential all political parties come to a consensus on tabling and passing the Real Estate (Regulatory & Development) Bill in the upcoming Session of Parliament. This will facilitate the constitution of a Real Estate Regulator and also set in motion key consumer-friendly initiatives.

Further, the following are 15 Key Recommendations to provide a boost to this mission critical sector:

Channelizing Capital Flows to Affordable Housing Sector

  1. Grant ‘Infrastructure’ Status: Help the Affordable Housing sector attract investments and greater capital and investment formation by granting ‘Infrastructure’ status and implementing further financial sector reforms.

  2. Further Measures to Boost Capital Flows to the sector must be implemented such as including the Affordable Housing sector under Priority Sector Lending (PSL) as well excluding Affordable Housing project funding from overall sector limit for Real Estate. Granting ‘approved status’ for investments by Insurance and pension funds will help also encourage greater capital flows in the sector.

  3. Develop an Urban Infrastructure Fund and channelize surplus funds of Government PSUs and long term finance towards infrastructure development

  4. Extend Long Term Infra Bonds (allowed for home loans) to Affordable Housing construction funding with similar capping as done for home loans. Current RBI PSL criteria for low cost housing construction funding, to be in sync with overall Govt. policy on affordable housing.

  5. Develop the Municipal Bond Market in India: To fully develop the operating contours of municipalities through devolution of power and skill development & technical assistance. Financial institutions can also play a critical role in capacity building of the municipalities by providing debt on infrastructure projects. Innovative financing models, such as Social Impact Bonds have started to make a mark in the global markets.

  6. Restore Section 80 IB (10) to provide tax exemption on income derived by an undertaking engaged in development and construction of small dwelling units.

     

Regulation & Policy related Recommendations:

  1. Make land available for Affordable Housing development through Zoning Process and designate areas with higher FAR/FSI, relaxed density norms and TDR for effective use of land.

  2. Rationalization of Direct and Indirect taxes in real estate sector to enable competitive pricing for end user. Implementation of GST and reduced stamp duty are crucial steps in this regard.

  3. Establish a regulatory authority to monitor work of Urban Local Bodies (ULBs) and build capacity in research, planning and HRD, facilitated by State Governments.

Infrastructure Up gradation & Slum Rehabilitation:

  1. Upgrade Civic Amenities, healthcare services, urban transport and inter-city connectivity for Tier II cities and improve quality of life in Tier 1 & 2 cities by maintaining and developing recreation facilities and public parks.

  2. Give Impetus to Essential Infrastructure in outskirts of Tier I and II cities to ensure Affordable Housing clusters are well connected and cities are decongested.

  3. Develop and replicate a ‘model’ slum-free Tier I city through slum rehabilitation programs, creation of affordable and rental housing inventory over the next 5 years - collaborate with global technical and financial agencies to develop each city.

  4. Effectively use Indian Railways’ urban land banks to rehabilitate slums by creating affordable housing inventory and rental housing facilities for various income groups.

  5. Create green infrastructure or blue-green infrastructure networks to solve the urban and climatic challenges by building with nature.

  6. Integrate Disaster Management Systems and a comprehensive Risk Management Framework into Urban Planning and conduct periodic audits to ensure effective implementation.

YES Institute is confident that the above measures, if implemented in the right spirit, will act as effective catalysts to complement the Government’s vision of providing ‘Housing for All by 2022’. Facilitating faster implementation of projects, private sector investments and community partnerships in Affordable Housing will play an important role in bridging market imperfections. Granting low income housing ‘Infrastructure status’, promoting ‘transit oriented development’, further facilitating investments through FDI, REITS, InvITs and other innovative real estate financing models will help attract long term funds from foreign and domestic investors.

Rana Kapoor

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