Additional 25 million affordable units will be required by 2030, estimates RICS: Knight Frank Report

 by Shrutee K/DNS
New Delhi, 30thJuly, 2019: RICS (Royal Institution of Chartered Surveyors) in association with international property consultant Knight Frank released a report Brick By BrickMoving towards Housing for All The RICS – Knight Frank report estimates that the current housing shortage in urban areas is around 10 million unitsMost of the housing shortage lies in the Economically Weaker Section (EWS) and Lower Income Group Segment (LIG)It quotes that as of July 2019, 8.36 million houses have been sanctioned under the Housing for All by 2022” initiative.  Construction for 4.9 million units has begun and 2.6 million units of which have been completedGiven the past trend, additional 1.64 million houses are likely to be sanctioned by December 2019, making it highly possible to achieve the 10 million houses target by 2022Projected subsidy disbursement over next 3 years for the same is projected to INR 1 trillion.
The latest RICS – Knight Frank report estimates that by the year 2030 more than 40of the Indian population will live in urban India as against current figure of 34which is likely to create a demand for 25 million additional affordable units. However, to address the huge demand, a subsidy-based approach may not be enough for maintaining sustained growth in the affordable housing segmentIndias urban housing shortage is being primarily driven by the EWS and LIG categoriesAn analysis of the demand supply shows, that on an average, nearly 0.6 million homes are required every year in the top eight cities versus a supply of 0.2 million units per yearThere is a huge supply gap for urban housing and more so in the EWS and LIG category, i.ehouses with ticket size less than 2.5 million.Whereas, the demand in the EWS and LIG category is around 0.34 millionShortcomings leading to shortage of affordable housing are unavailability of urban land for affordable housing and lengthy statutory clearance and approval processes.
Financing for affordable housing can be broadly classified intodebt, equity and subsidyFrom Fresh disbursals of HFCs and Scheduled Commercial Banks (SCBs), it is evident that the share of EWS sector in new disbursals has come down each financial year from 21%in FY 2013 to just 10in FY 2018Moreover, even the share of LIG sector in fresh disbursals has also declined from 39in FY 2013 to 33in FY 2018.
HOME LOAN DISBURSALS
Fresh disbursals of HFCs and SCBs
FY 2013
FY 2014
FY2015
FY2016
FY2017
FY 2018
Share of EWS sector
21%
16%
14%
12%
14%
10%
Share of LIG sector
39%
38%
37%
37%
35%
33%
Total disbursals (mn)
1,996,210
2,459,110
2,818,260
3,158,583
3,799,906
4,823,538
SourceKnight Frank Research
Since 2014, around USD 34 billion has been invested in Indian real estate across debt and equityCommercial segments, which comprises office, retail and warehousing, has garnered majority share of this in the form of equity investmentsThe residential segment had 31share and most of it was in the form of debt.
PRIVATE EQUITY TRENDS IN RESIDENTIAL

2014
2015
2016
2017
2018
H1 2019
Investment into residential
as a percentage of overall PE
investments
41%
51%
50%
24%
16%
17%
Affordable housing
(as a percentage of PE
investment into residential)
-
11%
3%
20%
60%
62%
SourceKnight Frank Research, Venture intelligence
RENTAL HOUSING MARKETMissing piece of the puzzle
The report also touches up Rental Housing Market and as per Census 2011, over 21 million (27.5%) urban households live in rented accommodationsThe rental housing market is therefore projected to grow at a faster rate than rate of urbanisation over the next 20 yearsThe population living in rental housing has no willingness to own and landowners find rental housing unattractive due to Low residential yields, high risk of property litigation and cost of transaction, which leads to a high number of vacant houses in large urban centres  
VACANT HOME
City
Mumbai
Delhi
Bengaluru
Pune
Ahmedabad
Jaipur
Noof Vacant Houses
5,00,000
3,00,000
3,00,000
2,00,000
2,00,000
1,20,000
City
Hyderabad
Kolkata
Bhopal
Gurugram
Lucknow
Ghaziabad
Noof Vacant Houses
1,00,000
80,000
75,000
75,000
65,000
55,000
SourceKnight Frank Research
The report further goes to suggest strategies that can adapted for developing rental housing in urban India.
Channelising Government Owned Land for Rental Housing DevelopmentThe government has significant volumes of underutilised lands, if a portion of these land masses is utilised by the government or its agency for development of rental housing properties, the incremental cost to government would be limited to only the construction cost.
Rental Management Companies to Pool Private HousesThere is an opportunity for promoting public/private rental housing management companies, who in turn pool private properties to a common marketplace, where prospective tenants can select the properties of their choice, this would significantly bring down the risks through professional management and lower pooled risks.
Knight Frank experts highlight that with “Housing for All” insight and the government moving to achieve the target, it is imperative to address the root cause of future housing shortage and suggests some counters to attack the challenge.   
Transitional buffer housing stock: Metro cities in India welcome thousands of migrants everyday who come to urban centres for job opportunities, education or simply for better lifestyleMigrants belonging to lower income groups find it very difficult to find a shelter in the city due to high price of urban housesTransitional buffer housing or short-term housing can be an appropriate solution to address this issue.
Shorter tenure titles Properties, if offered with an initial tenure of 30 years with an option to extend the lease for an additional period of 30 years on payment of renewal premium, can be priced 20lower than a similar long tenure propertySuch a tool can be effectively used in subsidised housing on the principle of government subsidising the housing need of a household for a period of 30 years, post which the housing unit can revert to a common pool of public housing
Rent to own: Often the prospective buyers do not have sufficient funds to complete the equity component of a transactionIn all such situations rent to own contracts can come in handyThey allow a person, even if one is unable to afford a mortgage on the whole of the current house value, to purchase a partial share of the house and pay rent on the remaining share.
Housing boards 2.-Rental development and management companiesPrime government owned land parcels continue to be under sub-optimal usage in the hands of port trusts and agricultural collages If housing boards are able to mobilise a fraction of these underutilised lands for the development of rental housing developments, the incremental cost to government would be restricted to construction cost of these properties.
Zoning reforms to address land market imperfectionsLand use zoning can be used as a successful tool to create an inclusive urban fabricInclusionary Zoning (IZis a land-use planning tool which reserves land or earmarks zone to be exclusively used for affordable housing purpose.
Nimish Gupta FRICS, Managing Director, South Asia – RICS saidIt is heartening to note that the government is set to achieve the target 10 million by 2022, which is an unparalleled achievement, globallyGoing by the rate of urbanization this requirement will grow 2 ½ times to 25 million urban affordable houses.  Hence, the sector has to devise sustainable growth model, with private and public development agencies collaborating to create an ideal ecosystemThe proposed mechanism should provide the ideal bridge between the crying demand for housing and the willingness of the developers to meet that in the regulated environment through professional practices.
Shishir Baijal, Chairman and Managing Director of Knight Frank IndiaAffordable housing is a high potential segment that the private development companies are yet to explore to its potentialUnlike other segments of housing, affordable housing poses an interesting challenge involving strategies at all levelsGiven the requisite volume, this category may need to look at innovative solutions right across the stages of development including statutory clearance, design, building and construction management along with marketing and saleWe feel, a differentiated approach towards affordable housing will hold the key to its ultimate success and profitability.  

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