India: Affordable Housing: Is The Government Doing Enough?

  1. The urgent need in the realty sector today is large scale construction of affordable housing. Sky rocketing realty prices have made home buying a dream for most, especially so in the lower income group and economically weaker sections of society. Affordability is also directly linked with location. Given the state of infrastructure in various States and cities in India (including the mega-cities like Mumbai), it is not viable for the common man to live in far flung districts outside the city and travel to the main city every day for work. In order for housing to be truly 'affordable' the common man must be able to purchase a house where there is demand for it (i.e., in the city and surrounding suburbs) and not where there is an abundant supply (i.e., in villages / towns outside the city from where travel to the city is a daily struggle on account of poor connectivity and sheer distance). Apart from affordability, timely possession is a concern for most home-buyers; delays in possession having a direct impact on expenditure incurred for renting a house until the purchased home is ready for occupation.
  2. The Central Government has been coming out with housing policies from time to time, with an aim to generate a favourable environment for development of affordable housing in India. The latest of these policies is "Housing for all by 2022" Policy which was announced by the Central Government on 17 June 2015. Under this Policy, the State Governments/Union Territories have been inter alia encouraged to promote (i) construction of affordable housing for the lower income groups and economically weaker sections of society through public-private partnerships (ii) credit- linked interest subsidies which make taking housing loans a viable option for the economically weaker sections of society and (ii) slum rehabilitation and redevelopment through private developers etc.
  3. The Policy will cover the entire urban area consisting of 4041 statutory towns with initial focus on 500 Class I cities and it will be implemented in three phases as follows, viz. Phase-I (April 2015 – March 2017) to cover 100 cities to be selected from States/UTs as per their willingness; Phase – II (April 2017 – March 2019) to cover additional 200 cities and Phase-III (April 2019 – March 2022) to cover all other remaining cities. However, Ministry of Housing & Urban Poverty Alleviation will have flexibility in covering number of cities in various phases and inclusion of additional cities may be considered taking into account demand from the States. The Central Government intends to make available various grants and subsidies ranging between approximately 1 lakh - 2 lakhs per house depending on the category of housing. State housing boards will also be able to avail of certain grants from the Central Government.
  4. The Central Government has also formulated a Model State Affordable Housing Policy for Urban Areas to aid the States in the creation of their respective policies to implement the "Housing for all by 2022" Policy. As per the Model Policy houses having a carpet area of approximately 28 – 60 square metres for lower income groups and approximately 21 -27 square metres for economically weaker sections have been considered as qualifying as for the schemes and benefits relating to affordable housing. An affordable housing project has been defined as project wherein at least 60% of the Floor Area Ratio (FAR)/Floor Space Index (FSI) consists of dwelling units with a carpet area of not more than 60 square meters and 15% of the total project FAR/FSI or 35% of the total number of dwelling units, whichever is higher, is reserved for economically weaker sections category.
  5. One of the biggest drivers of home prices in the market today is the price of land; not just the actual purchase price of the land for the developer, but also the expense incurred by the developer in order to make the land development ready, such as conversion of land to non-agricultural, obtaining requisite building permissions etc. In most States, the Governments/ Municipal bodies charge various charges, fees and taxes relating to development on the developer. All the above costs, expenses and charges are passed on by the developer to the home-buyer. In addition to the above, the developer in most cases would avail of financing to develop the project. The cost of procuring such finance is also passed on to the home-buyer. In addition to all the above, the cost of construction and maintenance is also to be borne by the home-buyer. With delays in completion, all costs go up and affordability goes down.
  6. The Model Policy encourages State Governments to make Government land available for development of affordable housing. It also provides that the Central Government will encourage flow of capital through external sources like external commercial borrowings and foreign direct investment and new avenues of project financing including that from insurance and pension funds. It provides for various schemes, policies, incentives, exemptions and relaxations to the developer and home-buyer in order to resolve the prevalent issue of financing of housing projects including scheme linkages, waiver/nominal stamp duty, waiver/nominal land conversion charges, line infrastructure connection charges etc. It also envisages setting up of the single window clearance system with a view to providing development permissions within 60 days of application thereby reducing the delays and costs. Although certain Central laws have been modified to implement the above provisions, the Model Policy is not law, and its provisions are mere guidelines for the States to formulate their own policy on this issue.
  7. Apart from opening up new avenues of financing, the Central Government has also provided 100% deduction on the profits earned by the developer from development of affordable housing under the newly inserted Section 80-IBA of the Income Tax Act, 1961 with effect from the 1 April 2017. The deduction is available only if certain conditions are complied with such as plot size on which the affordable housing project is being developed, the date approval of the project by competent authority, completion of the project within 3 years of approval etc. thereby further incentivising the developer to complete the Project in a time bound manner.
  8. The real problem, one may argue, is not the price of housing in India; it's the fact that the real estate sector is not well regulated. With the enactment of the Real Estate (Regulation and Development) Act, 2016, (RERA) the Central Government is trying to balance the market and bring in stringent regulation in the real estate sector. Given that the RERA is along the lines of a similar enactments in Singapore and Dubai, where the real estate market is well regulated, it likely to have the positive impact on the Indian realty market as well. However, as the relevant provisions of RERA are yet to be implemented by the States (the Centre has given the States 1 year to set up the Real Estate Regulatory Authority) the actual functioning of the Authority and industry impact remains to be seen.
  9. Although the Government is making all the right noises regarding balancing the requirements of home-buyers and the concerns of the developers, extensive statutory reform at the Centre and State levels is required to implement the affordable housing policy.

This article was first published in dated 18 January 2017.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at

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