Sunday 22 April 2018

Modi's plan to build 20m homes runs into roadblock

Indian prime minister Narendra Modi is pushing to build 20 million hew homes in India
Indian prime minister Narendra Modi is pushing to build 20 million hew homes in India

Unni Krishnan

Faced with increased living costs in 2012, Suresh Kumar sent his wife and children back to their village in eastern India and took in two migrant workers to share his one-room apartment on the fringes of Delhi.

That brought his rent down to 3,000 rupees ($50), about a third of what he earns each month as a chauffeur in India's capital. Despite that, he still needs to dodge puddles of sewage in the neighbourhood, battle with an erratic power supply and vie with about 10 other people to use an external bathroom.

"It's a battle I have to fight daily," said Kumar, 38, as he heated water on a portable stove for his bath. "I share the rent with others, so it's manageable."

Prime Minister Narendra Modi's upcoming budget presents an opportunity to provide more details on how he plans to give Kumar and about 170 million Indians who live in urban slums affordable homes by 2022. If done right, the plan could boost economic growth and help him win votes in cities such as Delhi, where his party got trounced in a state election this month.

"If the poor have a proper house to go back to then it adds to his sense of security, and that individual's productivity goes up," said Neeraj Bansal, India head of real estate and construction at KPMG.

Modi's "Housing for All" program, first announced days after he took power last May, seeks to build 20 million homes over the next seven years in the world's largest housing program. That should be enough to cover a shortage that forces families to live in overcrowded structures and slums.

While previous governments focused largely on public-funded programs, Modi is looking to push the private sector into action. It'll take $2 trillion in financing to meet his targets, according to estimates.

Modi has already taken some steps, including allowing developers to raise money from overseas to build reasonably priced homes. He also issued an executive order to make it easier to acquire land for certain uses, including low-cost housing, though it still needs parliamentary approval to become a permanent law.

The Ministry of Housing and Urban Development is looking to ease rules that limit the amount of floor space in slum areas, allowing for higher and wider buildings, said a ministry official. It will also look to reduce municipal clearances needed for construction.

In slum rehabilitation projects, most units would be sold to residents of the slum at affordable rates or earmarked for households earning up to 10,000 rupees a month, the official said. The rest would be sold at market prices to recover costs.

More steps are expected in the budget. To ensure every Indian a home, Modi will need to empower local bodies to allocate land, streamline fees and allow banks to access cheaper funds from the central bank if they give lower interest rates to affordable housing and slum rehabilitation projects, according to KPMG.

The government may also raise the limit for tax breaks on housing loans to as much as 350,000 rupees per year from 200,000 rupees, CNBC TV-18 reported, without saying where it got the information.

The proposals were discussed at a cabinet meeting on February 19 and inputs were sought from other ministers to finalize a comprehensive plan for rural and urban housing, said a government official, who did not want to be identified as the discussions weren't public. Modi instructed senior ministers to fine-tune the plan, the official said.

As things stand now, building 20 million houses in the next seven years is a "hugely challenging target," said Swastik Harish, a consultant at the Indian Institute for Human Settlements in Bengaluru, formerly known as Bangalore.

A rupee spent on building a house adds as much as 2.84 rupees to gross domestic product, according to a 2014 report for the Housing Ministry by the National Council of Applied Economic Research, a policy research group. Every 100,000 rupees invested would create about four jobs, and each home increases the entire household's income, which in turn boosts demand.

About 30pc of Indians are internal migrants, according to a study published by the United Nations. India's poorest households, where each member spends less than $2.97 per day, account for 84pc of the country's 1.2 billion people, World Bank data show. Half of their income goes for food, with 10pc spent on fuel and about 6pc on housing. Surging property prices in cities have pushed more people into slums as Indians in rural areas move to urban centres to find work. The average Indian would need to work for three centuries to pay for a luxury home in Mumbai, a city where 40pc of the population lives in overcrowded slums, according to a 2012 analysis of real estate and wages.

The government should address this by freeing up land for developers and providing essential infrastructure such as roads and water connections, rather than focusing on apartment construction itself, according to Barjor Mehta, the World Bank's lead urban development specialist in India.

"In 80pc of cases, the government shouldn't be building houses," Mehta said.

China, which is often mentioned by Modi for its rapid economic progress, releases public land each year, sells development rights and charges the equivalent of about 20pc of the land price to owners who leave urban property undeveloped for a year; after two years the land can be confiscated.

Some companies are already starting to build low-income housing. Mahindra Lifespace Developers, Tata Housing Development Company. and Raheja Developers. are among companies unveiling projects where apartments cost less than 2 million rupees as elevated borrowing costs weigh on purchases of more expensive properties.

While that's more than Kumar can afford, buying a house under the program would fulfil a long-held, albeit fading, hope.

"It will be a dream come true if I could afford to buy a house in this city," Kumar said. "I don't think it will happen in this life." (Bloomberg)

Indo Business

Business Newsletter

Read the leading stories from the world of Business.

Also in Business