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Narendra Modi’s 50 million homes moonshot is miles away from ground reality

LiveMint logoLiveMint 25-07-2017 Dhwani Pandya

Mumbai: Prime Minister Narendra Modi set a target in 2015 of building 50 million homes in less than a decade, or about 7 million a year.

The nation has since added only 180,877 houses under the scheme, underscoring the challenge in achieving that target.

“It was a moon shot,” said Rajesh Krishnan, chief executive officer at Brick Eagle, a Mumbai-based private equity fund that provides project financing to affordable housing developers.

Modi’s housing program is a necessity in a nation where about 65 million people, or the population of the UK, live in makeshift structures in cities such as Mumbai, which is home to Asia’s second-largest slum.

An added benefit is that it promises to stoke employment and unleash investments, estimated at as much as $1.3 trillion over seven years, as the government plans a re-election bid in 2019.

Yet, as the numbers attest, there’s no shortage of roadblocks. Demand is concentrated among the nation’s poor, India doesn’t have sufficient developers able to mass-produce apartments and myriad clearances add to project costs already elevated by high land prices.

Over 96% of the urban housing shortage is due to households earning less than $9,310 per year, according to Shirish Sankhe, a Mumbai-based senior partner at McKinsey & Co. That means home prices need to be kept at less than a Rs10 lakh, which can be a challenge given the construction and land acquisition costs, he said.

Further driving up costs are state, central, environmental and civil aviation-related clearances that delay construction. India ranked 185 out of 190 countries in dealing with construction approvals, according to a World Bank report showing that Asia’s third-largest economy comes in at 130 for its overall ease of doing business.

“Anywhere else in the world you can get approvals in 30 days time, here it takes a year, sometimes two years,” said Neel Raheja, group president of Mumbai-based K. Raheja Corp. “You also have legal challenges on land title, which are even more cumbersome when you tackle the affordable housing opportunity.”

To draw builders in, the government has offered those constructing affordable homes so-called infrastructure status, making them eligible for various incentives. Interest-rate waivers were extended to households with annual incomes of up to Rs18 lakh, while laws to tackle building delays and protect home buyers came into effect on 1 May.

Leading developers including Mahindra Lifespace Developers Ltd, an arm of the Mahindra Group, Tata Housing Development Company Ltd. and Raheja Developers have responded, though they are yet to have a serious impact.

Affordable housing projects in cities across India increased in the first half of the year, driven by the National Capital Region, Kolkata, Pune and Ahmedabad, where 80% of launches were in this segment, a Knight Frank report showed this month.

Most efforts are focused on the middle-income group, where apartments cost Rs20 lakh to Rs35 lakh, McKinsey’s Sankhe said.

Tata Value Homes, the affordable housing arm of the $100 billion Tata Group, has delivered more than 8,000 apartments priced from Rs14 lakh to Rs70 lakh, a company spokesman said by email.

Mahindra Lifespaces ventured into this space in 2014 and has delivered 500 homes so far in the 1.8 million rupees to Rs23 lakh range, according to Sriram Mahadevan, business head at the company’s affordable housing unit.

One way of encouraging developers to focus on even cheaper units would be for the government to lower land prices by releasing some of the property parcels owned by agencies such as the Indian Railways, said Anuj Puri, chairman of ANAROCK Property Consultant.

Land currently accounts for as much as 50% of the cost of a project within city limits, he said.

“The lack of affordable and adequately-sized land parcels in core urban areas has driven the development of affordable housing projects to urban peripheries.” said

Mahindra Lifespaces’ Mahadevan. “It is important to develop projects in strategic locations that are fast-growing, have basic social infrastructure and offer ease of connectivity.” Bloomberg

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