Everybody knows that India’s GDP is going up, more and more young people are picking up jobs and income levels are spiralling upwards, ushering in all round prosperity. Furthermore, the joint family set-up is increasingly giving way to nuclear units. All this spells a huge demand for housing—and this is a real demand at that, not merely a demand motivated by fiscal factors.
Just take a look at these astounding statistics: Six years ago, the total lending to individuals for home loans was Rs 13,000 crore. It is now Rs 1,50,000 crore. Six years ago, the rate of interest was 17%. It is now between 10.5% and 11%. The average age of the home buyer was 42 years. Today it is 30 years.
When India ushered in liberalisation in 1991, the overriding need of the moment was one of choice. We needed more choice. Today we have achieved surpluses in many sectors. Take the auto industry. From two car options in the 1990s we now have over 100 models.
The same story is repeated in the aviation sector. From just Indian Airlines and Air India, we have new airlines being launched every few months now.
This has led to a dropping of air fares. Today, given the apex schemes, it is possible that passengers in the same flight have doled out different fares. The telecom revolution is unparalleled. My driver owns a mobile and he can speak with his family in Bihar for just Rs 1.50 a minute.
The only field where we have not succeeded in creating a surplus is housing. In 1976, 33% of Mumbai lived in unauthorised housing. Today with twice the population, 66% of the city lives in slums.
Obviously we have not been able to do enough in the housing sector. Why are people still talking about filling shortages when we should be focusing on creating surpluses?
Even the housing policies have not managed to plug the gap. The reason is archaic laws like the Urban Land Ceiling Regulation Act, which has still not been repealed in many states including Maharashtra, and issues like the Coastal Regulation Zone. Across the world there is no law stopping construction on the shoreline.
Every country be it Japan or the US encourages shoreline development but in Mumbai you can’t do so. We need to create a proactive environment to facilitate a housing perestroika. Land is a state subject and, therefore, states have to introduce reforms if the housing sector has to come into its own.
Also, consider the issue of rentals. In the US, a large section of the population relies on rental housing. But in India, because of the Rent Control Act, people are afraid to let out property. In the days of the Raj, 75% of houses were available for rent. Today companies won’t consider building rental homes for fear that rents will fall.
The construction sector has the potential to employ the uneducated and the unskilled and hence it must be encouraged. Unfortunately, the RBI has gone against the sector in the past year or so. The rate of interest on lending could easily be around 9% but to discourage people from taking home loans, the rate is around 10.5%. The RBI needs to rethink its credit policy for housing, especially for those who are looking to own their first home.
The reason for the current shortage is not a lack of capital or a lack of purchasing power. Half of Mumbai’s slum-dwellers can afford a house worth Rs 2 lakh.
They have paid a lump sum amount of a lakh plus for their unauthorised house so a down payment of Rs 20,000 and taking a home loan for an authorised home is a very viable option for them if they are made aware of it. While a large number of corporate groups are going into housing in a big way of late, getting land is a huge problem.
A bigger problem is getting permission from the authorities— local, environmental et al. The pay-offs required at each level have become astronomical and the costs are passed on to the customer. We talk about a single window clearance but what we have are at least 52 windows and countless doors and drawers.
All this is not to say that real estate and housing has not been growing. It has come a long way indeed but it has certainly not touched the mark it needs to. If at all we need a reason to encourage reforms in the housing sector it is this: you can actually make the GDP rise by encouraging housing.
A growth in housing means a corresponding growth in everything from cement to tiles to aluminum to paint. According to McKinsey, the GDP would increase by an additional 1% if the housing sector is given a boost. In my view, the incremental GDP growth would be 2.5%.
The current housing problem is not insolvable—the solutions exist. The people living in the slums are not destined for the slums—they too can live in a modest home of their own. We have a clear cut policy laid out to address the various flaws in the existing scenario, and there is no reason why the policy cannot be implemented. The ideas are in place, as is the action plan and the roadmap. All that is missing is action. The buck is still being passed from one person to another. Nobody is taking the bull by its horns, nobody’s saying “we will solve the housing conundrum in five years or 10 years”.
More worryingly, there seems to be a disconnect between what we ought to be doing and what the situation on the ground is. For instance, the National Housing Policy clearly says we need more liberal regulations, more funds and better financing. But the RBI is moving in the opposite direction. Most of all, we need the deregulation of this industry. Only then can we revolutionise the housing sector like the telecom and software sectors. The problem is not corruption but a lack of consensus.
So the states have their own policies while the municipal bodies have their own. Each body is the lord and master of their individual turfs, making rules and regulations at will. At the end of the day there are a thousand different regulations to contend with and that is why housing has reached a bottleneck today.
There is a pressing need to put a single agenda in place—the right to shelter should be every Indian’s birthright. Even if we do manage to reach a consensus, there is no authorising body to ensure stakeholders actually walk the talk and to check those who go against the consensus. There are people taking advantage of this disconnect.
What is needed is a clarion call from the highest levels. Resolving the housing problem is not the responsibility of the government alone. The onus lies on private groups and corporates too. All that we need are innovative funding, proactive action plans, faster paperwork and deregulation. The future is here.
(By Niranjan Hirachandani, Managing Director of Hiranandani Group)
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