Addressing Affordable Housing Challenges

Brick Eagle is a financial services enterprise for affordable housing and is currently handling a land bank of 500 acres in India. Rajesh Krishnan – Managing Director & CEO, Brick Eagle Group sheds light on this housing segment, its dire need and the hits and misses in its implementation.

What are the drivers for affordable housing in India?

Affordable housing in urban areas in India is roughly defined as less than Rs. 25 lakh per unit.

As rural population moves to metros the property prices increase due to heightened demand and infrastructure is strained to the point that the city becomes largely unlivable for the multitudes of people there. Thus, the overwhelming demand is a huge driver for affordable housing. Furthermore, the move towards smaller family units means that families require more living space fuelling demand for additional housing. Lastly, old and dilapidated houses that were once occupied by multiple families are being torn down – signifying more housing requirements.

Is affordable housing an attractive business opportunity?

With a shortage of over 18 million homes in urban India alone, the opportunity is immense. Most of the supply that is available today is for higher income groups and it is no surprise that more than 90% of the shortage is in the EWS/LIG segments. The limited supply that is available in affordable housing comes from local developers that deliver 10-30 units a year. Also, affordable housing is an unorganized industry, due to high entry barriers caused by local challenges and regulatory hurdles. Therefore, it offers a great potential for an organized market player such as Brick Eagle, which supports the entire value chain of affordable housing. Furthermore, due to its secure demand, affordable housing is largely immune to the usual economic cycles of the real estate market. Prior to setting up Brick Eagle, my investments with a small developer in Chennai proved this point. Even amidst global recession, the developer who was focused only on MIG and LIG housing was able to deliver over 25% IRR in 2008-2010.

Current affordable housing activity in India

Currently, the affordable housing activity in India is minimal and needs to scale up. On the supply side, the LIG/EWS is the worst affected by the lack of good-quality affordable houses. It is estimated that only 30,000 houses will be supplied under Rs.10 lakhs over next five years, woefully less than the current requirement of over 16 million homes. On the demand side, the NHB and many HFCs have built up good capacity and are doing their bit to lend to the bottom of pyramid, however their efforts are not effecting much change with lacking housing supply.

There were many positive developments from the government in its recent policy framework. RBI’s announcement was very good for MIG housing (with relaxation on home loans upto 50 lakhs in metros). Furthermore, the relaxed norms for FDI in affordable housing is a positive move and will provide incentives for many companies to begin their own affordable housing projects. However, we wish that this segment was defined well and given infrastructure status. This is a glaring oversight that may have long-lasting implications. The RBI’s announcement that affordable housing could be defined up to 50 lakh per unit means that many new players can enter the field and avail of tax breaks without providing homes for the LIG and EWS segments. Lastly, while there are a lot of positives on the demand side (home loans), there is nothing for developers focused on affordable housing, which may also impact supply.

After the budget real estate will become much more eligible for bank loans and any house up to 65 lakhs can be considered affordable housing. Also, the banks can float infrastructure bonds to cover it. However, this is more of a sop to banks than affordable housing, as it sets a far-too-high benchmark for this segment, thus potentially cutting off affordable housing owners from many of their loans.

Role of private players in the sector

Providing housing for all is a massive task and cannot be done without private players who are the market unifiers. They bring a level of comprehensive proficiency to the industry, which the government cannot deliver. Brick Eagle has cultivated valued relationships with local developers and can use this on-the-ground knowledge for innovative solutions. Impact investors can also play a key role in securing funding for such developments, especially in EWS housing. There is an urgent need for focus on market-based solutions which will drive innovation. One can’t reduce cost of construction beyond a point. Build smart and compact homes and use market competition to push the limits of design.

For instance, architect Hafeez Contractor innovations like zero-door swing area, convertible smart furniture, and upper mezzanine areas for one BHK apartments, has greatly improved the lives of our customers.