Afordable housing has big-ticket opportunities

The government needs to offer its support in procuring land, hasten clearance processes and have clear-cut plans and vision before a project actually commences, says Ashish Tandon, MD, Egis in India.

Is the ‘Infra’ status for the affordable housing segment adequate to spur investments by the private sector? What outcomes do you anticipate through this government emphasis?
Low-cost housing is a volume business. Private companies would be interested in this business only when there is scale. The intention of the government to give this sector infra status is to offer access to low-cost funding for the sector. However, it does not imply that the government will encourage scale with a few active players, or will be splitting the sector into smaller segments for ease of operations.

Unless this clarity is arrived at, and the private players are given an opportunity to develop scale, I doubt if it will interest serious private players to invest.

Is it a feasible proposition now for infrastructure majors to get into the affordable housing sector? And vice-versa, is it lucrative enough for real estate majors to move into the affordable housing sector to leverage infra status/incentives?
Affordable housing is a big opportunity as the projected numbers are very high. And since this is promoted by the government, the ease of access to land, funding, etc., is expected to be smooth. Since the housing sector is already grappling with a lot of issues like falling demand due to higher supply than demand, issues with land procurement and margins, this could prove to be an opportunity that enthuses the sector and helps its revival.

How does infra status translate into incentives, special dispensation and bankability? What additional incentives would accrue to investors getting into this infra status-driven affordable housing initiative?
The government needs to look at low-cost housing as similar to promoting industries in remote areas or think of it as a similar concept like SEZs and the special privileges that accompany such projects.

The big players might be interested if they are allowed to develop associated infrastructure like bridges, highways and Metro lines along the area. If these projects are integrated with larger projects, it may interest big players to invest.

Leading public sector banks, like State Bank of India, have expressed unwillingness to finance infra projects that are HAM (hybrid annuity models) based. What will be the repercussions of this negative banking sentiment? What is the way out for infra developers seeking banking finance?
I am not aware of the SBI Chairman’s statement. But if what you say is true, it will be very difficult for these projects, unless the government offers other modes of raising money – like infrastructure bonds or (help from) subsidiary financial institutions of bigger banks. Private players might be interested to invest but it may adversely affect the liquidity available in the marketplace for these kinds of projects. It just shrinks the opportunities available for funding rather than growing them.

Is a debt-to-equity recast for infra projects the solution? Is it a practical expectation of infra developers putting up equity stake of around 40 per cent as suggested by SBI (as against the currently existing 20 to 25 per cent)?
I am not sure if there are too many players who have the expertise to offer the entire gamut of services – from finance, marketing and construction of these projects. And even if there are a few players who might be interested in offering end-to-end solutions, they would look for scale so that they can showcase these projects.

How can aspects of uncertainty of recovering funds lent for infra projects be mitigated to inspire banking sector confidence in infra projects? How can banks be assured of repayment of the entire finance and interest deployed for infra projects?
The monitoring process needs to be strengthened more and the government needs to offer its support in procuring land, hasten clearance processes and have clear-cut plans and vision for the project before it actually commences.

How will the infra tag accorded to affordable housing spur the concept of ‘Housing for all’? How will this impact realty pricing in the current fiscal and over the next four years?
Housing prices are dictated by a lot of factors. Amongst them, the key ones are location, infrastructure associated with the projects and the proximity to employment opportunities. If these projects are planned in lesser-developed areas or are greenfield projects, these might actually not affect the so-called realty market in the established areas, but create a huge opportunity for new homebuyers and strengthen the economy as a whole. This is because more and more people will benefit from these projects. However, it will not just depend on the housing, but also on associated infrastructure like roads, railways etc.

What more needs to be done at the policy/HAM reworking level to make private players incentivised to invest in infra projects?

• As I mentioned earlier, we must look at the following factors to incentivise these projects enough for private players to be enthused:
• Offer scale: Fewer players should be given bigger chunks to develop and benefit from the economies of scale;
• Holistic development: Think of these projects as part of an entire region’s development with roads, highways, bridges, transportation, etc. This will make the bigger players want to invest;
• Develop synergies: Include these projects under Smart City programmes as then they will be cost-effective and prestigious enough for private players to invest;
• Think on the lines of SEZs, and offer the incentives associated with these facilities.