PMAY-U: A Boost For Urban Housing

<span style="font-weight: bold;">Rapid urbanisation in recent decades has resulted in a severe shortage of housing and basic services in towns and cities across India as people migrate from rural areas in search of employment or education opportunities, among other things. </span><br />
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According to economic survey 2015-16, the decade to 2011 saw inter-state migration of 60 million people and inter-district migration of around 80 million people. However, within the next four years, by 2015, the number of inter-state migrants increased by 45 million.&nbsp; <br />
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As per Census 2011, between 2001 and 2011, the number of households increased from 192 million to 247 million even as the housing stock ran up from 187 million units to 245 million units. While a cursory glance indicates that the numbers are in tandem, a closer look at the condition of these houses and congestion factors shows a wide gap in housing demandvsupply in both urban and rural regions. <br />
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Urban stock represents close to one-third of the overall housing stock. Yet, as of 2011, over 27 per cent of urban residents were living on rent and most of these units were informal in nature. <br />
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Taking into account the shortage arising out of obsolete units, and kutcha and congested houses, housing shortage is estimated at 111 million units in 2017.<br />
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<span style="font-weight: bold;">Need for a housing policy</span><br />
In the past, several schemes were implemented by both central and state governments to address the widening gap in housing. Most of these schemes were aimed at addressing housing shortage among the economically weaker sections (EWS) and/or lower-income households. Conversely, the housing concerns of middle and upper middle classes, were highly dependent on the market dynamics involving the supply of projects by private developers. <br />
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These schemes largely emphasised demand-side intervention, thus limiting the benefits to the weaker sections.<br />
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In June 2015, the central government launched a mission called, ‘Housing for All by 2022,’ with the aim of constructing 20 million houses in the urban regions and 10 million houses in the rural areas. Accordingly, two schemes were announced, namely, Pradhan Mantri Awas YojanavUrban (PMAY-U) and Pradhan Mantri Awas YojanavGramin (PMAY-G). While PMAY-U seeks to address the housing requirements of the urban poor including slum dwellers, PMAY-G aims at providing pucca houses with basic amenities to all homeless households and to those living in kutcha houses in rural areas. From the perspective of implementation, PMAYvU has four broad verticals covering both demand and supply interventions. The coverage of the scheme has widened manifold through the extension of credit-linked subsidy schemes to the middle-income groups. <br />
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Under its current structure, PMAY-U has a wider scope and coverage, emphasising demand- and supply-side interventions and extending the benefits to lower- and middle-income groups as well.<br />
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In partnership with private developers, PMAY-U defines an affordable housing project as one where 35 per cent of the houses are constructed for the EWS with a carpet area of upto 30 sq m. Almost two years into implementation, PMAY-U has witnessed good participation from all states and union territories. <br />
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For private developers, PMAY-U is a lucrative opportunity with the government offering various incentives, such as additional FSI), transfer development rights, free sale component, and land under a host of interventions.<br />
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<span style="font-weight: bold;">Affordable housing to remain the focus area of developers </span><br />
Affordable housing, as a generic term, refers to the segment that can cater to a majority of population. The parameters for categorising a real estate development as an affordable housing project may vary based on the apartment size, the unit’s total ticket size or the buyer’s income bracket. Affordable housing was granted infrastructure status in the Budget of 2017v18. To avail benefits under this segment, a developer has to ensure that the housing project constitutes at least 50 per cent of the floor area ratio or floor space index for dwelling units with a carpet area of not more than 60 sq m.<br />
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Until now, developers have been majorly focusing on the mid-category, luxury or premium housing projects. End users prefer purchasing homes based on their income bracket which, typically, varies between three and six times the annual household income. This has created a wide demandvsupply gap, leading to a huge unsold inventory of unaffordable units across many cities. Of late, developers have started aligning their new launches to suit buyers affordability by reducing the apartment sizes. This is being done either through the supply of a smaller configuration of studio apartments and one bedroom, hall, kitchen (BHK) units or by reducing the size of one and two BHK apartments. This strategy has worked in favour of developers after the budgetary announcement. Many developers plan to venture into affordable housing. Also, there are few instances where developers have altered their newly-launched projects to comply with the affordable housing criteria. <br />
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To provide further impetus to the government’s ambitious ‘Housing for All 2022 mission, the Ministry of Housing and Urban Poverty Alleviation (MHUPA), in September 2017, announced a PPP policy, segregated into eight models, to promote private investment in affordable housing. While the policy aims to provide the most critical resource to the real estate industry, that is, land, a few models also provide financial resources to builders in the form of central government assistance, upfront payments and/or annuity payments.<br />
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<span style="font-weight: bold;">Revival in residential demand to take some more time</span><br />
Despite a favourable policy framework, the sector continues to witness sluggish absorption. Most end-users remain fence sitters and await an effective implementation of the RERA v Real Estate (Regulation and Development) Act, 2016 v and new launches in the affordable housing segment. <br />
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While an effective implementation of RERA will address this issue in the medium term, the states are not yet in rhythm with the central government and scheduled timelines. While most states and all union territories have notified their respective Acts, many states are yet to form a permanent RERA authority. Only a handful of state RERA websites are operational and have started publishing project information online. However, what concerns most buyers is the dilution of the definition of ongoing projects as notified by some states. <br />
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Meanwhile, investor participation has reduced significantly due to falling returns on the asset class, because of stagnant real estate prices, limited income tax benefits on let out properties (announced in Budget 2017v18) and a change in the regulatory framework to curtail pre-launch transactions. Demand revival is unlikely to happen in the near term. <br />
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CRISIL Research believes that prices are likely to remain stable at the current levels for the next 12 to 18 months due to weak demand and moderate new supply addition. Resurgence in buyers confidence will happen only when they see the RERA framework working in their favour. The next few quarters will witness launches in affordable housing; projects with smaller configuration, leading to a reduction in the overall ticket size. This, along with falling interest rates and supportive credit-linked subsidy framework, will benefit end-users as affordability improves.<br />
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<span style="font-weight: bold;">- By Binaifer Jehani, Director, CRISIL Research</span><br />