HOW TO MAKE LOW COST HOUSING AFFORDABLE: EASY FINANCING ONE OF THE SOLUTIONS
The Economic Times, November 10, 2009, Page 12
Increasing the supply of low cost housing is one thing but ensuring it remains 'affordable' for the common man is also crucial. A growing number of households are paying up to half their income for a place to live and one of the primary solutions for addressing the problem of building affordable housing is lack of easy financing.
Even when the property developers are committed to build affordable houses, the consumers in the low-income group still find it out of their reach. This is primarily due to lack of proper financing avenues for this section of consumers.
Due to the fear of default on loans, banks have been reluctant in lending to the poor which deprives the lowincome group from availing housing loans. Even though the government has made a strong case for creation of Housing Mortgage Guarantee Fund with a corpus of about Rs 15,000 crore to broaden availability of loans for affordable housing, it still remains to be seen how fund flows to this segment of society.
"The industry is aware of the challenges faced by the country due to shortage of around 2.6 crore houses, 98% in economically weaker section and low income group category. In this regard I feel the process of financing for this group of population should be eased, in order to turn the demand in actual sales," National Housing bank executive director, R V Verma said during The Economic Times Realty Convention, 2009.
He added that there is a critical need for a sustainable model of housing finance in India and most of the processes are not transparent. While urging the government to relax terms and conditions of financing for the lowincome group, he cautioned that the due-diligence process of sanctioning a loan should be guarded to mitigate the dangers of bad debt for the lenders. "If the due-diligence process is done away with, it might lead to a real estate bubble, which in turn would eventually lead to a economic crisis, like the one in the US," Mr Verma warned.
Highlighting the role of government, Amit Mookim director & headreal estate at consultancy firm KPMG said that even when the industry is enthusiastic about providing affordable housing to the consumers, it cannot be the sole responsibility of the real estate sector. The government should adopt a subsidy approach to support housing for the lowincome group, he opined.
Besides availability of finance for the low-income group, another crucial issue highlighted at the convention was the supply of land. According to KPMG, about 2.1 million new low income group(LIG) and middle income group(MIG) houses would be required in the seven major cities alone. To meet the humungous demand, supply of land for real estate development would be essential.
The panellists suggested that land clearance procedures for an affordable housing project should be relaxed and a part of the available land should be reserved for such projects. This would in turn ensure lower cost of land and allow builders to price it at a lower level after keeping a comfortable profit margin.
The need to make the pricing more lucid to safeguard the interest of consumers was also pointed out. "Housing prices should be made transparent. The developers must reveal their costs at each level and also the profit margins enjoyed by them," Arup Roy Choudhury, chairman of National Building Construction Corporation(NBCC).
The Economic Times, November 10, 2009, Page 12
Increasing the supply of low cost housing is one thing but ensuring it remains 'affordable' for the common man is also crucial. A growing number of households are paying up to half their income for a place to live and one of the primary solutions for addressing the problem of building affordable housing is lack of easy financing.
Even when the property developers are committed to build affordable houses, the consumers in the low-income group still find it out of their reach. This is primarily due to lack of proper financing avenues for this section of consumers.
Due to the fear of default on loans, banks have been reluctant in lending to the poor which deprives the lowincome group from availing housing loans. Even though the government has made a strong case for creation of Housing Mortgage Guarantee Fund with a corpus of about Rs 15,000 crore to broaden availability of loans for affordable housing, it still remains to be seen how fund flows to this segment of society.
"The industry is aware of the challenges faced by the country due to shortage of around 2.6 crore houses, 98% in economically weaker section and low income group category. In this regard I feel the process of financing for this group of population should be eased, in order to turn the demand in actual sales," National Housing bank executive director, R V Verma said during The Economic Times Realty Convention, 2009.
He added that there is a critical need for a sustainable model of housing finance in India and most of the processes are not transparent. While urging the government to relax terms and conditions of financing for the lowincome group, he cautioned that the due-diligence process of sanctioning a loan should be guarded to mitigate the dangers of bad debt for the lenders. "If the due-diligence process is done away with, it might lead to a real estate bubble, which in turn would eventually lead to a economic crisis, like the one in the US," Mr Verma warned.
Highlighting the role of government, Amit Mookim director & headreal estate at consultancy firm KPMG said that even when the industry is enthusiastic about providing affordable housing to the consumers, it cannot be the sole responsibility of the real estate sector. The government should adopt a subsidy approach to support housing for the lowincome group, he opined.
Besides availability of finance for the low-income group, another crucial issue highlighted at the convention was the supply of land. According to KPMG, about 2.1 million new low income group(LIG) and middle income group(MIG) houses would be required in the seven major cities alone. To meet the humungous demand, supply of land for real estate development would be essential.
The panellists suggested that land clearance procedures for an affordable housing project should be relaxed and a part of the available land should be reserved for such projects. This would in turn ensure lower cost of land and allow builders to price it at a lower level after keeping a comfortable profit margin.
The need to make the pricing more lucid to safeguard the interest of consumers was also pointed out. "Housing prices should be made transparent. The developers must reveal their costs at each level and also the profit margins enjoyed by them," Arup Roy Choudhury, chairman of National Building Construction Corporation(NBCC).
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