Wednesday, January 9, 2013

Affordable Homes, whose job is it?

"A strong economy causes an increase in the demand for housing; the increased demand for housing drives real-estate prices and rentals through the roof. And then affordable housing becomes completely inaccessible."
William Baldwin

Affordable Homes, whose job is it?

Affordable housing is the talk of time & all of sudden you can read in every new paper about the talks shows & seminars on the topic recently. When ever I think on any issue of a home, I realize how emotional we are on this topic & may be that's the cause we have always failed to do something real concrete about any good policy regarding Housing Industry. After all policies has to be made on practical basis & not just to win the elections & we need to understand one thing very clearly, in a country like our which is a conglomerate of all sorts of living standards " We are never going to make every body satisfied at a time ! "

Affordable Home doesn’t mean to ask people to compromise from 2bhk flat to 1bhk flat or to reduce & squeeze the 2 bhk / 3 bhk flat in smaller area by reducing room dimensions! It’s making the whole procedure of home manufacturing to home buying simple & clear so as every one can have his own options as per his pocket size. Like in car market you have option of Maruti Alto at 2.5 lac to BMW 7 series at 1.5 crore! All the vehicles have 4 wheels only but what matters is achieving balance between need of the customer & supply of the range of vehicles the Industry offers. And policies which assure that the Industry is able to deliver what the customer wants.

And this is exactly where we have been went wrong repeatedly with any policy related to Housing, for e.g. we want Land holders, Builders, Slum residents, Middle Class, Environmentalists, Large scale building material manufacturers, Housing Finance Institutes, Banks, Politicians & at last Local Municipal body, all happy at a time ! Because Landholders want full value of their lands potential even considering the TDR to be utilized on it! Builders want to make money by selling homes as it's their business, Slum residents wants a proper home without paying any thing which will be maintenance free & as big as they can get, Middle class wants a home within right in the city  with all loans at lowest interest, Environmentalists want a clean pollution free green & infrastructural sound city, Building material manufacturers like Cement, Steel don’t want the rates governed of their material, Housing Finance Cox’s also wont lower their interests rates, Banks wont consider Builders as reliable clients, Politicians don’t want their voters unsatisfied & the local Municipal body want revenue but not the blame for any segments accusation of being friendly with other !

Now how we are going to manage it?

Firstly understand the Housing Industry, treat it as an Industry, frame the rules accordingly & fast & implement them ruthlessly. Here ruthlessly means don’t spare any segment of above all related when it's a breach of the law once made. We make the policies keeping in mind that what if some one broke it? Actually if we enforce them without any bodies influence & not to please any segment then no body will dare that. Proper laws, backed up by an enforcement system always save the time & as in any industry, here too time is money. Does anybody have ever analyzed in Dubai or Hongkong they built 70-80 storied tower in 3 years flat. Here we will need that much time for such type of tower to get all sanctions itself! Now who is going to pay for this time span? Time delay is for simple reason, with repeated scandals every one is scared to sign on any thing & takes his own time making things delay. The laws are vague & many a time individual case becomes a policy & which often happens. This is defeat of the system as agreed land & buildings is a tricky topic but yet we can cover 90-95% cases in the policy & then rest can be dealt as individual case & for that also a system of forming a tribunal can be formed.

A one window sanction is just like a fairy tale & so as the taxes right from Stamp duty to Vat to Service tax to Development charges by local bodyes  & add on things like Road cutting charges for Infrastructure & the list goes on! Here no one is ready to reduce their stake as every one wants his chunk out of this hen which they think giving golden eggs! We are forgetting that we need to rationalize every rupee we will be spending on making a home then only we can rationalize home prices.

The basic raw material for housing is land & its limited edition type stuff is a fact. If everybody wants to live in a locality where schools, market, medical facility, workplace are close by with other infrastructure like water, power, drainage is available in ample then naturally there is a drift between demand & supply of such land. That is why we can’t provide affordable housing to all, as definition of the term affordable varies within the classes of society. For e.g. a 2bhk at 40 lacks may not be a big deal for a couple earning 50k per month with the kind of job & loan facility they can have but even a well doing small scale business man or professional cant have it as he don’t get the loan backing! Keep apart the class 3/4 segment as their budget & issues are again different.

Why cant the local body buys sizable land on all sides of the city in fringe outside the municipal limit & develop basic things like one point water supply & transportation arrangement to the main city , define the land rate. Now ask developers to build flats with all internal infrastructure there in leave of TDR in main city & sale these homes to the real needy ones at fix price? If we are expecting it by developers only then we should take the guarantee of getting the things sold & assuring fix rates of basic materials like steel & cement. When ever we say affordable then it means that the same thing is applicable to all who are related to the finish product. I am not taking side of developers but if we can’t assure a fixed profit then we have no right to ask him to sale a t fix price, no court of law will accept that.

Land pricing is another issue as its demand driven, imagine a city with infrastructure available all around balanced, then there wont be demand in one particular area. And even if its there then it will be within a limited segment, so let them buy at heavy price they can afford but at least majority of the people will have their own home then around the city.

The Developer is governed by so many govt/semi govt agencies & with no restriction of profit making. This profession may the most unprofessionally run profession & that’s why is the profits are enormous so are the risks involved. But yes accepting with all these, one needs to keep his social binding in mind & keep the profits under some self marked lines is the best one can do till we define some fixed rules for the game. The basic material manufacturers just don’t care for builder as their main customer is govt as most infrastructure structures like dams, roads are done by govt. And it’s here the consumption of cement & steel is more. There has to be a control on all such materials if we want to control home prices. Also what we need is R & D in this industry & a feasible one as we can’t use mud & thatch for constructing high rise buildings. Over the years the basic construction practices are same & so are the planning concepts.

The most important segment is least talked or worked on & that is the entire financing system for the Real Estate Industry. Housing finance company’s interest rates & loan eligibility norms needs to be more clear & transparent as that’s the main reason where a person’s affordability is defined. The major problem is with the people working in non corporate segments like departmental stores or having small business, they are always deprived from getting loans on the name of improper security! Everybody right from the developer to the financial institutes are targeting for the people who are capable of buying & repaying the loans of higher amounts but what about those who have a limited class with limited budget? They neither have choice in projects nor with financial institutes! How many people know that there is a special 1% reduction in interest if the loan amount is below 25 lacs? The hitch here is even if you are getting 80% loan then 25 lacs means the total flat must be within 30 lacs i.e. as 20% is your contribution & now where are the flats which are available in such range? So very few can avail the reduction in interest rate! What we need is go for some wider range finance schemes with lower interest rates & amount also. We must understand that Affordable housing is for this segment that has a regular monthly income but cant generate an initial capitol more that 2-3 lacs. So there has to be a special approach to make finance available to them. Presently it’s like all other segments associated with the real estate financial institutes even the nationalized banks also are looking for their profit first & yet we expect prices of homes within reach of all! Same is applicable to banks for which builders are the least priority. Banks are very happy to finance the flat holders as they see a great potential in housing finance but are equally reluctant to finance the developers especially the smaller segment ones! Now a days no landlord sale the land without getting his full payment upfront & if banks are not going to finance for the land then the developer raise this money from private market where interest rates are as high as 24% per year. And who is going to pay this added burden? Obliviously the flat holder, who again has to pay for his housing finance also!

I am not intending to say it’s not the developers who have any responsibility in this, no doubt the community should think on this front & what ever they can save by using modern construction practices they should try & pass on to the end user. Unfortunate is because of lots of uncertainties amongst above mentioned factors those who have got the land at cheaper rate, they also sale the finished product i.e. flats at higher or prevailing market rate thus making it impossible for any space to accommodate the term Affordable! It’s time to remind us that the purpose of this Industry is not to just make profits but to give the society houses they need too.
Lastly the politicians along with our rulers must understand the scenario & accept their responsibility to make people available hoes of their choice in their budget. Blame game won’t do any good to any segment; instead use the power which they have for assisting the local body/ govt to frame the laws & fast for the end cause. There is where lies the key to Affordable Homes for the Common Man.

Sanjay Deshpande

Sanjeevani Dev.

Envo-Power Committee, Credai, Pune

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1 comment:

  1. do not rely on govt body.....
    & expect any good fr t organizations........

    jst move ahead to do anything good !!!!!
    i m with you for such project


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