A Curse Named "Affordable Housing"!

"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, a Curse?

Many will be surprised by the heading of the sharing but somehow after going through the recent activities in real estate that's what I feel about the subject! Recently once again real estate & affordable homes came under lime light & as usual for wrong reasons! On one side our Hon. Prime Minister's dearest dream “Pradhan Mantri Aawas Yojana 16” is being highlighted on media via catch line ,"PM Narendra Modijika Sapana, Subka Ghar ho Apana" & on other side media as well socialists (I have yet to understand what it means exactly) are hell bend to prove there is huge scam happening under the nameof PM's home scheme! Actually its not affordable home scheme which is being wrongly presented, as it has been launched with all good intention! Under the scheme by which any first home buyer with annual income under five lacs rupees will get Rs. two lac fifty thousand subsidy by central govt whatever cost of the home may be! He can buy home any where even for building his own home under this scgeme! So taking advantage of this scheme some company which has advertised their projects by using Hon PM, CM & Guardian Minister's snaps has been now tagged as guilty for cheating people rather common home seeking people! No doubt no one should use govt’s name unless it’s agreed or allowed by the Govt itself & if it is a project where Govt is a party; yet the said developer has done it & now everybody is busy in executing the developer as well entire real estate industry! I am not authority to bail out the developer neither he should be if he has cheated people; but in the process we have forgotten the main issue i.e. Affordable Housing! Like water is essential for survival, same way especially in cities you need a home of your own for survival & with urbanization on rampant in Metro's like Pune, Mumbai yet there are millions who can’t even dream for their own home here! The response for the advertising campaign for these projects (I am not saying the way was right) which the above said developer got, should be an eye opener for the Govt as well Media, as had the govt itself has launched such projects then no private developer has required to take advantage of govt's own subsidy schemes! I am not defending any developer as whatever wrong if he has done then court is there to punish him; issue is who is going to punish the Govt for failing repeatedly to provide affordable homes to the real end user?

Looking at the way media has gone after the builder & real estate, it seems the affordable housing is a curse as why should a builder think of affordable in first place? Does any private education institute which charges hefty fees or takes donations thinks of affordable education? Does Cinema Multiplexes think of making affordable entertainment? Does hotels thinks about affordable dining? Joke or sarcastic part of my statement apart what I feel is who are developers to decide affordable homes? Dear Developers, let's plan your projects the way you want to build & sale it at whatever rate you feel is right, that's all! Leave affordable homes for govt as its their baby is what I personally feel; do mind you are here to make some money by selling what you have committed & not to propagate Govt's or PM's dreams, is what the lesson real estate should learn through this entire episode! So stick to what you have committed & commit whatever you want but very clearly & transparently as day's are not bright & shiny, here it's not what you do good is looked at but when you stumble then we will hit you, is the way social media look at it! If you deliver what you have committed then it was your job but if you fail by any reason then you are to be hanged, is the today “Mantra” of social media! So accept it & leave the dream of giving people affordable homes & build for your own survival, that's reality of real estate!

But the entire chain of events does got surfaced many questions which came in our view like outcome of "Amrit Manthan" & if we really care for affordable housing then its high time to face these questions & put our energy in some productive manner to answer them! So trying here to analyze few of them...

 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 Company’s also won’t lower their interests rates, Banks won’t 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 someone 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 Hong Kong 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 everyone is scared to sign on anything & 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 bodies & add on things like Road cutting charges for Infrastructure & the list goes on! Here no one is ready to reduce their stake as everyone 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 can’t have it as he don’t get the loan backing! Keep apart the class 3 or class 4 segments 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. Whenever 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 won’t be demand in one particular area. And even if it’s 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 inte 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 & whatever they can save by using modern construction practices they should try & pass on to the end user. Unfortunate is because of lots of uncertainties among 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.

What is role of Politician's?

Many will blindly say to earn money & publicity!  Well, again joke apart the politicians along with our rulers must understand the scenario & accept their responsibility to make people have the homes of their choice in their budget. Just announcing popular schemes won’t do good as it’s the private developers who are the key to provide affordable homes is a fact. At the same time 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. This is where lies the key to Affordable Homes for the Common Man & not by just proving some builder guilty for cheating people under the name of affordable housing or blaming the real estate isn't the solution for real estate, is all I wanted to conclude with!

At the same time let clients understand this, no one can make your affordable definition, you have to use your brains & decide it; even if PM himself is advertising any project then also! Choose wisely & with open mind not just eyes as all which looks good need not be necessarily good for you in the end!

Sanjay Deshpande 

Sanjeevani Dev.

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