Lack of financing option for land acquisition, poor adoption of technology in construction, dubious credentials of developers, under-developed mortgage finance market, tedious know your customer (KYC) norms, co-ordination and marketing of policy and higher cost of funds for housing finance companies (HFCs) are key supply-demand side challenges being faced by the affordable segment in India, says an ASSOCHAM study on the subject.
Development of affordable housing has consistently been a challenge due to reasons like land cost and availability, practicality of affordable housing definition, complicated regulatory process for approvals and others. Absence of a developed market for financing home buying results into lacklustre supply because developers of affordable housing face a slowdown in absorption of constructed units, the study highlighted.
“The Pradhan Mantri Jan Dhan Yojana (PMJDY), which mainly targets lower-end of pyramid, should be used to provide housing finance to the account owner, thereby directly catering to the targeted segment,”suggested the study titled ‘Affordable Housing Finance in India,’
Economically weaker section (EWS) and low-income group (LIG) categories are generally not given access to loans because of many reasons like –lack of proper documentation, higher credit and default risk, unavailability of guarantor and others, it noted.Also, the income of people in this cagtegory remained unevent throughout the year, and was often below the viable threshold to ensure repayment of the loan.
“Relaxing the norms specifically for affordable housing segment can boost the depth and width of housing financing market like, for example, making state mandated Aadhar card an acceptable identification for getting a loan,” suggested the study.
Empowering EWS/LIG categories with lower interest rates for home loans will reduce inventory in the market and ultimately benefit the buyer, it said. Reducing cost of financing for developers and finalising various long-term funding options like real estate investment trusts (REITs) and real estate mutual funds (REMFs) will help them avail cheaper project financing for development of affordable housing projects.
Single-window clearance for project approval will significantly reduce costs and approval time needed for development as on an average permits take up to 36 months to get approval from 40 different departments which includes –revenue, fire, airport authority and others.Highlighting that the policies implemented currently lack a definitive approval window, provision of land for the development of affordable housing project and lack of availability of land funding for the developers, the study suggested that government should act in a proactive manner to get rid of these bottlenecks for improving greater private sector participation.
Better use of newer technology leading to faster completion of projects, options availability for land financing, opening up of land parcels, incentivising lenders to cater to informal segment of home buyers are certain proactive reforms to revive private sector to invest more in this segment, suggested the study. It also suggested more licences be given to new housing finance companies, financing to HFCs should be done at lowest cost possible to increase the lending done by HFCs and catering to uncaptured market in need of housing finance.