Shortage of affordable housing now stands at about 25 million units in the country due to massive demographic pressures. The pace at which these units are coming up is very slow. And even as more private developers are trying to cater to the demand and fill the gap, little can be achieved unless challenges such as land acquisition are tackled. In an interview to The Hindu, Tata Capital Housing Finance Limited Managing Director R. Vaithianathan talks about the ‘sunshine’ sector that is affordable housing . Excerpts:
How do you see the scope for affordable housing in Tier-II & Tier-III cities?
There is a strong demand for affordable housing in Tier-II and Tier-III cities, as well as in the suburban areas on the peripheries of metros. There is a demand-supply mismatch in Tier-II and Tier-III cities, and the scope for affordable housing is only set to increase. Low-cost housing and low-income housing are two very different things. There is an upward trend in low-cost housing in India but there is a need to cater to the correct segment so that benefits are passed on to the needy. There is a need to cater to the low-income category of customers in low-cost housing projects, and bridging the two is the need of the hour.
The emergence of micro-housing finance companies and low-income housing developers point to a promising market, but supply-side constraints imply that current offerings are far from making a substantial dent in the national housing shortage. Your thoughts?
The total estimated housing shortage in India is about 25 million units, so there is a good demand for low-cost housing. Some supply can be created by the low-cost developers but till there is an emergence of a single-window clearance for approvals from acquiring land to handing over the ready product, costing of these homes is always going to be a challenge. Hence, the issue of not being able to serve the ones who need it the most will continue.
On the other hand, micro-housing finance institutions look promising but the very fact that their access to relatively cheaper source of funds is very limited and that the profile of customers (categorised as high risk) they are catering to are causes of concern.
Hence, they are compelled to charge 200-300 basis points higher than the HFC’s and banks… this is a big issue they are grappling with.
Do you think that the financial inclusion of low-income households in urban areas is a key component?
Yes, this is a key area to cater too and there have been some small steps taken by newer HFC’s and micro housing finance institutions with regard to the same, albeit with some premium attached to the pricing of these loans.
The key here is not the higher risk premium on return on investment (ROI) being charged by the HFC’s, MHFI or banks, rather the understanding of these profiles and their income assessment that will give the lenders an edge to cater to the market and garner a higher market share. There have been some steps introduced by the National Housing Bank (NHB) also with regard to opening up of the external commercial borrowing (ECB) window for developers for low-cost housing.
The World Bank recently approved $100 million for low-income housing finance projects in India. Do you think it will have a significant impact on the segment?
World Bank has allocated a substantial amount of money for low-cost housing finance but it remains to be seen how this will positively impact the sector. Having said that, lot of focus is being given to this segment via various entities, government-initiated and private players. NHB has been forthcoming and encouraging to HFC’s in terms of availing of and disseminating funds, so that it is deployed constructively.
The shortage of affordable housing is getting worse instead of better. The country’s urban population of 285 million has multiplied by five over the last 50 years . It is projected that it will continue to increase at this fast pace, and that 50 per cent of all Indians will be living in urban areas by the end of the next three decades. So, if the shortage for housing for the lower income segment stands at 25 million today and there is no increase in the pace of supply of affordable housing launches, what will this figure look like in 30 years?
Housing to meet the shortage in the low-income sector will also grow at minimum 10 per cent per decade. However, the government and HFCs are working to create more housing for this sector.
Where do you see this sector in the next five years?
This is the ‘sunshine’ sector within housing for the next five years from a developer and lender perspective. Proactive measures are being taken by the Ministry of Housing, NHB, IFC, WB and developers. Add to this, the keen interest shown by HFC’s, MHFI and banks towards funding for these projects at the retail and project level. To put it simply, this will be the growth engine of the future for all stakeholders.
Are you planning any new products to tap the low-income households?
Tata Capital Housing Finance is a four-year-old company and we are present in all key segments of housing finance — from retail home loans to developer funding to loan-against-property and rural and affordable housing. We are keen to serve this segment and have a special emphasis on the rural and affordable housing. We have created products specifically to cater to this segment. We are also keenly looking for ways to address the informal sector such that there is a win-win for the customer as well as the developer.