The state of real estate and housing in India amidst pandemic: Impact and way forward

Excerpts from the Impact and Policy Research Institute (IMPRI), New Delhii event on real estate and housing in India amidst COVID-19, prepared by Dr Soumyadip Chattopadhyay, Arjun Kumar and Nishi Verma:

Much has changed with the Coronavirus hitting the world in December 2019. Amid countries applying extreme measures to contain the pandemic, businesses came to a grinding halt across the world, forcing monetary agencies to slash growth forecasts for the global economy, India included. While the adverse effects of the pandemic are already being felt across the world, varying opinions are emerging on COVID-19’s impact on the real estate sector, a health emergency that force-launched the biggest ever work-from-home experiment globally, putting a question mark on the relevance of workspaces in a post-Coronavirus world. The demand slowdown in the residential segment has already curtailed housing sales, project launches and price growth in India’s residential realty sector. Due to the lockdown announced on account of the COVID-19 outbreak, both, construction and sales activity, have come to a complete halt across the entire real estate sector.

The complexities of the Indian Urban Housing scenario, the various aspects of the state of real estate and housing in India amid COVID -19 pandemic its impact and way forward were highlighted by Prof P S N Rao, Director, School of Planning and Architecture (SPA), New Delhi in a joint talk organised by Centre for Habitat, Urban and Regional Studies (CHURS) and Impact Policy And research Institute, IMPRI, New Delhi.

Dr Soumyadip Chattopadhyay, Associate Professor, Visva-Bharati, Santiniketan; Senior Fellow, IMPRI, New Delhi:

Setting the context, the moderator of the session Dr. Saumyadip says that as the urban centres have become the epicentres of COVID 19, it has exposed the shortcomings of Indian Cities. Inadequate provision of urban basic services, lack of affordable housing, lack of adequate social safety nets and most importantly the vulnerabilities of the informal settlements have been showcased by the pandemic. As far as housing is concerned, we need to find answers to several important questions like to what extent our urban policies have been successful in assuring access to housing and services among the vulnerable section. Why have the large number of houses built under the affordable public housing schemes remain unoccupied? Why is a huge demand-supply gap remaining in providing affordable housing despite numerous efforts? Why have a large number of landlords intentionally left their houses vacant in case of private housing despite significant demand for housing? How does the underlying governance framework in our cities a ffect the outcome of these government policies?

Stalled Housing projects affecting developer community

Prof P S N Rao, Director, School of Planning and Architecture (SPA), New Delhi

Prof Rao Dwelled upon by stating that considering the housing and construction condition of the country, the moment the lockdown began from the developer’s perspective construction projects came to a halt. The question of the existence of home for most construction workers made them return back to their villages during the lockdown. The construction projects came to a complete standstill for a good number of months and subsequently when the first and second unlocking happened, the people did not return from their villages completely. While the few developers tried to retain their workers, the majority of them actually left resulting in the stopping of a large number of construction housing projects. This resulted in a whopping 40 lakhs of unsold residential units lying either vacant, un constructed or as stalled housing projects. He further stated that whenever a project stops there are time and cost overrun and getting back involves a lot of costs that are hidden which ultimately affects the buyers.

The importance of mechanization and modern technology in the Housing Industry

Prof Rao illustrated that the way in which we are building in our country over the last several decades is still continuing to follow a very labour intensive kind of methodology due to the existence of a large unskilled or semiskilled workforce in the country. But now the developer community has realised that their dependence on labour has to come down by moving towards more mechanised methods of construction of housing units to take care of supply- side issues.

“You can’t have projects for four, five, ten years gestation period and need to build fast to deliver home to buyers”, says Prof PSN Rao.

Unfortunately in India, there are only a few developers who use modern methods of construction. While many negatives in construction still exist in the housing sector, the positive aspect is realising the importance of mechanization and modern technology in it. Also, there is the rising realisation of not taking workers for granted as they are the backbone of the construction industry.

Government’s response for infusion of mechanisation in Housing Industry: GHTC

Talking about the government’s response, Prof Rao underlined that , the government has very seriously been looking at the infusion of mechanization in to housing industry. The Global Housing Technology Challenge launched by the Ministry of Housing and Urban Affairs is an effort in bringing mechanization into the housing industry. The government of India is looking at a complete ecosystem wherein you reduce construction wastage and amount of labour, thereby increasing the speed of construction to deliver projects in less time. 54 different technologies from different countries were offered in the G lobal Housing Technology Challenge, out of which six state governments agreed on giving large parcels of land for light house projects, where each of these six chosen technologies would actually build housing as a part of PMAY-U broad framework and specifications. Under this, almost a thousand houses will be built in one year at a very fast pace of construction.

Affordable Housing as a complete ecosystem with essential facilities for migrant workers

Dwelling on the issue of affordable housing for migrant workers Prof Rao says that the existence of the huge number of migrants and their residence in the cities is a big question. The construction workers legislation makes it mandatory to provide housing for construction workers for all projects beyond a certain scale. However, the provisions are not well implemented for many reasons. As a response, the government launched Affordable Rental Housing Complexes (ARHCs). Under this, complexes can be built by the industrialists, corporate and private sectors where in there would be concessionaire and complexes with affordable rentals will be built for housing the migrants.

“Whether Affordable rental Housing Complexes will really mitigate the problem or not is still in doubt as there exist several issues which can halt the scheme,” says Prof PSN Rao.

Under this scheme, there is the idea of using all the earlier housing under JNURM and RAY which were all lying vacant to be incorporated, utilized under this scheme. The question of why these were lying vacant has not been analysed. There are large housing estates built under JNURM and RAY lying totally vacant due reasons of unavailability of water, lack of bus connectivity in the outskirts of the city, lack of schools and other facilities which were unavailable at the outskirts of the city where the schemes were implemented.

“A free bus pass is more valuable for a daily wage worker who travels daily for bread and butter at the heart of the city from the outskirts”, says Prof PSN Rao.“We are looking at housing not as a complete ecosystem but as houses which you need to build without essential add-ons. Providing water facility, education and connectivity will result in better occupancy.”

Loss of Jobs resulting in informal arrangements between landlords and tenants

Prof Rao further highlighted the unemployment scenario amid COVID and stated that the COVID-19 pandemic has resulted in the loss of jobs in which a large number of informal sector labourers were left with no work and income. While the unlock has brought all the street vendors back into action, the people at a slightly higher income level are still jobless with no incomes. Reduced affordability, i nability to pay EMIs and rents have affected the middle class the most. A large number of tenants have started looking for informal arrangements from the landlords due to the loss of jobs.

Increased residential sales and slowing down of commercial real estate

Prof Rao throws light on various aspects of residential sales and commercial real estate and points that the business of working from home has actually opened up a new dimension in the housing sector in the sense that your home is not just meant for you to live but it’s also meant for you to work. There is increasing demand for larger sized homes possibly a larger size than 2 bhk to accommodate a small room as a workspace.

On the other side, commercial real estate is taking a big beating as a large number of offices are deciding to keep the small area as an office where only key employees need to come and rest can work from home. There were a huge inventory overhang, reduced rentals and reduced sales due to the complete slowdown. However, on a positive note, residential sales have started recovering in a big way across several markets as people now are seeing the importance of owning a home.

“Residential sales are increasing while commercial real estate is taking a beating,” says Prof PSN Rao.

In big cities with small apartments, people are shifting to use multipurpose designs where bedrooms can be converted to offices and vice versa according to need.

In view of social distancing, real estate developers and brokers are all looking at a complete relook on the marketing strategies and using e-marketing to uplift sales. Most of the developers are today sending all their brochures and conducting webinars using digital media to provide a near life experience to the buyer.

Issue of liquidity in market and governments response

Prof Rao elucidated the issue of liquidity in the market saying that there exists a serious issue of liquidity in the market. In response, the government tried to lower home loan interest rates, fixed deposit rates. The government has performed an infusion of 15,000 crores in the National Housing bank to have enough money in terms of refinancing.Moratorium is being offered on term loans for six months. In the RERA compliance government decided that the deadlines can be extended by six months and a threshold limit for the insolvency proceedings has been provided. Also, the state governments of Maharashtra and Karnataka have reduced the stamp duty from about 5% to 3%. Even though the government has taken many steps on the financial sides, there are many more things that need to be done for the real estate developer and marketing community. The capital gain tax can be one thing that can be looked into.

“The local governments have an important role to play on what one does with all stalled and vacant housing projects and unsold inventories”, says Prof PSN Rao.

Further, he focused on how to restructure the problem of stalled housing projects where a large number of middle- income families have got stuck and their savings are all invested in projects where they are unable to get flats. Though regarding it RERA is trying to solve the problem and also joint ventures are being made for restructuring the projects where there is profit sharing for completion of the project on time. However, the UP RERA which is perhaps the biggest with the largest number of problem cases exist where only 50% of the problem cases have been solved and the remaining 50% are still untouched.

“The real estate and housing sector in totality is going through a certain kind of internal churn in which cracks are fully getting exposed”, says Prof PSN Rao. “The current phase where COVID vaccine is going on and the whole year 2021-22 are two years of consolidation where people will become more realist.”

A large number of states have taken affordable housing as a concept seriously with affordable housing policies. People have also realised that a larger part of the story actually lies in the middle- income housing. The middle housing is being addressed in India with a good number of affordable housing projects in various states.

Talking about the smart cities concept he says that there has been a large number of projects, but how many of them will really affect the entire city is a big question as many of them are area- based with small interventions in a particular pocket which will affect only a very small number. However, the S mart C ity operations have actually shown us that modern technology can do a lot and how the learning which the smart city concept provides can be profitably used.

Fragile and imperfect nature of the housing situation in cities

Prof Amita Bhide, Dean and Professor, School of Habitat Studies, Centre for Environmental Health, TATA Institute of Social Sciences (TISS), Mumbai

Prof Amita bhide highlights the fragile and imperfect nature of Indian housing by saying that the pandemic in some ways illustrated to us the very fragile and imperfect nature of our housing situation in cities. The migrants had to return because of the closure of a lot of construction worksites , also in several sites, the developers abdicated the workers completely. Secondly in case of casual workers who had housing were forced to leave the city due to the insecure state of housing and their unaffordability to pay rentals.

She says that the entire reality of housing where formal housing, legal housing, secure housing is not available to these segments of the population is an issue that is revealed to us time and again.

“Recent policy and government measures do not seem to do justice to the problems of formal, legal and secure housing”, says Prof Amita Bhide.

The states like Maharashtra, which have been at the forefront of the real estate market have also seen a tremendous pandering to the demands of the developers post the pandemic. In a situation where the economy is impacted and where the revenue of the state government are highly linked to the real estate economy. She questions the large scale concessions which are being given to the developers in order to stimulate real estate development.

“Constructing more and more houses is perhaps not the solution to inadequate affordable housing in India”, says Prof Amita Bhide.

Direct proportionality relationship between the economy and real estate sector

Dr Akshaya K Sen, Fellow, HSIM, HUDCO:

Dr. Sen foregrounds the interrelationship between the economy and real estate sector and states that according to the OECD report prediction the Indian Economy would grow by about 12.6% in the financial year 2021-22 which is remarkable. One of the reasons which could help in 12.6% growth is the real estate sector. The growth of real estate and economy always lies directly proportional to each other in India. Recent study shows that if real estate sector has income multiplier of 5 on the employment multiplier of 8 i.e. if one invest 1 unit in housing or real estate sector , it will give direct, indirect and induced employment totalling of 8 times. Thus real estate sector plays an important role in economy growth.

Measures required on supply and demand side in order to further push the real estate sector.

  • To support the supply side the NBFCs by expanding the moratorium period to one year or more.
  • One time debt restructuring or risk development by lending institutions for NBFCs to tie over liquidity crunch.
  • Having working capital fund which will provide support to stall projects to come in to force.
  • Providing last mile funding for completion of test or stall projects.
  • Need for risk capital and government guarantee to banks to enable them to lend to real estate projects.
  • Reducing maximum rate of interest on the new housing loans.
  • No capital gains tax for residential properties held for more than one year.
  • Rationalization of stamp duties and 50% reduction on GST rates on the housing segment.

“In the next one or two year the real estate would be major contributor economist journey to the 5 trillion dollar economy by 2025”, says Dr Akshaya K Sen.

He further states that, however, the residential real estate sector would take some more time to kind of come out and recover but increasing urbanisation and the perennial appetite of the Indian middle class to own a house will help in the rebounding of the residential real estate sector. The commercial real estate sector is also likely to rebound in the current financial year or the two quarters in the next financial year. The retail would also witness a dynamic phase of e-marketing and re-loop division models.

“Land banking and land pooling would be a key factor in the real estate development”, says Dr Akshaya K Sen.

There also would be the presence of financial innovations like the development impact bonds, relay refinancing models in to the picture. Also RERA would bring in much more transparency and consumer confidence for smooth functioning of residential as well as the commercial sector. Post COVID rental housing on PPP basis for social need based market scenario and senior citizen housing will also play part in the coming scenarios.

Mr Dhaval Monani, CEO, First Home Realty Solutions

Sharing his views, he stated that the government entering the sector has proved to be very detrimental to the sector in a large way. Though the government came up with the best of intentions, but in last six years, from the target of 22 million houses, only 3.5 million have been built. The amount of money wasted in the building spree of constructing 3.5 million houses has been colossal. The innovation that came in the private space has pretty much being left out. The other mechanism of providing indirect subsidy is killing the private sector to enter in to this place.

He further dwelled upon the fact that there was a fair amount of work done by the government during the COVID pandemic with introduction of ARHCs. However, in India we have less than 30% of organised rental housing available, though the government’s intentions are good in providing affordable rental housing but the implementation side needs to look at the prospect much more deeply. Last few years government has placed a lot of emphasis on technology but we are still 20 years behind from other countries in terms of successful government housing programs. Any developer in the country is reliant on resales and ongoing sale cycle to fund the ongoing construction. There is also the need to look at the worrying number of vacant homes with national average of 7.5% of vacant homes in which government housing plays a major part.

“There is still a huge disconnect between what is required in the market and how the government is envisioning it”, says Mr Dhaval Monani. “Rather than talking about only housing, we should talk about shelter for migrant workers and labours.”

Existence of Paradox situation in rental sector with need to increase rental yield

Mr Pavan Dixit, Co-founder, Property360degree, Hubli, Karnataka

Talking about the importance of increasing rental yield, Mr. Dixit said that post COVID and during COVID we tried to focus and talk more about the need of rental management in India for about last three to four years. Basically, COVID holding people to their locations has created lot of opportunities for people in secondary markets i.e. rentals and property management. Lot of property management companies came up during COVID which are trying to expand. However, today we witness a paradoxical situation when it comes to rental yield. As rental yield is probably one of the lowest in the world and in India it is comparatively very low. At the time when there is increase in need of the rental management activities, this scenario will impact the rental needs which the investors are going to get at the end of the day. There is the need to look at the actions needed from different corners that is going to increase the rental yield. However the model tenancy act is trying to be implemented to overcome the issues in the rental sector. Model tenancy act will provide the confidence to the investors for investing and earning the rental revenues. He further says that Currently in a paradoxical situation, the rental sector is moving towards a grey area where people are unable to get money from their investment in the real estate and questions how the rental property management is going to be structured when they is no good amount of money coming to the managers.

“There is a need of increasing the rental yield for the investors from the policy and business point of view,” says Mr. Pavan Dixit.

Municipal Bodies and their intersection with housing

Mr Sameer Unhale, Joint Commissioner, Department of Municipal Administration, Government of Maharashtra

Considering the perspective of the municipal body and its intersections with housing, Mr. Unhale points out that there exist some four to five areas in which municipal body and housing in the city can have some intersections. One is master plans as a planning authority, secondly aspects of TDRs, the development rights, zonings and FARs and FSI in terms of regulations. The third is the property tax segment in which newer property is charged more heavily than the older property, moving towards capital based property taxation, thus having additional property tax to those houses that are vacant instead of giving them concessions to encourage better occupancy of housing. The fourth element is the implementation of various housing missions that we have. Fifth is regarding the availability of civic services to the various areas in which the housing has come up.

“Housing needs to be part of the right to a dignified life, which will take time as it depends upon the maturity and financial capability of the country”, says Mr Sameer Unhale. “Having new business models into the housing sector is the need of the hour.”

Sharing his views he says that the global south had been deprived of its wealth for probably two centuries. T he overall poverty that we see in these countries reflects open poverty out of which housing is the most important elemental aspect of the urban party matrix. Talking about housing as a sector, it’s important to consider the informal element in it. Housing from affordability need not only be owned and new housing models are needed to be developed. Micro financing methodologies can be used to deal with rent paying capacities of the urban poor.

“This decade is very important, we need to be flexible and also innovative to tackle the housing problems”, says Mr Sameer Unhale.

Grey Areas of Affordable Rental Housing Complexes

Reflections by Prof P S N Rao, Director, School of Planning and Architecture (SPA), New Delhi

Reflecting on the points made by the panellist Prof Rao states that the idea behind Affordable Rental Housing Complexes is either using existing vacant housing projects or constructing new housing projects. Here the private entity referred to as a concessionaire is supposed to construct, operate and maintain complex for a period of 25 years. The affordable rents are to be charged by these concessionaires. He highlighted some grey areas which are:

  • Can the ARHC complexes match the ways in which migrants currently live with low- level rentals of around Rs1000 per month?
  • What is the great profit a developer is going to make after taking such a huge risk of constructing, operating and maintaining ARHCs?
  • How to deal with non-payment of last month rentals in case of migrant workers moving from one state to another?
  • Existence of issues of litigation, non-vacancy of complexes and local politics by the developers.
  • The people coming from the same place can possibly take ARHC operator for a ride creating social issues.
  • Putting bachelors and families in the same complexes can create problems.
  • Absence of incentives for maintaining complexes by the developers when they are not making profits.

Talking about the developer driver characteristic of real estate, he points out that today the real estate sector is more developer- driven rather than consumer driven. The consumers i.e. the Indian Middle class don’t have an association, on the other hand, the developers have an association at the national level, state level and city levels. Risk funding and viability gap funding are all ways to help developers and to get the projects but there exists no compensation for the buyers of the flat whose flats delivery has been delayed. However the good thing is the recognition of consumer and enactment of RERA.

Further, he stated that the construction spree of buildings has become a kind of number game but in order to meet demands we need to build more to supply the housing requirements as providing more stock in the market will help stabilize prices. But on the contrary, economics is not working because houses which are being built are still unoccupied due to lack of essential facilities like road, water, safety, school. etc.

“These government programs fail in identifying the journey of a migrant worker from his village to cities and how he gets a job and a roof,” says Prof P S N Rao.

He underlines that as far as affordable housing is concerned, challenges of affordability and adequacy is there, but affordable housing in Indian cities also faces the third challenge of legitimacy. Any affordable housing stock whether built new by the public or private actors or through upgradation of the existing stock must consider how to secure what is often referred to as the property rights. There exist divergent views on the importance of rights and right based approaches to affordable housing.

Pertinent Questions

Dr Soumyadip Chattopadhyay highlighted various pertinent questions of How to think of an appropriate regime of property rights and whether is it possible to think of certain criteria to design such kind of regimes . He further highlighted the Indian scenario of scarcity of reasonably priced land in Indian cities. There exists almost 40% of the land where slums are located in India which are owned by urban local bodies and also another 10% by some other public agencies . He stated that It is fairly clear that leveraging publicly owned land if done appropriately could make significant gains in addressing the unmet need for affordable housing.

Adding to the deliberation of the topic, Dr. Arjun Kumar highlighted the issue of congestion. He further threw light that in India the issues of slums somewhere got missed in focussing a lot on creating a building spree. The redevelopment which is happening is slow due to the non-participation of the private sector. He stated that we are at the same time not aspiring to become internationally competitive and asked questions on dealing with the existing issue of slums while moving forward with housing with inadequate slum data available.

He also threw light on various government aiming at Housing for all by 2022 in PMAY Urban, Atma Nirbhar Bharat push or New India 2047and questions the strategies of making the urban sector more dynamic, thereby contributing to internationally competitive vibrant , sustainable and inclusive housing?

Prof Rao responding to it by stating that India is a very large country with a federation of several states, where several generations live together at the same time and one cannot have one solution that fits all aspects. Different states have very unique state legislations and in such situations, diversity has to prevail with diverse ideas and thinking. There should be a local situation to suit local requirements.

He further emphasized that unless and until the governments, whether local, state and central governments, take low-income housing, affordable housing and slums seriously, there will exist problems. Urban housing is undergoing a revolutionary process that will take time with tailor made solutions and changing ways of functioning of urban local bodies.

“Indian civilization today has an evolving nature which will take its own time,” Says Prof P S N Rao.

Way Forward

Prof Amita Bhide, Dean and Professor, School of Habitat Studies, Centre for Environmental Health, TATA Institute of Social Sciences (TISS), Mumbai

There are two imperatives that one needs to accept, one is that only the construction of houses is not going to solve our housing issues and therefore there has to be a healthy mix of both regulation as well as pragmatic acceptance of certain solutions that people themselves have lived in and demonstrated. Second is reducing the entire disparity in the housing market considering the economically weaker sections. Thinking about creating an ethos for local need oriented housing supply which will require significant city autonomy.

Dr Akshaya K Sen, Fellow, HSIM, HUDCO

The idea of additional property tax on vacant houses in order to encourage them not to keep it vacant and giving it for rent. The lowest rental yield is a matter of concern, we need to have innovative financing models in order to make it a profitable venture. Better rental pricing would result in better rental yields. The right to adequate housing is an important feature, while the right to housing is firmly entranced in international human rights law, its translation into the rental legal system in a particular and meaningful manner needs to be done at the earliest. The challenges relating to the right to adequate housing need to be addressed going forward in order to honour the commitments given by the nations including India in the new urban agenda declaration of habitat III.

Mr Sameer Unhale, Joint Commissioner, Department of Municipal Administration, Government of Maharashtra

You cannot have typical Newtonian mechanics for such a complex issue where multiple aspects with social factors interplay. To think of a chain of causality leading us to our desired goal is going to be a tough task. We need to be very innovative with lots of out of box ideas. The bond market which is almost 220 trillion dollars is required to be accessed by the municipal bodies. This decade would be the decade of innovation, adventure, courage and determination by all aspects and all sectors. There is a need for working together to take Indian housing to a level where we have adequate and affordable housing.

Mr Pavan Dixit, Co-founder, Property360degree, Hubli, Karnataka

To have real estate more consumer focussed rather than developer focus has to be the goal. There are consumers from different states where RERA has not been so strong and hence consumers are stuck with their investments. How things are taking shape and implementation at state levels needs to be looked upon.

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