The government launched the “Housing For All by 2022" programme in 2015, with the Pradhan Mantri Awas Yojana (Pmay) as a key anchor scheme. Pmay envisages building 20 million urban units by 2022. Global examples indicate that affordable housing activities generate direct and indirect employment in the medium term and sustained consumption in the long term. A 2014 study by the National Council of Applied Economic Research indicates that every additional rupee of capital invested in the housing sector adds Rs1.54 to the gross domestic product (GDP) and every Rs1 lakh invested in residential housing creates 2.69 new jobs in the economy.

While the Indian government has provided for policy and budgetary support to make the plan work, the actual execution on ground can be accelerated to realize the true potential. This article is an attempt to explore the key bottlenecks and suggest ways in which we could address the situation. For a national housing dream of such a magnitude to fructify, the entire housing ecosystem needs to be well developed and all the stakeholders need to share a unified vision. With a shared vision and clarity of purpose, all the participants in the ecosystem need to work collaboratively with a high degree of conviction and risk-taking ability.

To explore possible solutions for jump-starting the housing boom, we need to examine both the supply and demand side challenges. On the supply side, there are two key challenges, including land availability and supply of quality developers. Given that urban areas contribute 70% to the GDP but occupy only 4% of the land base, the government should proactively allow urban public land holding to be utilized for affordable housing projects. The government can also explore the launch of an affordable rental housing scheme, wherein it could create a stock of affordable housing units within urban areas. Globally, countries such as Singapore and Sweden have huge public housing programmes that form 83% and 30%, respectively, of the country’s housing stock.

The private sector can play a role in implementing best construction practices, and in maintaining the housing stock, as is the practice in New York. The New York City Housing Authority owns 2,600 high-density buildings housing 400,000 tenants, with amenities maintained at par with the rental market, managed by private agencies. In India, without adequate urban land parcels to set up housing complexes or housing schemes with private participation, meaningful supply creation will not happen. India is largely a country of small-scale entrepreneurs and real estate is no exception. While the establishment of the Real Estate Regulatory Authority is a step in the right direction to safeguard consumer interests, the level of compliance and strict fund-usage conditions are onerous for small-scale developers. By building a strong support system and hand-holding the real estate entrepreneurs, we could create an ecosystem of quality developers.

On the demand side, while overall economic growth will create the right enablers to stimulate demand, loans need to be provided at affordable rates. In order for housing finance companies to lend at affordable rates, the financing ecosystem participants, such as large lending institutions and credit rating agencies, need to evaluate the new-age credit frameworks of housing finance companies. In today’s technology era, the credit evaluation of customers is done very differently by leveraging data and technology. For instance, tools like pincode-based customer mapping, social behaviour analytics, and technology-led fraud prevention and control, are immensely helping new-age housing finance companies to profitably lend to customers while controlling the credit risk. The lending institutions and credit rating agencies need to design new frameworks/rating scales that benchmark companies on such new capabilities. Also, many new housing finance companies are leveraging such tools better and faster than the others.

However, the current practice of assigning a low rating to all new companies, and slowly upgrading them over time, does not help in facilitating accelerated growth. Since the rating drives the borrowing rate, which is a key cost for housing finance companies, such a wait and watch approach creates a bottleneck for the good companies. Instead, it would be immensely beneficial to rank companies on the fundamental soundness of their new-age technology-led tools/practices, and downgrade those who demonstrate weak results. Such a rating downgrade should be done swiftly in order to reflect the health of the company.

It’s a new paradigm and hence, lending institutions need to change their approach to new-age businesses. By assigning high importance to traditional parameters, such as scale and vintage, before taking any exposure to new-age housing finance companies, lending institutions are not accelerating growth. The new-age housing finance companies deserve a fair chance to demonstrate their capabilities; lending institutions can always cut the exposure to companies that do not perform well, but good new-age companies should not be starved of capital by tarring the entire industry with one broad brush.

The need of the hour in this new paradigm is for the financing ecosystem participants to develop new products in order to accelerate the housing opportunity that will drive large and long-lasting economic benefits for the country.

Renuka Ramnath is the founder of Multiples Alternate Asset Management.

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