Demand-supply gap in housing: Top reasons and government initiatives

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Demand-supply disequilibrium across the real estate sector kept property prices stagnant and market sentiment subdued for a long time. To bridge the gap, both the Central Government and Karnataka government introduced several action plans. 99acres.com shares all such tools to improve the affordable housing demand-supply gap.

Shaken by three consecutive revolutionary reforms - demonetisation, RERA, and GST, the real estate activities have been negatively impacted in 2017. However, experts anticipate the sector to grow gradually in the coming quarters on the back of several Government’s initiatives to construct affordable housing units country-wide.

The introduction of the Pradhan Mantri Awas Yojana (PMAY) to develop affordable homes in both urban and rural areas by 2022 has pushed the supply of budget homes in India lately. However, the demand-supply mismatch in this price segment is humongous in major cities, including Bangalore. As per 99acres Insite report, the demand-supply gap of affordable housing has been persistent in the last three quarters. In the Oct-Dec 2017 quarter, the demand exceeded availability of affordable homes by 13 percent.

Current scenario

 The affordable housing market in Bangalore is tepid too. The supply is meagre, however, the demand for low cost homes is climbing. There are over 18,000 real estate projects in the city. Out of which, only 800 projects fall under the price bracket of Rs 40 Lakh.

City

Total Projects (Residential)

Affordable Projects (Residential)

Bangalore

18000+

800+

 The number of RERA registered affordable projects are even lower. Just over 100 projects are RERA approved. This huge demand-supply gap in affordable housing segment is the major hurdle in the revival of realty market in the city.  

City

Total Affordable Projects

Affordable Projects (RERA approved)

Bangalore

1800+

100+

Note: Tabular data is based on 99acres listing dated on Feb 23, 2018

Reasons for the gap

In 2017, the number of home launches recorded a steep decline compared to the previous years across the country, including major cities like Mumbai, Bangalore, Hyderabad and NCR. Implementation of the Real Estate (Regulation and Development) Act (RERA) has been considered as the major roadblock in the development and launches of new housing units. However, affordable housing segment has gained momentum during the year.

-          Implementation of RERA

The new real estate reform, RERA, has been announced to infuse transparency and accountability in all real estate activities. Most of the developers have been busy complying with the rules and regulations to avoid strict penalties provisioned under the Act. However, the implementation led to a stall in development plans owing to stringent mandates during project execution.

-          Low-profit margin for private builders

Another prime reason behind reduced availability is low-profit margin for private developers. The Central Government had introduced several Private-Public Partnership (PPP) models to encourage more participation of private developers in the development of low-cost homes across the country. 

-          Land scarcity

The limited availability of land parcels and their hefty prices in the well-located region has been pointed out as one of the hindrances in the development of affordable housing. It has been observed that land costs would be between 20 and 60 percent of the total project cost, depending upon its location. The Government had provided a platform in the form of PPP models to allure more private sector participation.

Government initiatives

The Karnataka government has incorporated several schemes and offers to overcome housing shortage across the state. The State government has already introduced seven delivery models. Out of these models, five models are in line with the Pradhan Mantri Awas Yojana (PMAY).

Model 1: Beneficiary Led House Enhancement

Model 2: Beneficiary Led New House Construction

Model 3: In-Situ Upgradation

Model 4: In-Situ Slum Redevelopment

Model 5: Plotted Development and Sites with House and Services

Model 6: Group Housing and Township projects

Model 7: Affordable Group Housing in Partnership

 

- GST cut

Reduction of the Goods and Services Tax (GST) rate from 12 percent to 8 percent for affordable homes coupled with the credit-linked subsidy scheme (CLSS) under PMAY will propel the real estate sector, primarily affordable housing segment. The GST rate rebate will be granted to first-time homebuyers with a family income of up to Rs 18 lakh per annum while buying a house of up to 150 sqm (1,615 sq ft) carpet area under the CLSS. However, homebuyers who do not qualify for CLSS will have to pay GST at 12 percent.

- New PPP policies

To encourage more private participation in the affordable housing segment, the Government had introduced several afresh Public Private Partnership (PPP) policies.  By adopting appropriate PPP models, the private developers can be incentivised. These are some newly introduced policies -

  • Private Land for affordable housing in exchange for permission for more intensive utilization of land
  • Private Land for affordable housing in exchange for permission to build high-end housing
  • Government Land for affordable housing by unlocking unutilized/underutilized parcels of government-owned lands
  • Land for affordable housing through Redevelopment of underutilized urban areas
  • Land for affordable housing through Policy reform on Change of Land Use (CLU) of Agricultural Lands

- PMAY

The Government’s initiative to develop over 1.2 crore houses for people living in economically weaker section and lower income groups under Pradhan Mantri Awas Yojana (PMAY) in Urban centres has spread its wings in different parts of the country including Bangalore. Till now, the Housing Ministry has sanctioned over 37 lakh houses. Out of all approved houses, nearly over a lakh houses have been sanctioned in different parts of Karnataka. In the recent past, the Central Government has approved the construction of 32,656 affordable houses in 95 cities across the state with an investment of Rs 1,461 crore.


Disclaimer: The views expressed above are for informational purposes only based on industry reports and related news stories. 99acres does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.


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