International Journal of Research in Engineering, Science and Management 180

Volume-2, Issue-12, December-2019

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Housing Policy in India: Challenges and

Reforms
Yash S. Shah1, Sejal S. Bhagat2
1
PG Student, Dept. of Town and Country Planning, Sarvajanik College of Engg. and Technology, Surat, India
2
Assistant Professor, Dept. of Town and Country Planning, Sarvajanik College of Engg. and Tech., Surat, India

Abstract: The housing sector in India for several decades faced framework of the state’s responsibility. India has been
a number of setbacks, such as an unorganized market, witnessing several macro-economic changes that affect all
development disparities a compartmentalized development sections of its economy after the adoption of liberalization
approach and a different rent control system. Although the task
policies in the early 1990s.
represents an enormous challenge, but it also constitutes a great
opportunity for developing countries economy. It attempts to Cities are the engines of economic growth. Moreover,
distinguish the problem of the massive urban housing shortage housing activity is tied with many other sectors of Economy, as
that exists mainly in the Low Income Groups and Economically well as the life stages of individual and his/her social network.
Backward Sections and provide low-cost housing choices that can Privatization of production of housing units in the owner- and
be made available with proper policies by Indian Government. rental-sectors, housing amenities, organization of the market-
However, rapid urbanization has resulted in severe housing
shortages in urban areas. This has also resulted in a rise in slums.
led housing finance system were the important changes brought
Reforms introduced in the sector during the 1990s, however, have into the housing sector during the period of economic reforms.
overturned the situation to a great extent. However, given the short supply of housing, the privatization
After agriculture, the housing sector is the second leading of housing and housing amenities in India faces a number of
employer in India over a growth of 30 percent in the last decade. challenges. Although late in reaching the same realization, the
The designing of a shelter policy, the organization of the housing housing policy in India has followed a similar approach in the
finance market, the introduction of fiscal incentives, increased housing development since the late 1980s largely due to the
public investment, legal reforms and others initiatives have
brought about a number of changes in the housing sector. The state’s inability to meet the housing and amenities needs of the
rapid growth of urban migration is putting an enormous strain on country.
urban planners to develop an infrastructure in Indian cities. The 12th Five Year Plan estimated the urban housing
Interestingly, these changes have been concerned with both shortage to be 18.78 million. This figure is expected to increase
reducing the housing shortage and increasing the number of in the years to come on account of rapid urbanization. Among
quality housing stock besides increased access to various other all classes of cities, metropolitan cities, which already have a
housing amenities like safe drinking water, good sanitation and
household electricity. large population and a major share of total urban population,
However, the reform initiatives of the housing sector need to are experiencing faster growth. The Government of India has a
take deep roots and to go a long way to address the growing vision to provide housing to all its citizens by 2022.In such a
incidence of sub-standard and dilapidated housing stock for scenario, providing affordable housing is one of the major
further minimizing the deprivations of housing amenities. In this concerns of the Government of India. Due to rapid urbanization,
paper, different government schemes are discussed with existing Indian cities are witnessing an increasing divergence between
and new reforms of tax policies like REITs, GST, RERA and
the supply and demand for housing. In fact, the housing
Benami Transaction Act. This paper considers a few policy
Challenges & reforms options towards addressing the challenges problem of the vulnerable sections and middle-income families
of the housing sector. is reinforcing the state’s role in a more realistic way. The
Economically Weaker Sections (EWS) and Low Income
Keywords: Housing Policy, Housing Policy, Housing Groups (LIG) are the worst affected and as a consequence,
Programmes and Policy Reform, Urban Housing depend on government support for housing.
India, the third largest developing economy in the Asia
1. Introduction enjoys a unique position. India was one of the examples of a
Housing is an important economic good in the consumption critical housing situation in the developing regions. Housing is
basket of a household. As it relates to the living of human one of the most important struggles in the developing nation
beings, it is tied to their security. A major development that took and shortage in India has been a matter of serious concern for
place in the early 1980s which affected the housing sector was both Central and State Governments India’s urban population
the realization that housing was a basic and a merit good, and a has been increasing rapidly. It grew at a rate of 2.8 percent from
prominent element of the social security under the welfare 2001 to 2011. Housing activity is very closely linked to the
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macro-economy. Provision of housing is not simply providing lakh, he/she will be asked to pay 9% interest.
four walls and a roof but it also demands provision of basic
A. Impact of demonetization on housing sector
amenities like water and sanitation, connectivity, electricity etc.
The number of housing starts is the first leading indicator of Deep impact of demonetization since its implementation i.e.
economic growth. House construction activity constitutes a from 9th November 2016 has been observed on two different
significant part of overall construction activity. The share of segments: newly constructed property and resale property.
house construction in overall construction is around 60%. Demonetization has less shock on the newly constructed
property market and more along the resale property market. The
2. Economic importance of housing important observation is that even though there were less real
estate transactions in last six months, but there was not a high
Housing constitutes an important element of human life
drop in the monetary value of the newly constructed property,
which many aspire to achieve in their lifetime. Housing is one
resale property, and estate. Builders have gone into negotiation
of the basic necessities of life along with food & clothing. It has
with a serious buyer who is eligible for home loans. This has
the potential to contribute to a rise in national income, because
got buyers considerable value for their money and a perfect
of the linkages with various other sectors providing goods and
chance to keep open on property purchased with bargaining. A
support services. It also has the potential to add value over a
resale property has faced a direct impact due to demonetization
longer duration even after house construction and because of
because cash payment took on a vast role in such events. This
this advantage it also contributes to the employment to a good
also brings good news for buyers as the unaccounted cash is no
extent. Different components of a house demand a variety of
longer in the market, and then there is less requirement for
products supplied by other sectors and skilled persons, creating
buying which had cut down the price of a property. If you are
demand for a variety of goods and services, thereby generate
planning to buy a house, it's the best time to purchase with the
greater employment. The economic importance of housing In
availability of different schemes of government.
India is reflected in its contribution to income and employment
generation, and to capital formation. The indirect employment B. Real Estate Investment Trusts (REITs)
generation that takes place from backward linkages to the A real estate investment trust (REIT) generally is a firm that
economy will be very high. buys and manage revenue property (Equity) or credit finances
Housing and Urban Development sector has been a thrust (Mortgage). REIT’s bid a number of rewards to persons who
area of economic planning in India. The share of Gross Capital don’t have adequate capital to invest in the real estate sector but
Formation in Residential dwellings (GCFR) is around 12- 13 desire to have own possessions. REITs have opened up a
per cent of capital formation and the GCFR/GDP ratio has been perspective that will permit all investors even those with
stable at around 2.5 per cent. Housing, given its characteristics smaller budgets of a sum as Rs. 2 lakh to make secure and
of durable consumption good, is viewed outside the area of rewarding investments into the Indian real estate sector. REIT
public provision. Such policy departure would have resulted in is a procedure to create funds from stakeholders by directly
crowding out of public investment to expenditure on other investing in genuine estate properties like residential units,
welfare areas, but it would have led to the production of social offices, shopping centers, hotels, warehouses, etc. Agreeing to
housing option for the poor, especially in the urban areas. this Act, dividends of 90 percent will be catered to an investor
from the capital gains accruing from the sale of the commercial
3. Housing policy framework asset. It will provide diversified and safe investment
The Indian government has declared more subsidies and opportunities with reduced risks and maximum return on
formed a policy framework for the first time homebuyers in the investments. Additionally, REITs are obligatory to invest in at
higher income group after union budget 2017-18. Presently, the least two construction projects and investment in any one
subsidy on home loan interest was available exclusively to project must not go beyond 60 percent of the value of assets
those who have income up to Rs. 6 lakh per year. At one time owned by the REIT and are allowed to invest only in the assets
the subsidy has been provided to those with the income slab up located in India.
to Rs. 12 lakh per year and Rs. 18 lakh per year, then it was C. Real Estate Regulatory Authority (RERA)
extended to citizens having earning up to Rs. 12 lakh per year
To safeguard homebuyers and investors in the real state
and thence they will take an interest subsidy of 4 % on a
segment, the parliament of India passed the principles and
principal sum of Rs. 9 lakh. Thus, income slabs up to Rs. 18
procedures of RERA in March 2016. This Act is obligatory for
lakh per year will receive a financial support of 3 % on a
all residential and commercial projects where the land area
principal amount of Rs. 12 lakh. The homebuyer in an income
exceeds more than 500 sq. meters or 8 apartments. Builders
slab of Rs. 6 lakh per year will receive a financial support of
have to register on-going projects within three months of
6.5% on a principal amount of Rs. 6 lakh, irrespective of the
commencement of the Act in order to provide transparencies in
total financed amount. If a citizen borrows Rs. 20 lakh for
a project. Registration applications can be declined or approved
purchasing a household at 9 % per year, he/she will have to pay
within the thirty-day period from the date of application to the
merely 2.5 % interest on Rs. 6 lakh and on the remaining 14
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real estate regulatory authority. A penalty of 10 % on project amenities and materials. In case, no input credit is approved by
cost or three years custody can be imposed on those builders the developers a property transaction cost will increase by 6 %,
who fail to enroll with real estate regulatory authority. The and it passed on the contribution credit to consumers, the
major benefit included in the Act is that builders have to quote property value rise might be controlled to 1-2%.
rates based on carpet area (including toilets and kitchen) and
E. Benami Transaction Act
not super built-up area. This will ban unaccounted money to be
pumped from buyers into real estate sector as 70 % of the The Benami Transaction Act will restrict black money flow
amount has to be deposited in the builder's bank account. All in the housing sector. The Benami transaction act defines that a
union territories and two states, Uttar Pradesh and Gujarat have property is held by or transferred to a person, but has been paid
already implemented this bill. Chandigarh has set up an by third person. Property transaction includes: (i) the
impermanent regulator and other states have to meet the transaction did with fake names (ii) unawareness about
deadline for implementation from the time of the bill passed. ownership of property by the owner and (iii) unable to trace
This bill will bring a transparency to the sector. person providing the consideration for the property. Instead of
possessing black money in cash, the tax evader invests their
D. Goods and Service Tax (GST) gathered illegal money in buying Benami properties. The whole
Goods and service tax is the largest taxation restructure in process reduces the income generation of government adversely
India, which will eliminate barriers to housing sector mitigating affecting growth and development of the country. As the
the difference in direct tax systems. The Goods and service tax taxpayer's percentage in the country is miserable, the
committee has brought the real estate division through work government has failed to successfully implement its policies
contracts and increased the rate for the construction sector to and schemes due to lack of resources. A strong law against
18% from an initial 12 %, but the deduction of land value Benami properties is needed to have a check on corruption.
equivalent to one-third of the total amount charged is allowed.
For example, if the value of a property is Rs. 75 lakh, a 4. Need for housing policy in India
developer can deduct up to Rs. 25 lakh (one-third of Rs. 75 Housing is one of the most important struggles in the
lakh) as land cost and compute GST at the rate of 18 %on the developing nation and shortage in India has been a matter of
remaining Rs. 50 lakh. Thus, GST is levied on only two-thirds serious concern for both Central and State Governments. The
of the total value and the effective price. The GST rate remains increase of population from rural to an urban society is rapidly
unchanged at 12 %, which will not affect the existing tax of moving by 3.35 % of the entire population. Presently 31 % of
homebuyers. Earlier, a home buyer had to reimburse many the population is in urban areas of the country. The situation is
indirect taxes, including excise duty, service tax, and value- predictable that the populace of the urban area will see a growth
added tax, but excluding stamp duty. In the GST system, the of 900 million in 2050. In the current decade, the number of
transaction cost rises to 12 % with input credit available on both towns and cities has risen considerably. The drift towards
Table 1
Key reforms and policies in housing sector in India after independence
Key reform and policies Year Implications
Low Income Group housing 1954 The dwellers with income less than Rs.6000 per year are provided loan up to 80% of the house cost.
scheme
Slump clearance and improvement 1956 In this scheme, Government of India targeted sprawl removal by providing homes for affordable rent.
scheme.
Housing scheme for middle 1959 The policy was built up for improvement and overall development to promote rural housing with financial aid
income group in terms of loan to individuals and co-operatives were given to build dwellings in rural housing projects.
Housing and Urban Development 1970 To promote sustainable development and to enhance the existing standard of lower income group.
Corporation (HUDCO)
Housing Development Financing 1970 Under this policy, everyone was provided with housing finance solutions.
Corporation
Indira Awas Yojana 1985 Providing houses for families below the poverty line in rural areas.
National Housing Bank 1987 To promote housing finance and focus on providing push to the housing sector, Reserve Bank of India
established finance institute.
National housing and habitat 1998 Formation of NHHP was the main objective of having housing stock for both ownership and rental model,
policy (NHHP) especially for low income and economically weaker section.
Rajiv Awas Yojana (RAY) 2009 The Yojana was introduced with the intention to create a slum free India by providing property rights to slum
residents.
Pradhan Mantri Awas Yojana 2015 Credit Linked subsidy and partnership in affordable housing is launched by prime minister of India under
mission ‘Housing for All’ by 2022.
Public-Private Partnership for 2017 The PPP policy includes various models. One of them is to provide assistance of Rs.2.50 lakh to every house
affordable housing. even on individual estate.
Carpet Area for affordable Government hikes carpet area for MIG - I and MIG - II, under ‘Pradhan Mantri Awas Yojana’ from 90 sq.
housing. meter to 120 sq. meter and 110 sq. meter to 150 sq. meter respectively.
Affordable Housing to Affordable Housing projects are now given the status of infrastructure to provide access institutional credit and
Infrastructure status low cost of borrowing.
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growth shows significant differences in many Union provides primarily focused on demand side interventions in the
Territories/States of the country. However, States such as form of incentives to various actors e.g., liberalizing home
Maharashtra, Karnataka, Tamil Nadu, Goa, Punjab, and Gujarat financing, providing tax incentives, which encourage housing
have attained more than 35% urbanization. The states like becoming a private activity. Further, recognizing the need to
Bihar, Rajasthan, Odisha, Uttar Pradesh, Himachal Pradesh, widen the scope of reform, the Union Government came out
Jharkhand etc. has low rates of urbanization. The growth of recently with the Jawaharlal Nehru Urban Renewal Mission,
slums and unlawful resident settlements through wider which seeks the cities to bid for financial support to
consequences on the safety, health, and well-being of the infrastructure and overall development through city
society has been increased. Affordable housing has become a development strategies and plans. It is hoped that this will usher
distant daydream for the LIG & EWS with all round rise in the in a new era wherein the cities will strive towards well
cost of building materials, the cost of land, and labour. organized development of their infrastructure while enhancing
housing options and habitability conditions of their citizens.
5. Housing schemes by government of India The boom in house prices and housing supply observed in the
The Government of India has formulated many housing recent past has to be seen from this perspective, when urban
policies, to establish a reasonable provision of shelter, land, and housing is changing the economic outlook of cities and the
services at for low earning groups, which will preclude the nation.
development of slums in urban regions.
The history of housing policies in India since Independence, References
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