The government's
vision of housing for all by 2022 may turn out to be an uphill task with
developers keeping off low cost housing projects, high land cost and low
returns making these projects unaffordable.
There is a shortage of
187.80 lakh units in urban areas, but this is not attracting developers to take
up low cost units as the sector is facing many challenges. The cost of the
project has significantly increased due to the delays caused which make it
unaffordable. Besides, increasing cost of land makes such projects economically
less viable. Developing a low cost housing project in the current market
conditions is challenging is quite challenging.
On the liquidity
front, banks are already reluctant to fund realty projects and private equity
funding is costly.
Banks lend at around
18 per cent while PEs expect returns of up to 23 per cent. Thus in a project
which is costlier than its returns, financing them becomes a major challenge.
To attract foreign
investors, the government has reduced built up area from 5,000 sq m to 20,000
sq m and halved the minimum foreign direct investment limit to USD 5 million in
the budget.
Only a few prominent
real estate developers have entered the segment, including Tata Housing, Value
Budget Housing Corporation.
Be it a low cost
project or mid or high income, the cost incurred in buying land and
construction is same, but the returns are very low.
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