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Needed: A Housing Fund

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The robust growth momentum in India through the course of 2011 was plagued by numerous challenges both on the domestic as well as external fronts. The domestic environment has been clouded by several concerns such as political indecision on important issues due to parliamentary freeze, governance/corruption related issues, issues on the environment and land acquisition front, regulatory delays, inefficiencies in the government's food procurement and distribution policy, problems in coal procurement and transportation, and delays in project clearances.

These bottlenecks have weighed on aggregate growth as they dogged down investment demand and fuelled price pressures in the food basket. Also, an unfavourable global environment amidst geopolitical risks in the MENA region as well as the Eurozone, have not augured well for India.

Specifically in relation to the built environment, construction activity witnessed a slowdown to 8.2 per cent year-on-year in first quarter (Q1) 2011 as compared to 9.2 per cent year-on-year in Q1 2010. Additionally, infrastructure output growth also slowed to an annual rate of 2.3 per cent in September 2011 from the earlier anticipated 3.7 per cent declared in August 2011.

Existing inflationary pressures and high interest rates have increased the cost of borrowing for real estate developers, who continue to face a liquidity crunch on account of the high risk weightage allocated to the realty sector, affecting the ability of developers to access low cost funds and adding to their liquidity woes. Consequently with the rising input costs for developers, Indian residential property prices have seen a steady rise over the course of the last year.

Bearing these factors in mind, ahead of the Union Budget 2012-13, RICS is looking forward to a balanced budget to provide adequate stimulus to key sectors in order to promote rental and low cost housing mechanisms, infrastructure financing and development. At a macro level, RICS is expecting the Ministry of Finance to provide necessary policy incentives and stability, along with adequate tax concessions to promote economic growth and investments in the country.

Housing is the one of the most basic needs for every human being and is an important component and measure of socio-economic status. In light of the existing shortfall pegged at 26.5 million housing units from 2007-2012, with approximately 99 pwer cent of this shortfall in the EWS and LIG segments, there is a dire need for the budget to encourage improvement in supply of affordable and low cost housing along with strengthening access to housing and micro finance.

To this end, RICS has proposed the establishment of a dedicated affordable housing fund, similar to infrastructure funds. The Government could contribute partial funding through public issuance of bonds and the remaining component can be raised through retail investments in lieu of tax benefits. These funds should then be made available to developers/ NGO's/ private intermediates at low interest rates for construction of EWS/LIG housing.

In keeping with the ‘housing' issue, while the Rent Control Act, a major factor throttling the rental market has been abolished for many years in several parts of the world, Indian states have been slow to act on this reform. Low yields on rental housing have continued to remain a bottleneck for promoting a healthy rental market. Therefore, lowering the tax rate on rental income along with taxing a much lower percentage of the rental income would help incentivise rental housing. These steps are also likely to uplift consumer sentiment.

It is also essential to understand that the built environment and urban infrastructure provide the core framework for most human activity. Therefore it is crucial to develop them with an effective measure of resilience so they can withstand and adapt to the pressures of socio-economic challenges posed by increased urbanisation, density, housing shortfall, employment, climate change etc. With nearly half of the country's population living in or migrating to urban areas, it is absolutely imperative to create a conducive environment for infrastructure development.  
In order for cities and urban areas to be transformed into engines of growth, it is essential to overcome the challenges that have thus far stemmed from a lack of under-investment in infrastructure by both the state and local governments over a long period of time. Though several measures have been taken in the recent past to overcome these shortfalls, there continues' to exist a need for innovative approaches to emerge which will ensure that infrastructure is used more effectively and also enable alternative sources of capital to be secured.

Therefore, the budget should consider incentives and benefits for large scale residential townships; extend the ECB limit whilst the Infrastructure Debt Fund needs to be supported with a robust bond market. Additionally, RICS believes the definition of infrastructure could be broadened to include integrated townships of 100 acres or more. To encourage private investment capital, the Government should seek to catalyse private investment and operations into all infrastructure sectors through the participation of long term sources of capital such as insurance and pension funds and bond markets which have investible surplus.

Also, over the last decade or so, energy security and sustainable development have taken higher precedence in the global agenda. The impact of high and often volatile energy prices and concerns over environmental sustainability, particularly in relation to climate change have turned the spotlight on the built environment, which is at the fore of economic growth activity across most nations, including India.

Given the pace of development in India and the fact that India's position on the RICS carbon emission index has slipped to 9th last year from 7th in 2009-10, we applauds the formation of the National Clean Energy Fund and expect continued support for the fund, as well as incentivising renewable forms of energy.

Additionally, in order to facilitate urban development, one of the biggest hurdles to overcome will be with respect to the limited access to adequately trained manpower both for construction and real estate activities. With only 2 million of the 50 million people employed in the sector, professionally qualified, it is important for the Government to better address the significant issue of skill development in the sector which is reeling under severe manpower shortage. Whilst funds have been allocated through various mechanisms, they need to be better channelized and utilised.

RICS given its expertise in land, property and construction to develop a sector specific skills development plan for developing skills, competencies, knowledge and qualifications; standardisation of affiliation and processes, planning and execution of training of trainers and promotion of centres of excellence, would welcome a discussion with the Government to ensure the development of professional training centres and courses targeted at mid-to-top level management professionals. This would ensure that the property sector benefits from up-skilling and professional development programmes, specialised knowledge and latest techniques and best practices.

(The author is Managing Director, RICS South Asia)