70 years. Should the Government stop building houses now?

In 2011, the Delhi Development Authority (DDA) received applications from 7.5 lac people for about 16,000 apartments across Delhi. All of them were allotted within 3 hours making it one of the most successful schemes of DDA.

Just 6 years later DDA has had to extend the deadline for its scheme as it only received about 8,000 applications for over 12,000 apartments. The Authority claims that the lukewarm response was due to a foreclosure clause because of which “Banks were not giving loans”. The real reasons are far more in number than one simple clause. 

It’s been 70 years since India gained independence. Does the Government still need to build houses? The real questions we should be asking are:

1.   Why is the Government building flats on prime lands?

2.   All research reports confirm that most Indian cities have considerable unsold stock of residential apartments. How can this situation be leveraged?

3.   What is the best way to provide housing for the most needy?

What went wrong?

In short a lot has changed over the past 10 years. These changes are both internal to DDA and external i.e. evolved market conditions. DDA hasn’t been able to keep pace with the new order. To examine these two factors in detail:

Internal Reasons: more of the same old won’t work

1.   Rejected flats were brought back for auction. About 10,000 of the apartments put up for auction in the 2017 scheme have already been rejected once by the Allottees of the 2014 scheme. Several reasons for rejection were given such as inadequate space and poor construction.

2.   Lack of infrastructure has resulted in regular public outcries, well covered by the media. The lack of physical and social infrastructure in and around the areas where these apartments are being offered remains a critical issue.

3.   Quality of these flats don’t make them liveable. Almost every buyer of a DDA flat, if they can afford it, spends a handsome amount on refurbishing, extending and improving it. So the effective price for an end-user is much larger

4.   Restrictive lock-in clause in the 2014 auction. This didn’t allow allottees to resell their flats for 5 years. So the DDA assumed that no matter what apartment is allotted to a family, they will have to like it and want it. Buyers didn’t have a choice to sell it, at a minor premium, to someone who actually wants and needs the same flat.

5.   Restrictive penalty clause in the current scheme. A minimum application fee of Rs 1 lakh has be to be deposited as registration amount. This increases for larger flats. In case an Allottee wants to surrender his flat or apply for cancellation of allotment, this fee would be forfeited. Although this clause has been relaxed, it is still reminiscent of the authoritarian attitudes of decades ago.

Either DDA focusses on providing low-cost, affordable homes (where such restrictions are partly justified) or should behave like a real estate developer. Both models shouldn’t co-exist.

External Reasons: the world has changed

1.   Better connectivity: successful expansion of the metro network has changed the lifestyles of NCR residents. Growth of commercial districts in Gurgaon and Noida has necessitated need for travel. Having a house in Delhi is no longer a critical necessity as jobs are spread out in the entire region.

2.   Better quality: most housing provided by private developers is of better quality than DDA flats. Buyer doesn’t have to wait for an auction to buy a house anymore. In fact there is now an unlimited choice of options in the primary and secondary markets. It’s an easy decision when one has to choose between quality and restrictive covenants.

3.   Better services: almost all private developers now provide basic amenities like power back up, a club with swimming pool and other recreational options. Even the new DDA flats lack all of these. The earlier DDA designs catered for garages for 2-wheelers only. DDA still seems to be happy with building houses along similar lines assuming Indians haven’t prospered or won’t demand more.

4.   Reduced investor interest: substantial availability of other options, unattractive locations, lower resale interest and restrictive covenants have made many investors shy away from investing in such auctions.

5.   Slow market conditions: launching an auction, without making it extremely attractive, during the longest slowdown in Indian real estate is not a wise business decision. Being saddled with high inventory, a lot of it already rejected, didn’t give DDA much choice. However, market entry, however, could’ve been better planned.

The only reason why people still buy DDA flats is due to their location and in some cases, cost. It’s sad to see that even a monopolist position is not exploited well by DDA, for the general good.  

What is the Government constructing?

The price range of the 12,000 DDA apartments available in the 2017 scheme varies from Rs 7 lacs to Rs 1.25 crores. These flats are sold under 4 categories and their approximate details are provided below:

1.  Janta flats (28 sqm): 384 flats costing Rs 7 lacs to Rs 12.75 lacs in Rohini, Mongolpuri, Sultanpur, Dwarka

2.  LIG flats (33 sqm): 11,197 flats costing Rs 14.5 lacs to Rs 30 lacs in Rohini, Dwarka, Narela, Siraspur, Jahangirpuri

3.  MIG flats (109 sqm): 404 flats from Rs 31 lacs to Rs 94 lacs in Dwarka, Narela, Mukherjee nagar

4.   HIG flats (116): 87 flats from Rs 53.5 lacs to Rs 1.25 crore in Jasola, Vasant Kunj, Sarita Vihar, Dwarka

It’s heartening to see that significant majority of these are in the low cost category. Unfortunately most of them are not connected to the metro. That significantly reduces the attractiveness to buyers. 

If providing housing for the poor is a primary objective of DDA, there is no reason for them to develop houses above Rs 40 lacs. Errors of past needn’t continue, now that the real estate market has evolved and matured.

I should also highlight that other development bodies don’t necessarily follow the same model as DDA. Several housing boards in South India prefer the PPP model. Many innovative model have been successfully implemented in Bengaluru and Chennai over the year. The same examples can be tried by development authorities in NCR.

What should be the future strategy?

“DDA would build 1 lakh affordable houses by 2022” as part of the PM’s smart city mission, claimed India’s Urban Housing and Urban Poverty Alleviation Minister earlier this year.

The ONLY way this target is achievable is for the metro network to be extended immediately to zones L and N of the master plan, land pooling norms to be simplified, physical infrastructure laid out in advance and DDA allows private capital to take charge. If not, we would witness low grade construction and wastage of public money.

Real estate in Delhi will always remain at a premium. Attracting private capital will never be a challenge provided policies are rational. Government has to focus on redeveloping slums, provide infill but low-cost housing and affordable housing in the upcoming locations at the outskirts. Affordable homes does not mean small and unliveable dwellings. Unfortunately that’s what it’s become synonymous with.

To meet its objectives, the Government’s should change its focus. First, it should realise that as Indians become more prosperous, their expectations will also increase. Government should now:

1.   Identify infill sites which would provide only low cost housing within the city. These have to be subsidized and controlled. Such models have been tried successfully internationally/ mature markets. There is a need for affordable/ low-cost houses in the inner cities. Market forces will marginalise the poor and push them to the outskirts. Large acreages of Government land in the cities should not be viewed as a potential goldmine but an opportunity to accommodate the less privileged within the city.

2.   Provide incentives and impetus to slum-redevelopment projects in all key cities and not just Mumbai. In fact, learnings from Mumbai should be used to create a National Slum Redevelopment Scheme. Results from such an initiative would also assist in achieving targets of stopping open defecation and the “swatch” mission. Small steps have been taken in Delhi as well but limited political is a big demotivater for private capital.

3.   Build infrastructure in advance: it is widely acknowledged that population growth and expansion of Indian cities has absorbed any and all infrastructure projects constructed. It is imperative that the reactive approach towards development of physical infrastructure should stop immediately. It’s not difficult to imagine the infrastructure that would be required in every large Indian metro in 2030. The time to plan and build it is now. Otherwise either problems being faced by our cities will worsen or we will continue to face the same challenges that we currently do.

4.   Create last mile connectivity specifically for the metro network in Delhi where already large residential stock has been created. To elaborate, Municipal Council of Gurgaon, Haryana Urban Development Authority, Noida Authority, Greater Noida Authority etc are all government bodies which can assist in or take lead in ensuring their residents get better connected to the 330 km and 434 km of network which is executed and planned respectively.

5.   Support buyers by taking over delayed/ incomplete projects in developed areas. This would kill many birds with one stone. First it would provide housing to thousands of home owners who are currently struggling with uncertainty. Second, the apartments that the Government takes up in lieu of their effort can be constructed with the intent of providing cheaper accommodation (LIG/ EWS) in the respective markets. RERA allows for such a take-over. Third, Developers whose balance sheets don’t allow further funding should end the stalemate by involving relevant government body in completion.

All of the above five objectives require detailed planning both at policy and execution stage. That discussion requires five separate articles!

In conclusion, yes the Government can still build houses but only for economically weaker segments of the population. For the rest, there should be clear and clean cut from policies of the past and a new course laid out.