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REFERENCE NOTE . No. 11/RN/Ref./February/2016

For the use of Members of Parliament Not for Publication

FDI IN URBAN HOUSING SECTOR: A REVIEW

----------------------------------------------------------------------------------------------------------------------------------------- The reference material is for personal use of the Members in the discharge of their Parliamentary duties, and is not for publication. This Service is not to be quoted as the source of the information as it is based on the sources indicated at the end/in the text. This Service does not accept any responsibility for the accuracy or veracity of the information or views contained in the note/collection.

FDI in Urban Housing Sector: A Review

BACKGROUND

The official figure of urban housing shortage in India has been estimated to be

around 25 million dwelling units. The housing requirement in the country is humongous,

the problem is more acute in the urban areas rather than in the rural areas. Further, the

question becomes more complex when we look at the kind of population segment which

is more in need of housing than the others. A large number of low and middle income

families need housing which is reasonably priced while a relatively small number of

families can afford to pay for large or high priced housing. Therefore, the demand is

more for budget housing products while the affordability is limited1.

SLUM POPULATION

According to the Report of the Committee on Slum Statistics/Census, 2010, slum

demography has been presented on the basis of actual count in Census 2001 for the

first time. Initially, the Census coverage was restricted to cities/towns having population

of 50,000 or above in 1991 Census. Therefore, Phase I report of Slum Census reported

only 640 cities/ towns. However, as a follow up of the recommendations of the

Parliamentary Standing Committee, the Ministry of Housing and Urban Poverty

Alleviation requested the Registrar General of India to cover towns/cities with population

of 20,000-50,000 as per 2001 census. Hence, in this Phase II Census, 958 towns with

20,000 to 50,000 reported slum-population was covered. Therefore, total slum

population of the country reported in 1743 cities/towns was 52.4 million.2 However, as

per Census 2011, slum population in the country is 65.5 million.

The Statement showing State-wise estimated number of slums/slum households is

given at Annexure-I.

HOUSING SHORTAGE

As per the report of the Technical Group constituted by the Ministry of Housing

and Urban Poverty Alleviation for estimating the housing shortage in India in the year

1 'Smart Housing for Smart Cities' by P.S.N. Rao, Yojana, September, 2015, p.25

2 Lok Sabha, Unstarred Question No.1526, dated 4.3.2015.

2

2012, there is a shortage of 18.78 million dwelling units across the country in urban

areas. The statement showing the state-wise details of shortage of houses is given at

Annexure-II.

NATIONAL URBAN HOUSING AND HABITAT POLICY (NUHHP), 2007

In order to regulate the entire activities of the Housing Sector and providing the

policy framework for the future, the Government framed NUHHP in 2007. The salient

features of the Policy are as follows:

10-15 percent land or 20-25 percent Floor Space Index (whichever is greater) to be reserved for EWS and LIG housing.

A special action plan to be prepared for urban slum dwellers.

A special package to be worked out for cooperative housing, labor housing & employee housing.

States/UTs to be advised to develop 10 year perspective plans for housing for EWS and LIG.

Central & State Government to develop special incentive.

Plans for In-situ slum upgradation.

Plan funds and other assistance to be dovetailed according to Action Plan prepared under the State Habitat Policy prepared by the States.

Micro-finance Institutions (MFIs) to be promoted at State level to expedite the flow of finances to urban poor.

States/UTs to be encouraged to undertake reforms listed under JNNURM.

Policy gives primacy to provision of shelter to the urban poor at their present location or near their work place.

Approach will be In-situ slum rehabilitation. Relocation will be considered only in specific cases.

Formation of Cooperative Housing Societies of urban poor and slum dwellers to be encouraged3.

3 Lok Sabha, Unstarred Question No.3495, dated 18.3.2015.

3

STRATEGY UNDER TWELFTH FIVE YEAR PLAN

As against this huge requirement, during the seven years of implementation of

the Basic Services to the Urban Poor (BSUP) and the Integrated Housing and

Development Programme (IHSDP) component of Jawaharlal Nehru National Urban

Renewal Mission (JNNURM), only about 1.6 million dwelling units have been

sanctioned. Given the huge investment required to bridge the gap between demand for

affordable housing and its availability, all the costs cannot be borne by the Government

and hence the key would be to attract private investment and to enable the beneficiary

to increase his/her contribution. A multi-pronged strategy is required to meet the need

for housing of the urban poor.

Budgetary Support - The Isher Ahluwalia High Power Expert Committee on Housing

has estimated a requirement of about ₹4.1 lakh crore over the 20 years for the purpose

of slum rehabilitation. In addition, noting that about 25 percent of urban population live

in slums, the Committee recommended that for inclusive growth, out of the estimated

Capital Expenditure of ₹34.1 lakh crore over a period of 20 year, 25 percent, that is,

about ₹8.5 lakh crore should be for slum population, assuming universal standards for

all as well as universal provision for access and mobility. However, an objective

estimation of the budgetary requirement from the Central Government for the Twelfth

Plan is difficult because this is crucially linked to the extent of innovation in low cost

housing, the flow of private capital for such dwelling units and the extent of contribution

from other stakeholders like the State Government, ULBs and the beneficiaries4. The

Statement showing State-wise allocation under 'Housing for All' under Budget Estimates

2015-16 is given in Annexure-III.

SCHEMES ON HOUSING SECTOR

In order to meet the huge demand for Housing, the Government of India started a

number of schemes like Jawaharlal Nehru National Urban Renewal Mission (JnNURM)

[with sub-components-Basic Services to the Urban Poor (BSUP) and Integrated

Housing and Slum Development Programme (IHSDP)], Rajiv Awas Yojana (RAY),

4 India. Twelfth Five Year Plan (2012-2017), Economic Sectors, Vol.-II, pp.336-337.

4

Affordable Housing in Partnership (AHP) and Interest Subsidy for Housing for the Urban

Poor (ISHUP)/Rajiv Rinn Yojana (RRY) to ensure Government funding for targeted

population. In order to further accelerate this process, the Prime Minister of India

launched the mission 'Housing for all by 2022' on 17 June 20155.

Housing for all by 2022 Mission

The Mission will be implemented during 2015-2022 and will provide central

assistance to Urban Local Bodies (ULBs) and other implementing agencies through

States/UTs for:

1. In-situ Rehabilitation of existing slum dwellers using land as a resource through private participation 2. Credit Linked Subsidy 3. Affordable Housing in Partnership 4. Subsidy for beneficiary-led individual house construction/enhancement.

Credit linked subsidy component will be implemented as a Central Sector

Scheme while other three components will be implemented as Centrally Sponsored

Scheme.

The Scheme will cover entire urban area consisting of 4041 statutory towns with

initial focus on 500 Class-I cities in three phases as under:

Phase I (April 2015 - March 2017) to cover 100 Cities selected from States/UTs

as per their willingness.

Phase II (April 2017 - March 2019) to cover additional 200 Cities.

Phase III (April 2019 - March 2022) to cover all other remaining Cities. The

Ministry, however, will have flexibility regarding inclusion of additional cities in earlier phases in case there is a resource backed demand from States/UTs6.

Urban Housing Schemes for EWS

The Ministry of Housing and Urban Poverty Alleviation (HUPA) has sanctioned

1,69,381 houses for Economically Weaker Sections (EWS) in 145 cities in 8 States for

5 Rajya Sabha, Unstarred Question No.3129 dated 7.8.2014

6 Ibid.

5

which a total central assistance of ₹ 2,444 crore will be provided. These include

construction of houses under slum redevelopment affordable housing in partnership and

beneficiary led individual construction. Under this project, the EWS houses approved

include 47,050 units in 70 cities of West Bengal, 45,217 in 27 cities and towns of

Telangana, 27,186 in 6 cities of Gujarat, 19,241 in 16 cities of Madhya Pradesh, 16,146

in 14 cities of Jharkhand, 7,621 in nine cities of Tamil Nadu, 5,548 in Bhubaneswar in

Odisha and 1,364 in Aizawl and Lawngtlai in Mizoram. The Ministry of Housing and

Urban Poverty Alleviation (HUPA) has so far approved construction of 4,23,415 houses

for urban poor in 243 cities in 11 States across the country, for which the Union

Government will provide an assistance of ₹ 5,900 crore7.

Rajiv Awas Yojana (RAY)

Rajiv Awas Yojana (RAY) envisages a “Slum Free India" with inclusive and

equitable cities in which every citizen has access to basic civic infrastructure and social

amenities and decent shelter.

RAY is to be implemented in a mission mode and will provide financial support to

States/UTs/Urban Local Bodies (ULBs)/Central Government Agencies, hereafter called

implementing agencies, for providing housing and improvement of basic civic

infrastructure and social amenities in each selected slums. Rental and transit housing

will be admissible under the scheme. Operation and maintenance (O&M) of assets

created under this scheme will also be eligible for funding. RAY will also extend

financial support to States for creation of affordable housing stock through Public-

Private Partnership (PPP) under the Affordable Housing in Partnership (AHP)

component of the Scheme.8

The details of the overall progress of RAY and AHP is given at Annexure-IV.

Survey on FDI in Housing Sector The Standing Committee on Urban Development has directed the Ministry of

Housing and Urban Poverty Alleviation (HUPA) to undertake a survey to assess the

7 The Statesman, New Delhi dated 22.12.2015

8 India, the Ministry of Housing and Urban Poverty Alleviation, Rajiv Awas Yojna Schme, p.5

6

impact of foreign direct investment (FDI) inflows into the housing sector. Since 96 per

cent of the housing shortage in India is in economically weaker section and low income

group segment, there is an urgent need to conduct study so that the real impact of FDI

can be assessed. FDI is permitted through the automation route in construction and

development sector. It covers development of townships, housing, built-up infrastructure

and construction-development related projects. The Department of Industrial Policy and

Promotion (DIPP), on a regular basis, publishes data on sector-wise FDI inflows in their

fact-sheets. Statement on sector-wise FDI equity inflows from April 2000 to December

2014 shows that inflows in construction development are ₹1,12,821.03 crore which

forms 10.06 percent of total FDI inflow in india9.

FDI in Urban Housing Sector In the Financial Years 2007-08, 2008-09 and 2009-10, the housing and real

estate sector attracted FDIs of 8.9%, 10.3% and 11% respectively, of the total FDI in

India. However, the financial year 2010-11 saw a mere 6% FDI in this sector. The year

2010 saw the Indian real estate sector spring back into action after the gloom and

recessionary pressures experienced in the aftermath of the global downturn. The focus

on „affordable housing‟ helped the sector tide over the financial crunch it had witnessed.

There is no doubt that the sector holds huge potential to attract FDI in its various

segments. However, progress is possible only with the joint efforts of both the industry

and the Government. On the one hand, the industry should work towards increased

transparency, clear land titles, improved delivery and project execution while on the

other hand the Government must provide fiscal incentives to developers to build low

cost and affordable housing for the masses and also review the existing FDI guidelines

for investment and development in Indian real estate in order to increase the flow of

foreign capital into the sector.10

Consolidated FDI Policy As per the Government Policy Note dated 12 May 2015, various changes have

been effected in FDI policy. Under this policy, the percentage of Equity/FDI Cap under

9 The Hindu Business Line, New Delhi, 11.08.2015

10 http://FICCI.in/sector/59/project_docs/real estate/profile-pdf

7

the heading Construction Development which includes building Townships, Houses,

Built-up Infrastructure has been raised up to 100%. The entry route of the FDI in this

sector will be automatic.

The investment in this sector will be subject to the following conditions:

(A) Minimum area to be developed under each project would be as under:

(i) In case of development of serviced plots, no minimum land area

requirement.

(ii) In case of construction-development projects, a minimum floor area

of 20,000 sq. meter.

(B) Investee company will be required to bring minimum FDI of US$ 5 million

within six months of commencement of the project. The commencement of the

project will be the date of approval of the building plan/lay out plan by the

relevant statutory authority. Subsequent tranches of FDI can be brought till the

period of ten years from the commencement of the project or before the

completion of project, whichever expires earlier.

(C) (i) The investor will be permitted to exit on completion of the project or after

development of trunk infrastructure i.e. roads, water supply, street lighting,

drainage and sewerage.

(ii)The Government may, in view of facts and circumstances of a case,

permit repatriation of FDI or transfer of stake by one non-resident investor

to another non-resident investor, before the completion of project.

(D) The project shall conform to the norms and standards, including land use

requirements and provision of community amenities and common facilities, as

laid down in the applicable building control regulations, bye-laws, rules, and other

regulations of the State Government/Municipal/Local Body concerned.

(E) The Indian investee company will be permitted to sell only developed plots.

For the purposes of this policy “developed plots” will mean plots where trunk

infrastructure i.e. roads, water supply, street lighting, drainage and sewerage,

have been made available.

(F) The Indian investee company shall be responsible for obtaining all necessary

approvals, including those of the building/layout plans, developing internal and

8

peripheral areas and other infrastructure facilities, payment of development,

external development and other charges and complying with all other

requirements as prescribed under applicable rules/bye-laws/regulations of the

State Government/Municipal/Local Body concerned.11

Latest Reforms in FDI

India is the fastest growing economy among major Nations. The World Bank has

improved India's ranking by 12 places in the 2016 Study of Ease of Doing Business. FDI

has gone up by 40%. Several Global Institutions have projected India as the leading

destination for FDI in the World. IMF has branded India as the brightest spot in the

Global Economy whereas the World Bank projects India's growth at 7.5% and even

better. To further boost this entire investment environment and to bring in foreign

investments in the country, the Government has brought in FDI related Reforms and

liberalisation touching upon 15 major Sectors of the Economy including construction

development sector.

The Crux of these reforms is to further ease, rationalise and simplify the process

of foreign investments in the country and to put more and more FDI proposals on

automatic route instead of Government route. Further refining of foreign investments in

key Sectors like Construction where 50 million houses for poor are to be built. The

proposed reforms also enhance the limit of Foreign Investment Promotion Board (FIPB)

from current Rupees Three thousand crores to Five thousand crores. The proposal also

contains many other long pending corrections including those being felt by the limited

liability partnerships as well as Non-Resident Indian (NRI) owned Companies who seem

motivated to invest in India. Few other proposals seek to enhance the sectoral Caps so

that foreign investors don't have to face fragmented ownership issues and get motivated

to deploy their resources and technology with full force.

11

India, Ministry of Commerce and Industry, Department of Industrial Policy and Promotion,pp.56-58 dated 12.05.2015

9

CONCLUSION

With these Reforms, the Government has demonstrated that India is unstoppable

on the path of Economic Development. The Prime Minister has reiterated that

Economic Well being of the people of India is the main Task before him. It is also clear

that India is a Country which is more than ready to integrate with the Global Economy

because it feels that the Fruits of Development will reach to the common man only if

there is Development. Above all, every citizen in all nooks and corners must have a

stake.

Along with these Sectoral reforms, the Department of Industrial Policy and

Promotion (DIPP) has also been advised to consolidate all FDI related instructions

contained in various notifications and press notes and prepare a booklet so that the

investors don't have to refer to several documents of different timeframes. This

exercise of the Prime Minister is intended on the one hand to further open up the

Sectors for more foreign investments in the country and also to make it easy to invest in

India. Thus, this action is a very dynamic step in terms of integrating the Indian

Economy with the rest of the World for attracting investments and technology and

generating employment for enhancement of income of the people of India12.

12

India, Ministry of Commerce and Industry, Press Information Bureau Release, N. Delhi dated 10.11.2015

10

Annexure-I

Estimated number of Slums and Slum Households

State estimated number of slums estimated number of slum households

Notified Non-notified All Notified Non-notified All

Andhra Pradesh 3224 (71%)

1315 (29%) 4539

1417890 (89%)

180769 (11%)

1598659

Bihar * 636

(97%) 655 *

54851 (94%)

58118

Chhattisgarh 632

(59%) 446

(41%) 1079

52846 (61%)

33395 (39%)

86241

Gujarat * 2058 (70%)

2923 * 284180 (84%)

336338

Karnataka 716

(50%) 708

(50%) 1424

356627 (64%)

201608 (36%)

558235

Madhya Pradesh 1327 (81%)

308 (19%)

1635 301302 (86%)

50827 (14%)

352129

Maharashtra 1954 (25%)

5769 (75%)

7723 2033799

(61%) 1311307

(36%) 3345106

Odisha * 744

(98%) 756 *

136149 (99%)

137589

Rajasthan 947

(59%) 653

(41%) 1600

311672 (87%)

44793 (13%)

356466

Tamil Nadu 1208 (51%)

1156 (49%)

2364 343521 (58%)

245089 (42%)

588611

Uttar Pradesh 836

(46%) 978

(54%) 1814

121737 (59%)

85798 (41%)

207535

West Bengal 1274 (32%)

2684 (68%)

3957 378459 (57%)

285542 (43%)

664001

All-India ** 13761 (41%)

19749 (59%)

33510 5559771

(63%) 3249236

(37%) 8809007

* Estimate not presented, as it may be subject to high sampling error due to inadequate sample size ** Based on all States and UTs, including States and UTs not shown in this table.

Source: Lok Sabha,Unstarred Question No. 3638 dated 18.3.2015.

Annexure-II State-wise details of Housing shortage-2012 as estimated by Technical

Group (TG) 2012 set up by Ministry of Housing & Urban Poverty Alleviation.

Name of State/UTs State wise Distribution of Housing shortage (in millions)

1 2

Andhra Pradesh 1.27

Arunachal Pradesh 0.03

Assam 0.28

Bihar 1.19

Chhattisgarh 0.35

Delhi 0.49

Goa 0.06

Gujarat 0.99

Haryana 0.42

Himachal Pradesh 0.04

Jammu & Kashmir 0.13

Jharkhand 0.63

Karnataka 1.02

Kerala 0.54

Madhya Pradesh 1.10

Maharashtra 1.94

Manipur 0.08

Meghalaya 0.03

Mizoram 0.02

Nagaland 0.21

Orissa 0.41

Puducherry 0.07

Punjab 0.39

Rajasthan 1.15

Sikkim 0.01

Tamilnadu 1.25

Tripura 0.03

Uttar Pradesh 3.07

Uttarakhand 0.16

West Bengal 1.33

Andaman & N Island 0.00

Chandigarh 0.02

Dadra and Nagar 0.05

Daman and Diu 0.01

Lakshadweep 0.01

India 18.78

Source: Rajya Sabha, Unstarred Question No.3129 dated 7.8.2014

Annexure-III

State-wise Allocation under Housing for All (HFA) under Budgetary Estimates (BE) 2015-16

Sl. No. State/UT Allocation of Rs.4000 crores (BE2015-16) including Tribal-Sub Plan (TSP) under HFA (excluding CLSS component)

A B C

1. Andhra Pradesh 225.62

2. Bihar 87.46

3. Chhattisgarh 83.82

4. Delhi 122.48

5. Goa 5.67

6. Gujarat 172.99

7. Haryana 84.28

8. Jammu & Kashmir 34.13

9. Jharkhand 55.14

10. Karnataka 204.51

11. Kerala 79.42

12. Madhya Pradesh 253.23

13. Maharashtra 561.74

14. Orissa 79.94

15. Punjab 86.25

16. Rajasthan 139.05

17. Tamilnadu 314.55

18. Telengana 179.03

19. Uttar Pradesh 369.96

20. Uttarakhand 27.25

21. West Bengal 307.34

22. Himachal Pradesh 50.11

23. Puducherry 25.00

24. Andaman & Nicobar Islands

51.04

25. Chandigarh

26. Dadra and Nagar Havevli

27. Daman and Diu

28. Lakshadweep

29. Assam 140.00

30. Arunachal Pradesh 25.00

31. Manipur 25.00

32. Meghalaya 35.00

33. Mizoram 40.00

34. Nagaland 40.00

35. Sikkim 25.00

36. Tripura 70.00

Total 4000.00

Source: India. Ministry of Housing and Urban Poverty Alleviation, Housing for all Mission Directorate, Letter dated 3.8.2015

Annexure-IV

Source: India, Ministry of Housing and Poverty Alleviation, Rajiv Awas Yojna.