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Tata Capital > Blog > Loan for Home > What Is Green Finance and How Does It Support Affordable Housing?

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What Is Green Finance and How Does It Support Affordable Housing?

What Is Green Finance and How Does It Support Affordable Housing?

As the fourth wave of industrialisation paves the way for the new middle class in the country, the need for affordable housing is rising. Let it be cities or villages, a vast population can finally realise the dream of owning a house, owing to the welfare schemes of the Indian Government.

But an increase in the number of subsidised housing projects also means an increase in construction, an activity that accounts for 40% of the total emissions. This is a divergent trend, especially when India aims to attain net zero carbon emissions by 2070 under its Panchamrit Climate Action Plan.

So, the country must implement sustainably planned construction projects while offering subsidised housing. And green finance provides the perfect solution to India’s need for subsidised and sustainable housing projects. This blog will explore green finance’s meaning and what are some gaps that the country must overcome.

State of affordable housing in India

When it comes to affordable housing, the Government of India has the biggest initiative to provide houses to economically weaker sections. The Pradhan Mantri Awas Yojana (PMAY) provides housing to disadvantaged groups in rural and urban areas.

While the PMAY has significantly boosted the development of subsidised housing projects, mass-scale construction has also negatively affected the environment.

To ensure that the country meets its environmental goals by 2070, it must ensure that construction, while affordable, is also sustainable. That is why affordable housing is an excellent opportunity to popularise green finance in the country.

What is green finance?

Green finance refers to the financial investments specifically meant to fund sustainable projects. Green financing includes loans, bonds, and equity investment. These investments support environment-friendly projects and promote sustainability.

Besides, green finance also boosts the economy by providing better returns for investors in the long run. At the same time, Green Financing can create new employment opportunities, offer tax benefits, reduce utility bills, reduce energy consumption, and lower carbon emissions.

As for real estate developers and property owners, green financing allows them to avail of loans at lower interest rates. Also, green projects have a higher social status, offering higher market and resale value than regular projects.

What are some gaps in affordable housing and green finance?

Green finance is a new concept even in Indian metropolises, and rural areas lag far behind cities in its implementation. Moreover, green housing projects are still considered a luxury. Here are some gaps between sustainable finance and housing that the country must overcome:

1.  Lack of awareness

The biggest gap in affordable housing and green finance is the lack of awareness among the general population. People, irrespective of the urban or rural setting, are unaware of the benefits of sustainable finance. Most consider it to be an expensive source of funds to construct houses. And it is more of an afterthought even for the economically stronger sections.

There is a need for an educational drive to introduce people to green finance and how it helps them get access to sustainable housing. At the same time, people must also be made aware of how their contribution can help India achieve its sustainability goals.

2. Lack of lenders

The next gap is the lack of lenders who offer green finance to fund construction projects. The country lacks incentives to encourage lenders to provide funds for green projects. As a result, even if the property owners or developers want to develop a green project, they do not find a lender to help them.

International Finance Corporation (IFC) estimates the total investment opportunity in sustainable building to be Rs 10676 cores until 2030, with residential housing being the primary investment opportunity. So, green financing needs to be incentivised so more lenders are willing to fund such projects.

3. Lack of policy

The last gap is the lack of laws and policies. Although the schemes such as PMAY have given access to subsidised housing to millions of families, there are no policies to enforce environmental norms in the construction and housing. Besides enforcing laws, the governments can also provide tax credits and subsidies to encourage private investors to invest in subsidised housing projects.

Conclusion

The Indian Government has one of the most ambitious affordable housing initiatives and climate action plans. And green finance is the country’s best chance at bridging the gaps between the two goals.

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