Can Affordable Housing in India Be Really a Game Changer?

It was a cold night.

Rina was not ready, although her husband Ashoke was pestering her for some time. The dinner done, she wanted to go under the blanket as fast as possible.

Ashoke was somewhat adamant. There was little opportunity for them to talk about it in the morning. They are working in the IT sector, and have to rush to office in the morning with nothing else in their minds.

Both Ashoke and Rina got married a couple of years back and till now they are living in rented houses. The regular, almost annual, shifting of homes really tells on Ashoke’s nerves. He has been insisting that they buy an apartment. They also need to plan a family.

But Rina was not sure that they were ready yet, as apartment prices are quite high near her workplace.

Ashoke was at it for some time, and he has read about the Pradhan Mantri Awas Yojana and affordable homes. He needs an affordable home which will help him to get a roof over their heads.

Searching for Affordable Homes

There are many families like Ashoke’s and the need for affordable housing in India is really a great one. Indian cities are facing huge migratory pressure as people are constantly on the move for better opportunities for professionals like Ashoke and Rina. Cities like New Delhi, Mumbai, Bangalore are bursting at their seams.

However, as connectivity improved (most cities are having Metro now, and a plethora of overpasses), it is now easier to live a little away from the city centre and buy an apartment which is relatively affordable.

If you search in a good real estate website, you can shortlist quite a few projects which are affordable to you. You can just contact the builders/agents to view the projects and take a decision.

Easy Availability of Loans for Affordable Homes

The availability of cheaper finance schemes is boosting the demand for affordable housing in India, enabling homebuyers to make purchase decisions for homes that meet their financial budget. Interest rate on home loans is on the lower side for some time now. Moreover, interest subvention through CLSS under Pradhan Mantri Awas Yojana makes it easier to buy an affordable apartment.

Affordable housing finance, according to an India Ratings and Research report, is all set to be a mega-market of Rs. 6 trillion by the end of 2022. The report also indicates an overwhelming demand for 25 million homes in the lower-income group (LIG) and medium-income group (MIG) categories over the next five years. Picking up the cue, several new players have entered the mortgage and lending space in the last few months, solely focusing on offering small home loans to customers in urban and semi-urban areas. Home loans by PSU Banks with a wide reach in India for affordable housing are other key factors driving the real estate market.

Ashoke and Rina found out that most builders are helping them to take advantage of easy home finance through banks and NBFCs. It was far easier than they thought to buy a new apartment.

Prime Drivers of Affordable Housing in India

The union government, in 2015, announced – ‘Housing for All by 2022’ – a scheme targeting to develop nearly two crore homes across urban locations in the country over the next five years. The Union Budget 2017 reinforced the government’s commitment, promising a range of boosters to promote the growth of affordable housing sector. The schemes and incentives announced in this year’s budget are as follows:

• Giving affordable housing an infrastructure status, the government has allowed developers the access to cheaper funding sources, including external commercial borrowings (ECBs).
• The project completion deadline has been increased from the current three years to five years, granting affordable housing developers more time to finish projects.
• Affordable housing is the only segment in the housing sector to get 100% tax exemption for developers. Lower risk weights on loans for affordable housing, tax exemptions for developers sitting on completed unsold inventory, amendment of section 80-IBA for relaxing the condition of period of completion of a project for claiming deduction to five years from three years, etc, funding incentives and central assistance for affordable housing projects have all led to the belief of a structural upswing in housing industry growth.
• The eligibility criteria have been revised to 60 square meters and 30 square meters on the carpet for non-metros and metros respectively, rather than the saleable area, which was previously the norm. This dramatically expands the size of the affordable housing market.
• To augment the benefits of affordable housing, the Union Budget announced a new Credit Linked Subsidy Scheme (CLSS) for the mid-income group with a provision of Rs. 1,000 crore.

The Industry Is Gearing up to Embrace Affordable Housing

Because of increasing urbanization and the government’s active support, affordable housing, which was previously a neglected segment, is gaining considerable mileage in recent times. The financial support from the government and the thrust in policies are driving more and more developers to make inroads into the fairly untapped segment. The government, to make its flagship initiative – ‘Housing for All by 2022’ – a reality, has also announced an additional allocation of 39% in this financial year under the Pradhan Mantri Awas Yojana (PMAY), along with an extension in the CLSS to loans up to Rs. 12 lakh till March 31, 2019.

Rising urbanization, increasing affordability, availability of cheap finance, regulatory support, and the government’s policy thrusts are finally making affordable housing in India a reality. The initiative to fill in the gap of urban India’s housing shortage is expected to pump in a massive investment of $1.3 trillion into the housing sector. With affordable housing being at the centre of this historic movement, the segment is undeniably poised to be a game changer that the real estate industry was looking for.