The Growth of Affordable Housing in India

Authored By Manish Singh, Chief Business Officer – ART Housing Finance Affordability is a very subjective term. What is affordable for one person may not be so for another. When it comes to real estate, the term affordable housing can easily be interpreted as those housing projects which offers housing units of smaller size, lesser price and of course, lower loan burden attached. “Affordable Housing” is the new catch phrase among real estate developers, many of whom even brand units worth 60 lakhs as affordable. The increasing interest shown by builders in this particular sector has a lot to do with government’s concerted push towards ensuring affordable housing for all. Be it the “Housing for all by 2022” initiative, granting of infrastructure status to this segment of housing or the Credit linked subsidy scheme, there are enough reasons for both private and public realtors to pay special attention to Affordable housing. What does affordable housing actually mean? Affordable housing is decided on the basis of three factors i.e. the size of the dwelling, the monthly household income of the buyer and the price/ affordability of the home buyer. The idea of constructing affordable houses for the poorer section is not a new concept. Governments over the years have tried and succeeded to implement this, to varying degrees. We remember the Low Income Group flats of the yore, giving shelter to the economically backward part of society. The sector comes with its own challenges and there are various factors that may affect the speed of affordable housing development in the country. Some of the factors areavailability of land and that too at low cost, clear and single window approval process,high cost of funds, low level of participation by major real estate developersetc. But it has to be admitted that the “Housing for All by 2022” program has turned out to be a game changer of late. With a plan of building 2cr homes across urban locations in the next five years, the momentum of affordable housing seems to have found a new gear. Granting infrastructure status to affordable housing was a master stroke. The infrastructure status meant that the developers can now arrange a cheaper source of funding, including external commercial borrowings. The government has also relaxed the handover deadline for these projects from three years to five years. Developers definitely wouldn’t mind the sops that the government has showered upon the affordable housing sector. Finished yet unsold units are also less of a burden for the builders in these projects as they have been given a year’s time to pay the tax on the notional income. And that’s not all! Tax on the profit on the sale of these flats converts easily to long term capital gain as the tenure for the same has been reduced from three years to two years. Besides, the government has augmented the fund allocations under the Pradhan MantriAwasYojana (PMAY) as an additional incentive. Providing a further boost, the GST on affordable housing has now been reduced from 8% to 1%. The friendlier policies and the financial backing by the government have encouraged private players to enter the affordable housing segment. Policies around affordable housing and real estate, in general, has been in favor of buyers as well. The government has extended loans under the Credit Linked Subsidy Scheme (CLSS) to lots of customers. New lenders have emerged in the housing finance industry with expertise in catering to the LIG & MIG segments and even to the informal segments. Besides, these loans can be refinanced by the National Housing Bank, which is another bonus for buyers. So, when a report by a well-known research agency suggests that affordable housing is going to be a 6 trillion rupee market by 2022 and that well over the targeted 2 crore affordable houses could be completed by that period, we don’t have many reasons to be surprised. While premium gated communities and dizzyingly high towers may continue to sparkle in our urban horizon line, it is the affordable housing segment which is likely to be the harbinger of growth in the real estate industry.