An Affordable House

The average Indian’s biggest dream is to own a house and they would go through any extent to achieve it. Over the past two years, real estate builders, developers, and specialised lenders in the housing space have created an ecosystem which has resulted in this dream coming true for scores of Indians. However, increasing consumerism and rapid economic growth in the 2000s resulted in the size of homes getting bigger and bigger leading to affordability taking a backseat.

The slowdown in the real estate sector post the 2008 financial crisis is yet to fully settle and there are several instances of stalled projects from that period. Realising the mismatch between the need of the larger mass and the available inventory, the government announced the Housing for All by 2022 in June 2015. Ever since then the affordable housing segment is literally the talk of the town, with billboards hailing the virtues of upcoming residential projects splashed across cities.

Defining affordable housing

“We define affordable housing as units that are affordable by that section of the society whose income is below the median household income,” says Harshil Mehta, JMD and CEO, DHFL. However, affordability is a vague term and changes its meaning depending on who the buyer is. To make some meaningful headway, three factors were arrived at to define affordable housing—the size of the residential unit, the income level of the home buyer, and the price base on demand. This definition is mostly for buyers to benefit from the tax concessions allowed on loans under the affordable housing scheme. However, the overall rub off of affordable housing is being seen in the manner in which project sizes are getting realistic.

Though meant for the economically weaker, lower income, and middle income groups, only housing projects that fulfil certain criteria spelt out by the Finance Ministry can lay claim to the affordable housing tag. As part of Union Budget announcement earlier this year, the finance minister announced revised parameters for promoters of affordable housing scheme to claim tax incentives. Dwelling units with a carpet area of 30 sq m (for metro cities) to 60 sq m (for non-metro cities and towns) are eligible for the benefits.

Taking a plunge, several big builders such as Tata Housing, Prestige, and Mahindra Lifespaces are now offering projects well within the reach of several buyers. According to Anuj Puri, Chairman - Anarock Property Consultants: “The affordable price segment dominated the residential units supply in the first half of 2017. The recent new launches show that demand for affordable housing with ticket sizes in the range of Rs 5 – Rs 40 lakh is continuously growing.”

Recently, the Ministry of Housing and Urban Affairs introduced a modified public private partnership (PPP) policy with eight new options to incentivise private sector to invest in the affordable housing segment. This includes granting central funds of up to Rs 2.5 lakh per unit as interest subsidy even if built by private builders on private land and assistance of Rs 1.5 lakh per house built on private land even if beneficiary has not taken a loan.

Builders can also explore developing houses on design build and transfer model on government land, cross-subsidising this segment from revenues from profitable businesses like high-end houses or commercial development and annuity-based subsidised housing scheme where developers can invest against deferred annuity payments by the government.

The other factor driving the affordable housing segment is the slew of incentives on offer, including the Pradhan Mantri Awas Yojana (PMAY). “Affordable housing has seen good traction with the PMAY linked benefits for customers and tax benefit under section 80IBA for developers,” feels Sriram Mahadevan, Business Head, Happinest, the affordable housing division of Mahindra Lifespaces. He also thinks this to be the reason for several bigger organised players to focus on the affordable housing space.

Going by size, the affordable housing segment is growing rapidly in smaller cities; bigger developers are seen to be focusing on the outskirts of the city, as that is where they are able to match the price for affordable homes. “It’s largely due to non-availability of contiguous land parcels for large-scale mass housing developments and skyrocketing property prices in the central locations of cities,” adds Puri.

Then, there are some projects that are located within the city limits but come with matchbox-sized rooms or fewer facilities. Customers, however, are keener on opting for projects that have the basic amenities in place. “They prefer houses in areas that have eminent presence of various facilities such as transportation, water supply, entertainment. Customers demand apartments that offer a better integration of pricing, location and quality,” explains Vikram Goel, CEO, HDFC Realty.

Hunting for an affordable home

Clearly, the affordable housing segment’s fortunes are looking up. However, the segment continues to be hobbled by steep prices of land in metro cities in particular. “Lack of available land at appropriate prices and relevant locations, regulatory constraints, and delays in approval are some of the hurdles. Approval delays impact project feasibility, more so in the affordable segment,” points out Mahadevan.

So, is the affordable housing drive only for the economically weak? Actually, the push by the government has forced developers to look mostly at homes in the sub Rs 60 lakh category. Today, there are several options in this price-band available to interested buyers. That people are buying affordable homes can be gauged by the growing number of registrations under the PMAY scheme.

While the residential sector has seen its share of ups and downs, its future over the long-term is not in question as the demand for housing is unlikely to be satiated any time soon. “With an estimated 10 million people migrating to cities annually, and an existing housing shortage of 18.8 million units, the demand for affordable housing can only grow, unless there is significant thrust on supply,” explains Mahadevan.

For now, the festive season could bring some cheer to the sector that has suffered disruptions in the form of demonetisation, implementation of RERA, and the GST in quick succession. “We are addressing the LMI target segment, with an average loan ticket size standing at Rs 14.3 lakh,” says Mehta. On their part, builders and developers are working at a frenzied pace to create inventory in the affordable home segment that can be utilised by prospective buyers.

“The festive season looks promising with the availability of ready-to-move-in options in the market, both in the affordable and mid-segment housing categories,” says Puri. This could just be the catalyst that the real estate sector wanted to get back into the growth phase. Proactive response by builders and lenders in the affordable home segment has created the necessary interest and curiosity among buyers, which could find more people taking advantage of low interest rates, low cost of homes, and tax benefits.

Smart and affordable

The objective of the Smart Cities Mission is to promote cities that provide core infrastructure and give a decent quality of life to its citizens, a clean and sustainable environment, and application of ‘Smart’ solutions. Now, include affordable housing to the smart city tag and it could be the answer to several problems faced by people and the government. With public-private partnership the driver for smart cities and affordable housing, some of the cities that find mention in the Smart Cities list are adopting this opportunity. For instance, Bhubaneswar is an example of a city that is trying to merge the benefits of both these government initiatives.

The improved infrastructure in the smart city will be the bedrock for growth in jobs, businesses, and housing. Efficient land usage and use of technology hold promise to transform these cities into big economic centres which will also answer the need for homes near the place of work. With work going on in several smart cities towards achieving its mission, buyers could look for housing options in the smart city to live in as well as an investment if one qualifies to buy a house there.

preeti.kulkarni@outlookindia.com