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Affordable Housing Finance

Growth of Affordable Housing in India

04 February, 2019      Affordable Housing


Affordability is a very subjective term. 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 in India


Affordability is a very subjective term. What is affordable for one person may be exorbitant 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. To a great extent, the term has become something of a marketing strategy used to attract customers, or at least draw their attention. 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 the segment of housing or the interest rate debates, there are enough reasons for both private and public realtors to pay special attention to affordable housing.

What does affordable housing actually mean? According to the Ministry of Housing and Urban Poverty Alleviation, affordable housing is decided on the basis of the size and price of the property as well as the buyers’ income. Thus it is housing for the economically weaker section of the society and the housing offered is less than 5 lakhs. The size of the house should be between 300 and 500 square feet and the equated monthly instalment (EMI) shouldn’t exceed the four to five thousand barriers. The Reserve Bank of India’s definition is however based on a slightly different parameter. It considers the volume of the loan to decide whether a house comes under the “affordable” category or not. As per RBI, the loan limit for affordable housing loans should range from 28 lakhs to 35 lakhs in metro cities and 20 to 25 in non-metros. Besides, the total cost of the units shouldn’t exceed 45 and 30 lakhs for metros and non-metros respectively.

There is no shortage of real estate firms who are getting involved in affordable housing projects. HDFC Capital Advisors, the real estate-focused fund management arm of HDFC has joined hands with real estate and construction house, Rustomjee to develop affordable housing projects. Last year HDFC Capital tied up with Prestige Projects to form a platform for affordable housing. Similarly, Shapoorji Pallonji combined with the Asian Development Bank, the International Financial Corporation and a UK based private equity firm to form Joyville, an affordable housing brand. In Delhi NCR alone 5,000 of the 11,000 units launched in 2018 were in the affordable category. Licenses were issued to 19 new affordable housing projects in Gurugram. Real estate industry is brimming with such projects.

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. But it has to be admitted that the “Housing for All by 2022” programme has turned out to be a game changer of late. With a plan of building two crore 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 as it got the heads of the private players turned like never before. 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 Mantri Awas Yojana (PMAY) by 39% as an additional incentive.

The friendlier policies and the financial backing by the government have encouraged private players and therefore, government’s dream of affordable housing for all may actually come true. Policies around affordable housing and real estate, in general, has been in favour of buyers as well. The government has extended loans under the Credit Linked Subsidy Scheme (CLSS) to 12 lakhs. New lenders have emerged in the housing finance industry which has encouraged buyers to invest in real estates, costs of financing are therefore getting cheaper. Besides, these loans can be refinanced by National Housing Banks, which is another bonus for buyers.

So, when a report by India Ratings and Research 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 movement which is likely to continue on a war footing for at least a few more years to come.