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Affordable Housing is New Game Changer in Residential Real Estate

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Affordable Housing is New Game Changer in Residential Real Estate

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In country like India where idea of housing range from small 1 room apartment to multi billion rupee houses, a new term called affordable housing is gaining prominence. This will be swinging in the fortune of real estate industry in India in a positive path. Affordable housing development will also be a driving factor of the Indian Economy. Experts predict over a 30% growth in realty sector because of new affordable segment projects.

Eight major cities of India has seen a significant rise in affordable housing projects, says the real estate consultancy Knight Frank India. Between January ’17 and June’17 around 71% percent of projects launched are of budget Rs. 50 lakhs and below. There is a sizeable 52% surge on affordable housing launch percentage when compared to year 2016 same period.

The Down Market label that was tagged with Affordable housing is slowly getting eradicated and this sector is turning respectable. This will be a possible game changer in real estate industry in future.

Government to Enhance Affordable Housing

Earlier in 2007, due to lack of land parcels and sky rocketing construction cost, affordable housing was a big challenge for Government. Non-favoring tax structures and need for incentives prompted the developers to stay away from this segment. Currently Indian Government’s ambitious housing program is acting a main catalyst in growth of affordable housing. Indian Prime Minister Mr. Narendra Modi, introduced ‘Housing for All by 2022’ with an aim to provide two crore homes in next five year across urban locations of India in year 2015. This news came as boost for Affordable housing. Union Budget of Year 2017 turned out very good for affordable sectors, under mentioned schemes and incentives shall encourage the sector’s growth.

  • Options have been given to the developers of affordable housing to raise funds from cheaper sources like ECBs (External Commercial Borrowings). Most required infrastructure statuses have been extended to this segment.
  • Time line for affordable housing projects got increased to five years from three years for the delight of the promoters.
  • Long term capital gain for affordable housing got reduced to two years from three years and the builders will get one year time for paying taxes on speculative rental income on finished but unsold units.
  • Affordable housing qualifying criterion for sizes for metro cities and non metro cities are set as 30 sqm and 60 sqm in carpet areas. Earlier it used to be in saleable area. This announcement by government has increased the size of budget housing market across the country.
  • Adding on to the offers announced in union budget, all new Credit Linked Subsidy Scheme (CLSS) for a provision of 1000 Cr has also been proclaimed.

Developers gearing up for new Affordable Housing Projects With the assistance of simple governmental procedures and financial support new developers are keen in getting into affordable housing. Dormant demand for affordable housing has always been there but with government contributions and increase in movement of population towards the city, the developers are finding this sector more worthy. Developers are being approached by the government officials to make their claim ‘Housing for All by 2022’ a reality. Pradhan Mantri Awas Yojana (PMAY) has allocated 39% additional incentive this financial year for affordable housing development. Credit Linked Subsidy Scheme has also been extended to loans up to Rs 12 lakh.

Buyers to get Easy Financial Support

Fresh buyer confidence has got infused in real estate sector by introduction of regulations like Real Estate Regulatory Authority (RERA). People who were thinking of purchasing their first homes are finally making their decisions to go ahead on purchase because they are getting homes within their budget. Finance at cheaper rates are available to the buyers now, this is another big driving factor for affordable home sales.

Currently major cities and towns are seeing several new entrants in mortgage lending space; these lenders are providing small home loans to eligible customers at affordable rates. Also, National Housing Banks (NHB’s) are offering refinance of housing loans; this is a definite boost to the sector. Affordable housing finance market is set to touch a market share of 6 trillion by 2022 according to reports of India Ratings and Research. As per the prediction of the research agency there will be a huge demand for over 25 million middle income group and lower income group homes in next 5 years.

Challenges on the Cards

The biggest challenge that affordable housing segment is facing currently in urban areas is to get the land released for development. If the required land parcel is not available to build 2 crore homes may not be possible. Further to the studies, an approximate of 57,392 acres of land will be required to build the necessary number of units, considering the size of house at 500sqft and FSI (floor space index) of 4. Unused lands held by government bodies needs to be released for this sake.

Conclusion

At this juncture the Affordable housing segment has occupied center stage in India’s real estate development. This will continue to flourish for few more years. Present housing shortage in India is 1.9 crore units, government has acknowledged this requirement and has started to bridge this gap in urban housing. The aim to provide homes to country’s 1.3 billion populations may require a massive $1.3 trillion investment in housing sectors in next 7 years. Because of support from government policies, financial assistances provided by government and augmentation in affordability the plan to provide affordable homes is getting commercially viable. Affordable housing segment is all set to have brighter days in years to come.

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