Affordable housing in Urban India

Affordable housing in India is defined as a house or a flat with carpet area up to 90 square metres in non-metropolitan cities and towns, and 60 square metres in metropolitan cities and having value up to Rs 45 lakh, for both.

Affordable Housing for All was first carved as an objective in the National Urban Housing and Habitat Policy (NUHHP), 2007 of India. It rose to prominence in the aftermath of the Global Financial Crisis (GFC) of 2008 when muted real estate demand and the economic slowdown prompted Indian real estate developers to focus on affordable housing. The biggest boost came when the Government of India launched the Pradhan Mantri Awas Yojana (PMAY) – Urban in June 2015.

India had an urban housing shortage of around 19 million units as per the report of the Technical Group formed by the Ministry of Housing and Urban Affairs in 2012. Most of this shortage is in the EWS (economically weaker section) and LIC (low income category). With the rapid pace of urbanisation happening in India, the urban housing requirement in this income category is going to increase further.

  • Various challenges continue to hamper the pace of affordable housing development in India.
  • Lack of suitable low-cost land parcels within the city limits, lengthy approval process and multiple clearances, lack of access to cheap credit for construction finance, low profit margins are a few such challenges.
  • This has limited the participation of large, organised real estate players in affordable housing projects.
  • Affordable housing sales have failed to gather momentum despite the conducive environment.
  • While a definitive cause is still to be ascertained, a few possible reasons could be the need for further government incentives, frail economic conditions impacting employment and income levels resulting in risk-averse buyer sentiments, challenges in implementation of government incentives, difficulty in credit availability due to the Non-Banking Financial Company (NBFC) liquidity crisis, and the millennial mindset to be asset light preferring to rent instead of purchase.
  • The outbreak of the Covid-19 pandemic and the subsequent lockdowns have had significant impact on all businesses, including real estate. All construction activity had to be completely halted during the lockdown phase.
  • Post lockdown, while cost of inputs such as steel and cement have increased, the availability of construction labour has gone down.
  • This has not only increased the cost of construction for developers but has also caused delays in project completions.
  • Further, as banks and lending institutions have resorted to tighter lending norms in light of the present economic situation, developers are finding it hard to avail credit.
  • This, along with muted demand, have severely impacted developer cash flows.
  • The Government and the Reserve Bank of India (RBI) have taken numerous measures to give a boost to this sector over the past few years.
  • PMAY (Gramin), which comes under the ambit of the Ministry of Rural Development and
  • PMAY (Urban), which falls under the Ministry of Housing and Urban Affairs
  • The government is targeting completing 11.2 million houses by 2022 under PMAY- U. Against this target, currently 4.8 million houses have been completed and around eight million houses are under various stages of construction.
  • Affordable housing is also included under RBI’s priority sector lending programme.
  • CLSS (Credit Linked Subsidy Scheme) for affordable home buyers, the government has also announced various measures to improve the supply of affordable housing.
  • The Model Tenancy Act 2021 is a step in the right direction as it endeavours to correct some of the imbalances in the rental market, while also proposing a redress mechanism that should enable creation of a more matured rental market in India.
  • The conundrum of providing affordable housing requires multi-pronged approach covering both demand and supply side issues.
  • On the demand side, while it is important to provide subsidies, it is equally important to supplement them with infrastructure development and provision of basic services/amenities around these housing projects.
  • On the supply-side, given that affordable housing is a low margin business, policies and measures that enable lower cost will enhance the feasibility of these projects. Other missing pieces like a matured rental market and specifically a robust affordable rental housing scheme will also enable a holistic approach towards affordable housing.
  • Also, as affordable housing is an end-user driven market, the prevailing low property prices and low home loan interest rates could prompt home-buyers to make their purchase decisions.
  • The extension of Real Estate Regulatory Authority (RERA) deadlines for project completions will give the developer community a much-needed breather.
  • Also, as incidence of reverse migration in the country was strong in the wake of the ongoing crisis, it could result in an increased demand for affordable housing in Tier-II and Tier-III cities.
  • On the whole, the affordable housing segment has the potential to recover faster than other residential segments.
  • The target audience of this segment are the LIG / Economically Weaker Sections (EWS) and MIG earners who form a sizeable chunk of India’s total population.
  • If sufficiently incentivised, the affordable housing sector could benefit significantly from the sheer size of its target group.