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. However, the biggest boost came when the Government of India launched the Pradhan Mantri Awas Yojana (PMAY) – Urban in June 2015
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 INR 45 lakh, for both1. 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. Affordable housing is also included under RBI’s priority sector lending programme
Driven by numerous incentives, the sector witnessed significant growth in supply during 2016 and 2017. The share of INR sub-5 mn ticket size segment in total launches grew from 51% in H1 2016 to 70% in H1 2017 as developer interest in the affordable housing segment increased. The joint efforts of government agencies to incentivise affordable housing have generated positive outcomes on the supply side, but 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. Sales in the INR sub-5 mn ticket size segment have been declining in terms of volume as well as share in total sales
For instance, share of sales in the affordable housing segment in the total All India residential sales has dropped from 60% in H1 2016 to 47% in H1 2020. The sale of affordable housing segment fell by 8% YoY in 2019 on the back of 0.3% YoY fall in 2018
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
Tax benefits: extension by one year of additional deduction of up to INR 1,50,000 for interest paid on loans taken for purchase of an affordable house on or before 31st March, 2020; extension by one year of tax holiday provided on the profits earned by developers of affordable housing project approved by 31st March, 2020
