Over the last few years, India has emerged as the most favorable global investment destination. This can be attributed to the availability of young and skilled workforce, attractive markets, strategic policy reforms, and rising global competitiveness. While most industries hold promising potential, rapid urbanization, rising household incomes, and growing need for best-in-class infrastructure have led to the tremendous growth of the real estate and infrastructure sectors.
In fact, according to a report published by the India Brand Equity Foundation, the real estate sector is poised to contribute 13% to the country’s GDP by 2025. Although the sector holds tremendous opportunities, the requirement to bridge the housing shortages in major cities and providing units that can cater to the needs of the urban poor has led to a paradigm shift in the real estate sector.
Since the supply and housing quality has a multiplier effect on the economy, developing units, particularly sustainable and affordable housing in India, has gained paramount importance in government policies and private investments.
How did the Demand for Affordable Housing Grow in India?
Multiple factors accelerated the need for affordable housing in India. Some of these have been elaborated upon, taking into account the time period of 2001-2011 as well as the present scenarios, in the following ways:
1. Rapid Urbanisation
With the economic liberalisation in India in 1991 came rapid developments across the country, especially in the urban areas. As the economy transitioned from an agrarian-based to an industrial and services-driven one, businesses and large-scale industries such as the automobile, engineering, IT, manufacturing, construction, and F&B grew rapidly.
Adjacently, a huge spike in employment opportunities was observed. This followed the increase in growth prospects in urban areas which were brought upon by the improvements in secondary and tertiary sectors and the pro-business policies by the central and state governments.
This marked a prominent increase in the urban to rural population ratio in a short span of just ten years. Not only did the Indian population grow rapidly at a rate of 17.6% from 2001 to 2011, the share of the urban population also increased from 28% to 31% (Census 2011).
Such changes evidently caused and continues to cause a huge problem in the distribution and management of non-monetary resources, especially land. According to a report by the World Bank, 34% of India’s population resides in urban areas, and this percentage is projected to increase to 40.76% by 2030. Hence, urbanization, to a very large extent, has increased the demand for affordable housing in India.
2. Housing Shortages
According to a ICRIER’s paper, the urban housing shortage has risen from 29 million (2018) from 18.78 million (2012). This shortage was more prominent in the EWS-1 or below poverty line (BPL) households. Hence, with the rapid increase in urbanization and the subsequent strain on resources came the congestion of people in slums and spluttered settlements, unable to afford comfortable homes due to limited or no means of livelihood. These settlements were small, kacha, cheap and hence, preferred. However, these were unhygienic, inadequately constructed and lacked basic amenities like clean drinking water.
3. Rising Incomes
Globalization has sprung employment opportunities in India. Alongside urbanization, rising household incomes has expanded the expenditure potential of individuals belonging to the middle or low-income categories. This has further led to a spike in demand for houses that are equipped with basic amenities.
These issues accelerated the idea of affordable housing in India. The government introduced and affirmed a number of policies to ensure that housing is affordable for all over the past 10 years. Of course, the support of private real estate firms and markets was essential in this heavy-investment process of affordable housing. Hence, the Government brought in a lot of changes in the tax policies and other rules to accommodate the presence of private real estate businesses in Affordable housing schemes.
What Does an Affordable House Look Like?
Bollywood being the reflection of society, 1970s blockbuster -“roti, kapda, aur makaan” – starring Amitabh Bachchan and Manoj Kumar enumerates upon the three primary requirements of sustenance. While issues like unemployment are being dealt with numerous policies, delivering a “makaan” (shelter) that is clean, pucca, equipped with basic amenities and is affordable for a growing population base became the need of the hour. Thanks to the implementation of schemes like Housing for All by 2022, the dream has now become a reality.
“Affordable housing”, per se, is a non-specific term, the meaning of which varies from one country to another. However, when we look at a broader picture, affordable housing essentially means providing homes to the economically disadvantaged people who, due to minimal income and the lack of access to home finance, cannot afford houses in metropolitan cities. In India, affordable housing refers to those units that meet a set of affordability criterion like:
- household income level,
- size of the unit,
- ratio of unit size to annual income, or
- EMI requirements
Hence, based on the criterion, the units in metropolitan cities with value up to INR 45 lakhs and a carpet area of 60 square metres are categorised into affordable housing segments. In non-metropolitan cities/ towns, however, houses with a carpet area of 90 square metres with value up to INR 45 lakhs are classified as affordable structures. This, further varies
Hence, this entire concept of providing homes (makans) to all, at reasonable prices, to ensure use and well-being, is what defines affordable housing in India.
Major Government Initiatives
The Government of India has taken many initiatives to introduce, promote and establish affordable housing in India. These initiatives had begun in the early 2000s and are still a point of main focus. Some of these are:
1. Pradhan Mantri Awas Yojana (PMAY)
Launched in 2015, the Pradhan Mantri Awas Yojana (PMAY) is a humongous project that promotes affordable housing in India. The primary objective of this scheme is to provide 20 million affordable units by 2022 to individuals belonging to disadvantaged groups.
This scheme spans both urban (PMAY-Urban) and rural India (PMAY-Gramin) and envisages constructing houses with proper sanitation, water, and electricity supply. While the former covers 4000 plus cities and towns pan-India, the latter lays emphasis on the development of slums, villages, and other rural areas.
The PMAY-U encompasses 4 components:
| PMAY – U | Details |
| In-Situ Slum Redevelopment (ISSR) | Slum Redevelopment using land as a resource with private participation. Slum Redevelopment grant of Rs 1 lakh per house is also provided for dwellings on the central or state lands. |
| Beneficiary-led Individual Construction (BLC) | Under this component of the affordable housing in India scheme, eligible families belonging to EWS categories can construct new houses or enhance existing houses. Central assistance of Rs. 1.5 lakh is provided to beneficiaries in urban areas and between ₹70,000 and ₹1.3 lakh for citizens living in rural areas. |
| Affordable Housing through Public-Private Partnership (AHP) | The aim of the AHP is to partner up with State Governments or Union Territories or Cities to provide financial assistance of INR 1.5 Lakh per house being built to the people of the EWS category. |
| Credit Linked Subsidy Scheme (CLSS) | It Covers EWS, low & middle-income groups. Based on the group, an interest subsidy between ₹2.3 – ₹2.67 Lakh is offered to the beneficiaries. |
2. Changes in Goods and Services Tax
Ever since the GST was introduced and implemented in India in 2017, the total tax component calculated with other applicable taxes (such as stamp duty, registration fees, etc.) constituted 20% of the total property value. This led developers and buyers to demand a lower GST rate on these projects of affordable housing in India.
The developers can either continue with the old tax structure for affordable housing in India [12% / 8%] with Input Tax Credit or they can switch to the new tax regime [5% (other units) / 1% for affordable houses] without ITC. This offers an add-on advantage to developers and they can choose between the rates that are profitable for them.
3. RERA Act
Provisions like timely delivery of projects, well-defined carpet area, and grievance redressal through regulatory authorities in the RERA act has infused buyer interest. This has further accelerated the demand for affordable housing in India.
Major Challenges to Affordable Housing in India
Although affordable housing in India is being planned for and executed on large scales with the help and co-operation of both the Government of India and the private real estate sector, it is not without its challenges. Some of these are:
1. Scarcity of Land
In many urban cities, there is either scarcity of land or the available resources are not available at reasonable costs. This poses a huge problem for promoting affordable housing in India. Primarily because the developers find constructing units with capped carpet area and offering it lower prices financially unviable.
The government’s initiative of motivating developers through FSI (Floor Space Index)/ FAR (Floor Area Ratio)/ TDR (Transfer of Development Rights) will result in fewer houses for EWS and LIG in core parts of the cities.
2. Connectivity Issues
Much of affordable housing in India takes place in strategically distant locations which lack connectivity to urban cities and business hubs. Since peripheral areas often lack well-built infrastructural facilities, occupancy rate can remain low. This is one of the reasons that more than one lakh completed housing units under JNNURM are still unoccupied. This forms a major deterrent to the enthusiasm of private developers.
3. Lack of Private Participation
The private sector in real estate has better access to labour, construction equipment, and expertise. However, the time-consuming process of getting approvals, which greatly adds to the overhead expenses of an extended time period of a project, the low-profit margins, the increasing input costs, and large GST rates have kept a large part of the established real estate sector away from affordable housing. This is acting as a deterrent for the effective implementation of affordable housing in India.
4. Financing Avenues
Commercial banks and other financial institutes lack suitable financing options for those belonging to low-income households due to the perceived return risk. Additionally, there are limited financing avenues for developers too due to which they have to rely majorly on Non-Banking Financial Corporations or private equity fundings.
Way Forward
Rapid urbanization and rising incomes are key demand drivers in the Affordable Housing sector. Due to the present status of infrastructure in urban India, with more than 80 million households living in slums for want of affordable houses, demand for affordable housing in India is expected to increase more than ever.
Consequently, the potential market size for affordable housing in India (urban) is forecasted to grow about 1.5 times from an estimated 25 million households in 2010 to 38 million in 2030. Maximum potential is believed to be in the rich Tier-1 cities that have a considerable mass of urban poor, and in lower-income Tier-4 cities.
Affordable Housing in India is a phenomenon that is bringing both the government and many among the private sectors of real estate together to provide better living conditions for the common people. Although it’s a great initiative, issues like limited financing avenues for developers, rising construction costs, and unavailability of affordable land parcels need to be addressed. For this –
- Alternative funding sources like REITs can be used by developers. Provided, ambiguities in taxation on the dividends are resolved.
- Urban local bodies can incentivize the private real estate developers by offering unutilized land parcels, tax subsidies, and awarding higher FSIs.
- Granting infrastructure status to the real estate industry in India will attract more investments.
- Since delays in the project approvals result in increased costs, providing single-window approval for projects will be highly beneficial for the developers.
- To construct affordable properties, developers can use low-cost technologies like the pre-fabrication technique.
The demand for affordable housing in India is ever-rising. Its future is bright. And it’s thus definitely worth contributing to and believing in. Perhaps, affordable housing in India can also be a step forward in the direction of sustainability (waste management, water management, etc.) and utilization of renewable resources, for effective and complete ‘aatma-nirbharta’.
