There is also a need to develop an adequate supply of affordable rental housing

Subhankar Mitra

Managing Director, Advisory Services, Colliers India

What are the prevailing market trends in the affordable housing market in India?

There are three notable ways seen for affordable housing. One is Beneficiary Linked Construction (BLC) under which a household gets a 1.5 lakh subsidy to convert its temporary structure into a permanent structure. He further gets additional support for the construction of toilets and water connections. However, it is possible only when the household has land entitlement. This is very much suitable for slum areas. The second approach is targeted housing projects for EWS and LIG by various government agencies and projects under PPP mode. The third one is entirely market driven where a beneficiary gets a subsidy of interest rates for home loans for the purchase of affordable units which is defied under PMAY. According to the estimate, the gross dwelling unit demand in urban areas would be around 25million units. Leaving the government initiatives, India needs to add almost a million dwelling units every year to meet the projected demand for 2030. However, the top ten cities of India which has about 45% share of the urban population add only 2-3 lakh dwelling units every year. Even that is catering primarily to the MIG or above segment. In most of the cities, there has been a noticeable change in market dynamics in the post-pandemic scenario. For example, the supply of a total number of dwelling units in the less than 30 lakh category, which was around 1.14 lakh in 2019 fell below 80,000 in the current year. On the other hand Supply of dwelling units in 50 lakhs to one crore ticket size has grown by 48% by 2022.

How are the government policies like Housing for All and PMAY driving the demand for affordable housing segment in India? 

Government of India under the PMAY scheme have approved about 12 million houses, mostly in the EWS, LIG and MIG category, out of which about 6.4 million have been delivered. The Ministry of Housing defines affordability in terms of annual income. For example, a household income of Rs 3-6 lakh will be categorized under LIG segment and 6-12 lakh of household income group will fall under MIG category. Below 3 lakh category of household income group would be in the EWS segment, and households earning 12-18 lakh per annum would be classified as upper MIG. The EWS and LIG household will get a subsidy of 6.5% on the interest rate up to a loan amount of 6 lakh for the purchase of the first home with carpet areas not exceeding 30 to 60 sq m respectively. Even the lower and upper MIG segments would also get an interest subsidy of 4% and 3% respectively for corresponding loan amounts of 9-12 lakh. Lower and Upper MIG can purchase a house with 160-200 sq m of carpet areas correspondingly to avail this benefit for the purchase of their first home. The CLSS scheme has been very attractive for the market for offering products that will get sold faster as the interest subsidy brings the EMIs down for the household. Additionally, the developers who construct houses with 60 sq m of carpet area are also eligible to get income tax benefits under 80IBA. Some states like Haryana, Gujarat etc offer incentive FSI to projects which has a specific percentage of affordable units. All the initiatives have resulted in an increase of affordable units in selected pockets. However, there is still considerable room to cover on the supply side.

What is your view on the demand-supply scenario in affordable housing segment?

As compared to the demand for the present decade the supply lacks quite a bit in the number. Leaving the government initiatives, India needs to add almost a million dwelling unit every year to meet the projected demand for 2030. However, the top ten cities of India which has about 45% share of the urban population adds only 2-3 lakh dwelling units every year. Even that is catering primarily to the MIG or above segment. In most of the cities, there has been a noticeable change in market dynamics in the post-pandemic scenario. For example, the supply of a total number of dwelling units in less than 30 lakh category, which was around 1.14 lakh in 2019 fell below 80,000 in the current year. Supply of dwelling units in 50 lakhs to one crore ticket size has grown by 48% since 2019. The rate of carpet area basis fell down in 2020 but recovered sharply by Q3 of 2022. Accordingly, to the project launch data, the prices of residential units in MMR dropped to Rs 12,000 per sq ft on carpet area basis in 2020 from 14,000 per sq ft around the peak of 2019. However, at present, the rate shot up to Rs 22,000 per sq ft. The average area of the units also increases by 43% to 1,171 sq ft from the level of 820 sq ft in 2020. The rest of the metro cities also showed a similar trend where the average area of doweling units increased by 20% to 40% and the rate on carpeted area swelled by 10% to 40%. As a result, the overall ticket size has grown up significantly taking a toll on the supply towards more affordable units. There has been a shift towards the spacious home during the lockdown. That trend kept continuing in 2022 and the developers have launched their projects mostly catering to these segments of the demand. With home sales remaining strong despite an increase in home loan rates, the developers would continue to focus more on the luxury segment. The market might see some change on the course once a saturation level is achieved for this segment and only then we might see some attention towards the affordable homes.

How is the rising input cost affecting the affordability of affordable housing?

The cost of steel, cement and other raw materials has been on the rise since 2021, particularly on the back global and local factors. The wage cost of labours has also gone up in the construction. As a result, there has been an increase in the cost across all the markets varying from 6-10%. More the demand for housing bounced back in Q4 of 2020 but the supply side crunch was there due to a large number of stalled projects from the hangover of lockdown. The interim effect of demand-supply mismatch has also resulted in the selling prices of houses in different markets.

What is the way forward for the affordable housing market?

Apart from the house on an ownership basis, there is also a need to develop an adequate supply of affordable rental housing, particularly to cater to the migration that happens from smaller towns and rural areas. On average, 28% of the urban dwellers live in rental housing, and in some states like Tamil Nadu, Andhra Pradesh, and Karnataka, it is over 40%. Ministry of Housing and Poverty Alleviation recognized the need to provide affordable rental housing for poor urban migrants and initiated the ‘Affordable Rental Housing Complex’ (ARHC) across all cities under public-private participation. However, the rental yield from residential buildings remaining in the range of 3-4% discourages institutional players from participating and developing the much-needed stock of rental housing. The government needs to step in here and create right incentive mechanism for private sector to participate and address the issue in a better way.

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