A t present, there is a shortage of 18.8 million homes across India’s urban centres, of which 15 million are needed in the LIG (Low Income Group) category. Large-scale budget housing projects are definitely needed to address this mammoth shortfall. With the government having granted the long-awaited infrastructure status to the affordable housing segment in the recent budget, realty growth is expected in the mid- and lower-income segments.
Positive changes
This announcement, along with the liberalisation of the FDI policy, will open up a lot of funding options for developers at a much lower rate. JLL’s Global Real Estate Transparency Index in 2016 places India’s Tier 1 cities in the 36th rank against the earlier 40th rank.
These are positive signs for a more transparent and investor-friendly market, says A. Shankar, National Director, JLL India. “These factors will encourage developers to invest in the affordable segment, thus making it easy to meet the Housing for All 2022 vision. A number of corporates are also entering this market as it holds immense potential,” he says.
As per a report by ICRA, the total loan book of all players in the affordable segment stood at ₹957 billion as on March 31, 2016, indicating a growth of 28% during FY 2016. Hence, opportunities for growth are significantly high.
The new status also improves the financial situation. This gives priority to the financial institutions and banks who can allocate more money, offer loans at lower interest rates and make funds available at better terms, says Dr. R. Kumar, Managing Director, Navin’s. “We can receive external benefits from abroad such as commercial borrowings. This will increase the flow of funds into the sector and encourage developers to take up projects in the segment.”
Shared benefits
The ‘infrastructure status’ tag brings with it multiple benefits—not just for developers, but buyers too. With multiple sops being given to affordable housing, we can expect larger participation from Grade A builders. As a result, buyers will get ‘quality’ affordable homes as against poor quality ones provided by a few housing authorities, says Mir Jaffer Ali, Founder and CEO, PropUrban. Such benefits trickle down from the developer to the buyer and they enjoy a number of shared benefits. One such is the revision of the construction timeline from three to five years.
This helps developers maintain a better cash flow to balance the inventory and sales velocity. Buyers on the other hand can expect quality construction. Developers are also eligible for government incentives, tax benefits and institutional funding. “Access to low-cost capital can help reduce input costs which, in turn, improves business viability for developers. This can help the affordable segment grow sustainably and address the current demand-supply gap,” says Sriram Mahadevan, Business Head- Happinest, Mahindra Lifespaces. Therefore, reduced costs will help developers work with better returns, and buyers in turn enjoy housing units at a lower selling price and affordable ticket size. Shankar says the increased availability of housing loans by National Housing Banks (up to ₹20,000 crore) will bring in more buyers.
He adds, “The tenure of loans under the Credit Link Subsidy Scheme (CLSS) has been increased to 20 years from the existing 15 years which converts to low monthly EMIs. This widens the affordability bracket of buyers.”
Space matters
Going forward, units with a carpet area (not built-up area) of 30 sq.m and 60 sq.m. will come under the segment. What does this mean? Darshan Jain, Project Director, Vijayshanthi Builders says the 30 sq.m. limit will apply in case of municipal limits of the four metropolitan cities, and the 60 sq.m. limit will apply for the rest of the country. This move will make houses more spacious—25-35% larger. This makes a larger part of inventory fall under the affordable housing category and also makes it more attractive for buyers.
Last year’s budget gave 100% deduction on profits for housing projects building homes up to 300 sq. ft. in the four metro cities, and 600 sq. ft. in other cities. In this budget, the government clarified that the basis for this benefit will be carpet area and not built-up area, adds Ali.
Market in Chennai
In Chennai, a sizeable share of the affordable segment is located in the OMR stretch, GST stretch and localities in the north-western part of the city such as Ambattur, Korattur, Kolathur, Guduvancheri, and Chembarambakkam. Sriram Iyer, Business Head, South and East, Godrej Properties, who has launched a project at Padur, says the rental yield is averaging at 4% when rentals in other areas have seen only a 2.5-5% annual increase over the last four-five years.
Locations such as Mahabalipuram, Singaperumal Koil, Vengambakkam, Sriperumbudur, Oragadam, Padappai, Urapakkam, etc, have a supply of residential units of in the 450 sq.ft. to 815 sq.ft. range with ticket sizes ranging from ₹11 lakh to ₹19 lakh. As per data by PropUrban, of the total projects launched from July 2016 till date, nearly 51% fell in the mid-segment (less than ₹40-80 lakh), followed by 24% in the affordable segment (within ₹40 lakh ), and 21% in the luxury segment (₹80 lakh to ₹1.5 crore ).
Despite a steady supply of units, infrastructure continues to remain a challenge. Several bottlenecks and challenges—availability of bankable infrastructure, issues in land acquisition, environmental issues—continue to plague developers, says Jain. The sector needs consolidation in policy framework and an institutional mechanism for fair pricing and competition.
