The government defines ‘affordable housing’ as homes with a carpet area of up to 60 sq.metres. A house must cost no more than ₹45 lakh. Affordable housing projects must utilise at least 60% of the available space. Also, 35% of the total number of houses developed in such projects should be 21-27 sq.m. carpet area to make them affordable to buyers in the economically weaker section.
Infrastructure status for affordable housing allows developers to get project funding from many sources, including external commercial borrowings, foreign venture capital investors, and foreign portfolio investors. Unlike other housing, which must be completed within three years, affordable housing projects have an extension of two additional years.
Developers of affordable housing benefit from a lower tenure for long-term capital gains — two years instead of the usual three. These developers enjoy an enhanced refinancing facility from the National Housing Bank (NHB) to fund their projects.
As of an announcement issued in September 2021, the government has developed more than 1.12 crore homes of the promised two crores under the Pradhan Mantri Awas Yojana scheme. However, the government has yet to get many developers interested in the affordable housing segment.
One of the most significant problems is the government’s current definition of affordable housing. The size of apartments under the existing definition makes sense since affordable housing needs to be smaller to keep costs in check. But limiting the cost of homes to ₹45 lakh doesn’t work for most larger cities as prices have risen in the past two years making homes less accessible. The ₹45 lakh cap can only work in smaller cities and very remote areas. People are steadily moving to larger cities in search of better job opportunities. They want homes from where they can reach their places of work. The price cap needs to be increased to at least ₹70-75 lakh to allow more people to take advantage of government incentives for affordable housing.
The claim that this will also help the middle class’s wealthier members does not hold. Since the COVID-19 outbreak, middle-class purchasers have primarily searched for larger homes with two or more bedrooms. Developers have mainly produced housing complexes with larger apartments and more lifestyle amenities to accommodate middle-class demand.
According to the Ministry of Urban Housing, only 10% of the current housing supply is affordable. This means that there are fewer options for buyers with lower incomes. Also, affordable housing projects have a substantially smaller profit margin than larger-format mid-income homes. As a result, developers are much less motivated to develop such projects. The current government incentives need to be increased. One of the possible ways to attract developers is by giving them dedicated land owned by government agencies, such as the railways, at subsidised rates. Such available lands are in central urban areas — precisely where the need for affordable housing is the highest.
Due to urbanisation and industrialisation, the price of land has been rising in India, making it more challenging to acquire it for affordable housing projects. Labour, equipment, and building supplies costs, have tremendously increased in the past three to four years, making it more expensive to develop affordable housing.
Undoubtedly, the Indian affordable housing story needs a new chapter to be written. While we wait for this to happen, countless lower-income Indians await a happy ending where they can finally purchase their own homes.
The writer is Managing Director, Pharande Spaces.