Since the launch of the Pradhan Mantri Awas Yojana (PMAY) in 2015, housing in India’sleading eight cities has become considerably more affordable, according to Knight Frank India’s proprietary Affordability Index, which tracks the EMI (equated monthly instalment) to income ratio for an average household.

For example, Mumbai’s home purchase affordability index dropped from 97 per cent in 2014 to 57 per cent in Q3 2022 despite the city continuously holding the title of being the most expensive residential market in the country. After Mumbai, NCR and Bengaluru have seen the most improvement in the affordability of residential property. Ahmedabad, Pune, Kolkataand Chennai, in that order, was the most affordable housing markets in the country, based on this year’s assessment, according to Knight Frank India.

EMI/ Household income
	2015	2021	2022 Q3
Mumbai	94%	53%	57%
NCR	51%	28%	30%
Bengaluru	48%	26%	28%
Pune	38%	24%	26%
Chennai	43%	25%	27%
Hyderabad	39%	29%	31%
Kolkata	44%	25%	27%
Ahmedabad	36%	20%	22%

Dual focus pays dividends

What’s behind this encouraging change?
“Both demand and supply of affordable housing have been addressed,” opines Pradeep Aggarwal, Chairman, Signature Global. Signature Global has a presence in core affordable housing or low-cost housing (units with a carpet area of about 750 sq ft, valued between Rs 20 lakh and Rs 30 lakh) as well as in entry-level mid-segment housing (units contained on a single floor in low-rise row houses in plotted colonies, with a super area of about 1,200 sq ft valued between Rs 40 lakh and Rs 80 lakh).

While demand-side measures boost the offtake of affordable housing, supply-side measures boost their development and availability.

Demand boosters

Among the most potent demand-side measures that have been taken, Yashwin Bangera, Senior Vice President, Research, Knight Frank India, identifies a credit-linked subsidy scheme for easy and cheaper institutional credit to EWS, LIG and MIG households for the purchase of homes.

“The Government’s PMAY scheme assists people who would otherwise be unable to avail home loans owing to a disparity in income and interest rates, by providing them a credit-linked subsidy for a home loan,” observes Harsh Vardhan Patodia, President, CREDAI.

Government initiatives for affordable housing such as the credit-linked subsidy scheme and others have been doing well since they were introduced a few years ago, adds Vimalendra Singh, Chief Sales & Service Officer, Mahindra Lifespaces. “Beyond this, the Government has even tried to get into the segment itself to increase the supply of affordable homes.”

Another potent demand-side measure was beneficiary-led construction enhancement involving central assistance of Rs 1.5 lakh per family for new construction or the extension of existing houses (for the EWS/LIG category), according to Bangera. “Reducing the tenure for long-term capital gains for affordable housing to two years from three, revising the qualifying criteria for affordable housing to the carpet area from the saleable area, and introducing a refinancing facility by the National Housing Bank for individual loans have also helped.”

“Supportive measures for the housing sector include exemption on the payment of income tax on notional rent for a second owned house and a higher (Rs 240,000) limit for the TDS threshold on rent,” adds Sanjay Dutt, MD & CEO, Tata Realty & Infrastructure.

Consistently reducing policy rates over the past decade have also played a crucial role in improving affordability and, hence, demand. “Bank base lending rates peaked at 10.75 per cent in 2011 and bottomed out at 7.25 per cent in 2021 during the pandemic,” points out Bangera. “While rates are now rising in response to the current inflationary environment, they still remain below pre-pandemic times and affordability levels are still healthy across markets.”

Supply-side interventions

Helpful supply-side measures include granting Rs 1 lakh per eligible slum house to the planning authority for redevelopment purposes and affordable housing in partnership or providing Rs 1.5 lakh per EWS house in private projects where at least 35 per cent of the houses are constructed for that category and increasing the time for completing affordable housing projects to five years from three, adds Bangera.

Also, granting infrastructure status to affordable housing has improved the flow of funds to the affordable housing sector.

“The affordable segment is getting much-required boosts and attention from financial institutions,” affirms Ritesh Mehta, Senior Director & Head - West, Residential Services & Developer Initiatives, India, JLL. “Many lending financial agencies have come forward to deploy funds in the affordable segment attracted by the quick turnaround time on exit and secured absorption.”

“Granting infrastructure status enables affordable housing to avail lower borrowing rates, tax breaks and an increase in the flow of foreign and private investments,” addsDutt.

SWAMIH funding

When funding has fallen short, specifically, in 125 instances where RERA-registered affordable and mid-segment housing projects across 20+ cities became financially stressed, the SWAMIH Fund has come to the rescue. Creating the SWAMIH Investment Fund I (SWAMIH) to complete the construction of stalled, brownfield, RERA-registered affordable and mid-income residential developments was vital because “to a certain extent, pandemic-induced supply chain disruptions and, more recently, the Ukraine-Russia war put a spoke in construction activities and negatively impacted construction costs, thereby putting more pressure on the viability of real-estate projects,” observes Irfan A Kazi, Chief Investment Officer, SWAMIH.

“Once we came onboard a project, we, alongside project monitoring consultants, directly monitored construction and ensured that funds were utilised only for the project by making payments directly to the vendors, employees and displaced tenants,” he adds. “To date, the fund has completed over 19,000 homes and intends to deliver 20,000 homes per annum for next four years.”

State Real Estate (Regulation & Development) Act (RERA) agencies have helped facilitate SWAMIH support. “Our duediligence involves comparing the project data available with RERA authorities with the data gathered during the technical duediligence,” explains Kazi. “Also, as the project RERA registration has expired, in many cases,owing to the delay in implementation, we rely on the RERA authorities to grant the project an extension so that it can be completed.”

For instance, in Andhra Pradesh, with the active support of AP RERA, Region Forest (270 units), a project in Visakhapatnam, has secured in principle approval for SWAMIH funds, shares USLN Kameswara Rao, Member, AP RERA. “Another project being promoted in Guntur district by Undavalli Construction (SriValliPravas-400) has secured approval for Rs 164 crore funding from SWAMIH.”

Incidentally, Andhra Pradesh has a few stressed projects but very limited stalled projects, mostly confined to the capital region, according to Rao. “A few private projects, like Ramakrishna Venezia (1,996 units), have been stalled and are under the NCLT.”

Role of RERA

Having a regulatory body like RERA in place for consumer protection has helped boost buyers’ confidence across the board, but “especially in the affordable segment where the majority of the buyers are first-timers,” opines Mehta.

“Considering affordable or mid-income housing units to be units that don’t exceed 200 sq m carpet area and are priced up to Rs 1 crore, the majority of housing projects in Andhra Pradesh fall in this category,” says Rao. If such is the scene in other states as well, the provisions of RERA to ensure the timely completion of real-estate projects would have proved useful to buyers of affordable housing across the country.

“Guidelines set out by RERA helped ensure property developers in the affordable housing segment work with registered brokers and, as a result, we’ve seen a significant decrease in customer complaints,” says Patodia. “RERA gives buyers peace of mind by providing transparency to ensure clarity of investments towards owning a home. It guarantees that the funds invested will be used to complete the project at hand.”

With state RERA agencies, Dutt points out that transparency and seamlessness have increased significantly, possession dates are sacrosanct and, in turn, these provisions have enhanced the builder-buyer relationship.

Some states have introduced more attractive development policies for affordable housing.
Aggarwal is very appreciative of the Haryana government’s dual policy for affordable housing within cities –covering core affordable housing and the DeenDayal Jan AwasYojna. “I have examined many state policies for affordable housing but I haven’t seen one as comprehensive as Haryana’s, which covers units priced between Rs 20 lakh and Rs 80 lakh,” he says. “For developers’ math to work out, in Gurugram/Haryana, the FAR (floor-area ratio) for regular housing is 1.75 whereas the FAR for affordable housing is 2.25. Also, the state government allows 8 per cent commercial property in group housing projects. Commercial property is normally not permissible for group housing. In affordable housing projects, this commercial area becomes our bread and butter.”

Future focus

Affordable housing is critical both from the perspective of needy people and business, for being “the only financially viable option that requires lower capital,” to quoteDutt. Ensuring housing for all is also in the Government’s favour.

So, what measures might help boost the segment further?
While the Government has worked to enable an ecosystem to promote affordable housing, multiple definitions and schemes of affordable housing operated by the Centre and state governments have created inconsistency in these provisions,observes Patodia. “Additionally, the Rs 45 lakh limit on the value of property to qualify as affordable housing renders housing in metros, where the lack of housing is most evident, ineligible for benefits under Section 80 IBA. As eligibility under Section 80 IBA has been progressively eased by the Government, the full impact of the benefits can be realised and affordable housing can be taken up on a wider scale, with a reasonable time lag. We also believe the Government should revise the Rs 45 lakh cap on each unit as the prices of various commodities have substantially increased and adversely impacted housing prices. Even if housing in eight of 10 non-metros is currently reasonably priced, as affordable housing is capped at 90 sq m carpet area, the cost of a residential unit still stretches beyond the suggested limit.”

There is a dire need for single-window clearance and faster approvals for newer affordable housing projects to address the region-specific demand, says Dutt. “Also, delays and setbacks caused by the consistent, sudden, random and unpredictable policies of the Ministry of Environment, Forest & Climate Change at the Centre as well as state level should be eliminated.”

He also alludes to archaic and time-consuming state government systems and processes. “Transparency, full digitisation (not partly, as the case is today) and accountability for delays in decision-making could help India achieve its larger goal of fulfilling affordable homes for the poor as well as for rising middle class and senior citizens who are struggling to meet inflation.”

So far, most affordable housing has come up in the peripheral areas of larger cities.
Singh explains this phenomenon and the problem associated with it: “So far, we have been promoting affordable housing at the periphery of urban centres where land prices justify the low unit costs, but the offtake of such units has been lower than desirable because of the exceedingly high commute time to the city centre from these areas.”

Some developers believe that the absence of seamless infrastructure in satellite towns and suburbs also hampers the offtake of affordable housing.

Instead, Singh proposes that the Centre and state governments could consider developing, either solo or in partnership with other developers, affordable housing on land they possess in central locations. “This would allow faster adoption of affordable housing, thereby helping increase supply. The key is to offer the land to developers at a subsidised rate, as the market rate would change the dynamics of the unit pricing.”

His proposal addresses the pressing issue of “availability of land, especially in metro/Tier-1 cities, which are seeing a greater need for affordable housing as people are migrating from rural areas to these big cities for jobs.”

Another initiative that could help is to lowerthe stamp duty for affordable housing on similar lines as the dual GST rate regime (1 per cent and 5 per cent) based on the home size and ticket size of units, in Singh’s view. “Stamp duty cuts had helped boost housing demand across the board significantly during the pandemic.”

Introducing these measures is sure to boost demand for affordable housing in the post-pandemic era.