affordable housing

The affordable housing segment has emerged
as one of the most vibrant and dynamic
sectors in the Indian real estate industry.
Various factors have contributed to this
growth—on the supply side it is the entry of
various real estate developers and
availability of financial options; whereas
rapid urbanization, growing trend of nuclear
families and rising income levels have fuelled
the demand for affordable housing. There is
hardly a dispute that there still is a
considerable supply shortage in this
segment.
As a concept, affordable housing is not a
new one. It is at least a decade old, with the
local development agencies of big cities
being the original pioneers with their lower
income group flats. While the market for
affordable homes never really diminished,
large real estate firms started focusing
almost exclusively on premium and luxury
projects between 2004 and 2008 as the
economy expanded rapidly and banks and
financial institutions adopted a more liberal
approach to giving out loans.
Since 2008, however, with the overall
changes in the economy and the real estate
market, companies, even large ones, have
turned to low-cost housing projects with a
renewed focus. Large scale real estate firms
have launched low-cost homes at various
locations in the price bracket of Rs.10 lakh
to Rs.30 lakh and investments in the
affordable housing sector are moving north.
A recent news report spotted a rising trend of
homes in the affordable segment being
bought for investment. These were bought by
people who do not plan to stay in them as
the houses are located too far away from
commercial areas and have lesser support
infrastructure. Gujarat, Bangalore, Madhya
Pradesh and Ahmedabad are among the
states that have seen traction in affordable
housing. Given the lower off-take of mid-
range and luxury units in India that are
clearly seeing some challenges, the growth is
going to be sustained from rural and
affordable housing in the range of about
18-20% coupled with the aspirational need
to have a house and by the acute shortage in
this sector.
While less than five years ago there were not
many financiers for customers of affordable
housing, today most big names are entering
rural housing with built-in risk pricing so as
to make it a viable business model. Big
names in the industry are rushing into the
sector to cater to the existing demand
supply gap. More and more projects are
being promoted across India. Tier II and III
cities have seen a higher rate of adoption for
these projects. Low-income customers are
happy with their new homes, improved living
conditions, safe neighbourhoods and
enhanced overall social status, which are
some of the benefits that the segment has
been able to provide. Many banks may be
slow to approach affordable housing
properties because of their remote location
and the estimated land value not meeting
their expectations. In such cases, loans
would be harder to come by and the
perceived higher rates of interest may deter
potential buyers from approaching non-
banking financial companies (NBFCs) that
now focus on retail housing finance business,
a sector dominated by commercial banks.
NBFCs, though, have been able to offer loans
at competitive rates. While banks have been
able to provide loans at relatively cheaper
rates since their cost of funds is lower, debt
markets have come in handy for NBFCs to
raise cheaper funds. Essentially, their focus
on growth segments, efficient loan recovery,
individual focus and simple processes have
helped them keep the cost low and reduce
interest rates on home loans, passing it on
to borrowers.
Indians consider their homes their most
important possession, and, therefore, make
paying their financial obligations towards
them their highest priority. In a challenging
economy, people may think twice before
making any new high-value financial
commitments. They tend to be very cautious
about doing so during times of financial
uncertainty but pursue their home ownership
dreams when they perceive that stability has
been restored in the economy.
The concept of affordable housing as a whole
has been well received by consumers,
developers and financiers; this has led to
end-to-end servicing of this segment, thus
becoming a lucrative proposition for one and
all. Housing finance companies are
expanding to new geographies and
encouraging developer perception of real
demand and ensuring there is enough
awareness and education being imparted to
prospective customers on the home
ownership process through standardization
of processes and campaigns. It helped that
in December, the Reserve Bank of India
allowed real estate developers and housing
finance companies to raise up to $1 billion
through external commercial borrowings to
promote affordable housing projects. This
will help them access cheap overseas funds
and reduce the overall costs. Affordable
housing is the “sunshine” sector for the next
five years from a developer and lender
perspective. To put it simply, this will be the
growth engine of the future for all
stakeholders.