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Saturday, August 18, 2018

72 Years of Independence - Housing for All by 2022?

By Anuj Puri, Chairman, ANAROCK Property Consultants
When we reflect on India's 72 year-long independence in context with real estate, one thought overshadows all others - affordable housing. No nation can call itself truly self-sufficient until there is a roof over every head. We can talk about increased transparency and efficiency, but this has true relevance only if it is not just the industry that benefits but also the common man.

 Embodying this very basic but profound premise, the Modi Government's election manifesto of providing Housing for all by 2022 definitely rang all the right bells. Obviously, it boils down to unleashing a massive number of affordable homes, and the Government has certainly gone the extra mile to making that happen. Unfortunately, what we have seen so far is more marketing hype than genuinely affordable housing.

 Many developers have climbed on the 'affordable housing' bandwagon, but actually the term ‘affordable’ is in most cases just being misused to ostensibly show alignment to the 'Housing for All' mission. Of course, builders have been generously applying terms like ‘affordable’ and 'luxurious' to projects which were neither affordable nor luxurious long before the Modi Government took charge in 2014.  However, almost every second project today is being purveyed as 'affordable' and people can still not afford to buy homes there. There appears to be a big intelligence gap when it comes to the real definition of affordable housing.
What is affordable housing in India?
According to the Ministry of Housing and Urban Poverty Alleviation, affordable housing is defined on the basis of property size, its price, and the buyer’s income. For instance, for the economically weaker section (EWS), an affordable house must measure between 300 and 500 sq. ft. and be priced below Rs 5 lakh, incurring no more than Rs. 4,000-5,000 as monthly EMIs. The income ratio in this case should be of 2:3. These numbers change for lower income group (LIG) and the mid-income groups (MIG).

The central bank’s definition, on the other hand, is based on the loans given by banks to people for building homes or buying apartments. It recently tweaked the incentivised affordable housing loan limits from Rs 28 lakh to Rs 35 lakh in metros and from Rs 20 lakh to Rs 25 lakh in non-metros, provided the overall cost of the home doesn’t exceed Rs 45 lakh and Rs 30 lakh respectively. This move was aimed to give a fillip to low-cost housing for the EWS and LIG groups.  Thus, the definition changes according to the context. Some builders even use the term ‘affordable luxury’, whose validity is again very context and location-based.
How much of the upcoming supply qualifies?
As per ANAROCK data, as many as 22,120 new units were launched in the affordable category (< Rs 40 lakh) in Q2 2018 across the top 7 cities. Affordable housing units comprised a massive 46% of the total new supply in the same quarter.

The supply in the affordable housing segment (< Rs 40 lakh) saw an increase of 100% in Q2 2018 as against the previous quarter. In fact, the overall supply in Q2 2018 was dominated by the affordable segment, with nearly 46% supply in this category which eventually boosted the overall supply growth.

However, around 2,37,000 units in the affordable segment (units priced less than Rs 40 lakh) were unsold as of Q2 2018 across the top 7 cities. This number pertains only to the unsold units of organized private developers, and does not include Government housing schemes. If those are included, the figures would go further northwards.

Here is a paradox. While there are ample options in the affordable category which can easily bridge the demand-supply gap, the numbers speak otherwise. Yes, more potential buyers are now eligible for bank loans - but due to rising NPAs (particularly in the real estate sector) banks are being extremely cautious in lending to both builders and buyers.
Affordable luxury
The terms ‘premium affordable’ or ‘affordable luxury’ are coined by developers to leverage the ‘affordable’ buzzword in the Indian real estate sector. Such projects may boil down to normal mid-range housing with some extra amenities thrown in. A parallel that could be drawn is the air ticket category ‘premium economy’, which offers some extras but isn’t quite business or first class.

In a limited number of such projects, there is genuine added value for a slightly higher price. Others may be normal mid-range projects with a fancy name. However, by no stretch of imagination can one claim that the supply of 'affordable luxury' housing is in any way geared to help meet the Government's 'Housing for All by 2022' target.
Again - a home for every Indian by 2022?
Obviously, the Government's spate of policy reforms and schemes over the last few quarters has resulted in an increased new supply and also demand for affordable housing. However, 'housing for all' does not necessarily mean 'every Indian family owns a home' - we are in any case nowhere near to such a target. This concept must evidently also include rental housing which those who cannot afford to buy can avail comfortably within their means.

If we look at it that way, we may be a lot closer to the Government's target than it seems. If RERA spreads its wings as intended and has the expected nation-wide impact, a lot of inventory will hit the market over the next 2-3 years. Attracting end-users aside, the next necessary step would be to entice investors who can buy and rent out this inventory back onto the market.
Boosting rental housing
This is quite a challenge, considering that the Indian real estate market currently favours end-users - and that too largely only for ready-to-move options - but is rather unattractive for investors. What is required is that the GST rates for affordable housing be significantly reduced, or that affordable housing is exempted from GST altogether. GST has resulted in reduced buyers’ interest in new launches and under-construction projects.

Boosting rental housing demand and absorption can go a long way in meeting the 'Housing for All by 2022' target that the Government should consider seriously. Perhaps then, we could celebrate our Independence Day in 2022 with this dream fully realized.

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