Affordable Housing: A win-win scenario for buyers and developers

April 24th, 2018

Housing continues to be the one of most important and popular investment channels for people in India. It is also an investment that has aspirational and sentimental value attached. However, finding the right home can be tough, as affordability can become a hindrance, especially for the mid-income buyers. Recognising this need to increase affordability, the Government has given a major thrust on the affordable housing segment in the last few years.

Staring with the ‘Housing for all by 2022’ scheme in 2015, there have been several policy initiatives such as granting of infrastructure status; rationalisation of Goods and Services Tax (GST) to 8% for affordable houses purchased using Credit Linked Subsidy Scheme (CLSS) under Pradhan Mantri Awas Yojana (PMAY) and creation of a separate affordable housing fund with National Housing bank. These steps have transformed affordable housing into the next big opportunity for Indian developers and have laid the foundation for revival of housing demand in India.

In fact, there has been a significant surge in the number of affordable housing projects across the country. Many players who were traditionally in the luxury or high-end segment are also eyeing this market. According to several reports, affordable housing projects supply in the Bengaluru, Mumbai, Delhi-NCR, Chennai, Hyderabad and Kolkata accounted for than 60% of overall projects in this segment during the first half of 2017. It estimated that the affordable housing has grown by 6% year-on-year basis.

What does it translate into for homebuyers?

While the developers have increased their focus on affordable housing projects, the home buyers are also demanding such houses.  This is because of the incentives linked to this segment. The most important being cheaper home loans. Under the CLSS scheme of PMAY, a first time homebuyer can avail a benefit of INR 2.7 lakh for purchasing a house of 1,615 sq.ft. of carpet area if the family income is up to INR 18 lakh. Additionally, a subsidy of 6.5% subsidy is applicable on home loans up to INR 6 lakh. This is for a period of 15 years. Similarly, for home loan of INR 9 lakh, an interest subsidy of 4% is available and for loan amount worth INR 12 lakh, an interest subsidy of 3% is available. The home buyers can avail these from any bank or housing finance companies.

Besides these benefits, the Government had also amended the carpet area of Middle Income Group (MIG) I from 90 sq. m. to 120 sq. m. and in case of MIG II, it was increased from 110 sq. m to 150 sq. m. With a large population migrating to cities for better opportunities, the demand for affordable housing has also increased manifold. And the implementation of policies such as Real Estate (Regulation and Development) Act, 2016 (RERA) have brought transparency and credibility in the sector, improving customer sentiments. This will enable the real estate market grow on a sustainable basis and help drive the Indian economy.

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