A House For Every Indian
Solapur, in south-west Maharashtra, is dotted with sugar factories and beedi/textile units. This small town, where thousands of labourers live in slums and makeshift shelters, hit headlines last year when the central government approved a massive affordable housing project for beedi/textile workers and other unorganised labourers. The initiative, for building 30,000 houses under the Pradhan Mantri Awas Yojana (Urban), is arguably the first such project on private land. Being undertaken by Raynagar Cooperative Housing Federation along with Pandhe Infracon, a local realtor, it is likely to cost over Rs1,800 crore, and has been eliciting overwhelming response from buyers. "We have got around 38,000 applications so far," says Ankur Pandhe, Managing Director, Pandhe Infracon. A typical house here measures about 375 sq. ft and is priced at Rs5 lakh. The project has open spaces as well as land earmarked for community services, schools, hospitals and other social infrastructure. Both state government and municipal corporation are working overtime to provide amenities such as electricity and water.
This is one of the few success stories of what has been a mostly government-led drive - but also involving private real estate companies - to build all-inclusive affordable housing for economically weaker sections. The trigger is the shortage of 10 million housing units that the government projects, of which more than 90 per cent is in Economically Weaker Section (EWS) and Low Income Group (LIG) categories. "A huge bulk of housing shortage is in EWS and LIG categories where household income is less than Rs3 lakh per annum. So, the demand is for units less than Rs10 lakh," says Saurabh Mehrotra, National Director, Advisory, Knight Frank India, a real estate consultant firm.
No wonder, it is the only pocket of the realty sector that is booming. Consider this - the government claims that more than 3,30,866 houses had been built under the flagship Pradhan Mantri Awas Yojana, or PMAY, as on March 5 this year; more than 50 per cent new launches in the past one year have been in the affordable housing category (Rs10-50 lakh depending on the location); and lenders such as HDFC and DHFL are reporting stellar growth in loans for affordable housing. It is the only bright spot in a sector facing a multiyear slowdown.
It was not always like this. The segment, in fact, has gained serious traction only after the Centre gave it infrastructure status in last year's Budget (this will ensure loans to builders at low rates) and also offered interest subsidies under the PMAY. Also, it recently increased the size of houses eligible for subsidy under the PMAY Credit Linked Subsidy Scheme. For a middle income family under MIG-I with annual income above Rs6 lakh and up to Rs12 lakh, the carpet area cap has been increased from 120 sq. metres to 160 sq. metres. For families with income above Rs12 lakh and up to Rs18 lakh, the carpet area cap has been increased from 150 sq. metres to 200 sq. metres. For MIG-I, the interest subsidy is 4 per cent, eligible housing loan amount is Rs9 lakh and total subsidy is Rs2.35 lakh. For MIG-II, the interest subsidy is 3 per cent, eligible loan amount is Rs12 lakh and total subsidy is Rs2.30 lakh.
Huge Demand
Owing to high demand and encouraging steps from central and state governments, semi-urban, Tier-II and Tier-III markets are seeing a big push towards low-cost housing. "In the past one year, more than 50 per cent new launches have happened in this segment," says Pankaj Bajaj, President, CREDAI-NCR, a real estate developers' collective.
A recent report by real estate services company Jones Lang LaSalle, or JLL, says affordable housing sales grew 27 per cent between January and September 2017 (y-o-y) while overall residential housing contracted 33 per cent.
Anuj Puri, Chairman, Anarock Property consultants, says there has been a whopping 50 per cent jump in new launches in the second quarter of 2018 compared with the first quarter, with the highest supply coming in the affordable segment (less than Rs40 lakh per unit). "Interestingly, affordable housing supply rose 100 per cent during this period, and has led the overall growth," he says.
The government push is changing the market composition too. "After the PMAY launch, there has been a distinct shift in the segment. For example, in the top eight cities, in 2015, units with size less than 500 sq. ft accounted for about 15 per cent supply. In 2017, that number was close to 22 per cent. Units with size less than 700 sq. ft have grown from 36 per cent to 42 per cent," says Mehrotra of Knight Frank.
One reason is increased economic activity and infrastructure development in Tier-II cities and outskirts of metros. "With more and more businesses setting up shop in these cities, the demand for residential real estate has increased significantly. We have witnessed rise in demand from cities such as Ahmedabad, Pune, Nagpur and Kochi," says Sanjay Dutt, MD & CEO, Tata Housing Development Company. The company offers affordable houses starting from Rs14 lakh a unit.
However, there is a catch here. Even though the supply is rising, it is not entirely addressing the demand gap. Industry experts say while the biggest demand is in the EWS category, most of the action is happening in middle income group housing. One reason is lack of private sector participation in EWS and LIG segments. "Most players in the real estate industry are currently meeting only 10-15 per cent need in this segment and that too above the Rs10 lakh bracket," says Mehrotra. Also, large builders cater to only the top 15-20 cities, which account for a small share of the country's population.
Low Margin
One reason for this demand-supply gap is that affordable housing is a low-margin business. Middle income and high income segments promise higher returns. "Most mainstream builders are caught in mass premium and luxury categories. However, of late, we have seen some upward trend in the affordable segment too," says Ashish R. Puravankara, Managing Director of Puravankara, a Bengaluru-based realtor which recently entered the premium affordable category (Rs45-70 lakh) in the city. Bajaj of Credai is also concerned about the low margins in affordable housing. "In NCR, affordable houses are being sold for Rs3,000 per sq. ft and the margin will be around 5 per cent. In the premium/luxury segment, it is almost 15 per cent," he says.
Another hindrance is the high cost of land - which depends on factors such as connectivity, demand and infrastructure - in metros and bigger towns. "This makes it difficult to procure land in metros," says Dutt of Tata Housing. On the supply side, this has a bearing on the cost of housing units. "The increasing cost of raw materials adds to the stress of the developer," he says. That is why affordable housing projects are not really taking off in metro cities and their suburbs. "For the past many years, in cities such as Mumbai, supply of smaller/affordable houses was missing," says Renu Sud Karnad, Managing Director, HDFC Ltd. HDFC has been reporting good growth in affordable housing loans from Tier-II and Tier-III towns where most such projects are coming up.
There is a problem in the way we have planned housing in our cities, says Mehrotra of Knight Frank. "While planning a city, there should be land allocation for all social strata. Internationally, it is the norm. Unfortunately, in Indian metros, by allowing land in free float, only affluent people can afford houses inside cities, forcing the lower income group people to live in urban villages or slums," he says.
Unsold Inventory
One of the biggest worries in affordable housing is unsold inventory. Data from Anarock Consultants shows that about 2,37,000 units in the affordable housing segment (less than Rs40 lakh) developed by organised private players are unsold across the top seven cities. "This does not include government housing schemes," says Puri of Anarock.
One of the major reasons for this is lack of allied infrastructure. "Most barren projects were launched without feasibility studies and builders went ahead in an area just because land was cheap or local development regulations were lax. When houses come up in areas that are too far from the city's workplace hubs and lack the necessary support infrastructure, there will hardly be any takers," he says.
Affordable housing should be sustainable. "If you build affordable housing complexes in a township which has basic facilities, the project will be sustainable. Without proper amenities, small group housing wont be sustainable," says Gaurav Mittal, Managing Director, CHD Developers, a New Delhi-based builder that has invested in affordable housing.
"For example, many projects under Haryana's group housing policy have a large number of individual houses in small land parcels without much amenities and, therefore, face sustainability issues," he says. Inferior construction, flaws in design and legal issues add to the woes.
Finance on High
India Ratings had, in 2017, estimated assets of Rs1.5 lakh crore under affordable housing. This is expected to rise four times to Rs6 lakh crore by 2022. "We are seeing good demand across the country. The demand for the Rs10-15 lakh ticket size is high in Tier-II and Tier-III cities," says Karnad of HDFC, adding that for HDFC, loans to EWS and LIG segments grew 32 per cent and 41 per cent, respectively, in 2017/18, over the previous year. "Also, 38 per cent home loan approvals in volume terms and 19 per cent in value terms have been to customers from EWS and LIG segments," she says. On a monthly basis, HDFC has been on average approving 8,200 loans to EWS and LIG segments with approximate value of Rs1,312 crore.
DHFL, another major financer in affordable housing, says business is accelerating. Harshil Mehta, JMD and CEO, says that his company "has received subsidy under the PMAY for more than 7,000 cases amounting to Rs155.9 crore. Of this, 3,207 cases fall under EWS and LIG groups and amount to Rs75.1 crore and the remaining 3,897 cases fall under MIG 1 & 2 groups and amount to Rs80.8 crore," he says. About 80 per cent of DHFL's home loan disbursements are in the affordable housing category, with most applicants being first-time home buyers. The company's average loan size is Rs15.2 lakh.
Fast growing economy, rising affordability, fast-paced urbanisation and increase in workforce are greatly contributing to the growth of the affordable housing finance industry. The regulatory environment has greatly improved, financial institutions are offering unique products at competitive prices and the focus remains on ensuring that customer experience is the key differentiator between lenders.
"All these years our members were living in slums and chawls. The very idea of affordable housing is a dream come true for us," says Nalini Kalburgi, a daily-wage labourer from Solapur who is also the chairman of Raynagar Cooperative Housing Federation.
Clearly, affordable housing is where business meets social.
The writer is a Chennai-based freelance journalist
