Affordable housing may remain a non-starter unless accompanied by fiscal and tax boosters

By Bijay Agarwal

Affordable housing has become the key thrust area for the Prime Minister Narendra Modi’s government with the ambitious plan of Housing for All by 2022. This has naturally enthused property developers to look into this segment as it means catering to a population which had so far largely remained untapped.

The concept of affordable housing will remain a non-starter unless it is accompanied by fiscal and tax boosters. There are a few income-tax benefits for developers who are engaged in low cost projects. The carpet area norms have been liberalised to boost this segment. Lastly, as GST gets to become fully operational, it is expected to benefit the construction industry as a whole.

However, there are still challenges in implementing affordable housing projects. Vast land banks in urban areas which can be diverted towards affordable housing are locked up in litigation. Secondly, infrastructure around these affordable housing projects is still not up to the mark, creating a challenge in terms of marketing these houses. Lastly, there has to be further clarity on what exactly are the income tax benefits for the affordable housing projects.

Today, the expectation is that the government of India’s Housing for All initiative with the construction of two crore houses is expected to bring $1.3 trillion investments in the housing sector by 2025. Even the Union Budget for 2018-19 had allocated Rs 33,000 crore under the Pradhan Mantri Awas Yojana (PMAY) (Gramin) while the urban programme of the scheme received an allocation of Rs 31,500 crore. These two policy measures are directed towards affordable housing.

The biggest driver is the rising urbanisation in the country. The Reserve Bank of India (RBI) in its policy paper on affordable housing had said that in 2008 around 340 million of the country's population was residing in urban areas and this is expected to rise to 590 million by 2030.

There are estimates that the demand for affordable housing will increase to 38 million housing units in 2030 from 19 million in 2012.

The motto of the Pradhan Mantri Awas Yojana (PMAY) – Housing for All programme is very clear: “By the time the Nation completes 75 years of its Independence, every family will have a pucca house with water connection, toilet facilities, 24x7 electricity supply and access.”

Even the Karnataka government has recently sanctioned the construction of 32,656 affordable houses in 95 cities with an investment of Rs.1,461 crore.

All these measures clearly indicate the government’s focus towards boosting the housing sector and meeting the requirements of the middle class.

There is, however, a perception that real estate developers only cater to a certain class of buyers which generally do not fall into the affordable segment. The policy changes brought about by both the Central and State governments encourage developers to foray into the affordable housing segment.

The push towards affordable housing is likely to have a positive impact on the finance market as many of the credit-linked subsidy schemes will substantially increase the loan values. It is expected that a new class of loan seekers will emerge in the process.

As the affordable housing segment grows, deployment of technology in the construction of these houses is all set to increase. Given the scale, conventional methods are likely to give way to automated construction techniques.

The government's push towards affordable housing will encourage more property developers into this segment and the dream home could become a reality for millions of Indians.