On the Upswing: Affordable housing market sees accelerated demand post-Covid

Post the first wave of Covid-19, the residential housing market in India has shown a remarkable recovery. While the recovery was driven by the concession in stamp duty in some states, lower interest rates, discounts and developers’ schemes, the momentum continu­ed even during the second wave, suggesting a solid undercurrent of end-user demand.

On the demand side, the unprecedented cut in repo rates has resulted in home loan in­terests coming down to sub-7 per cent levels. Besides, a supportive home loan structure, initiatives such as reduction in stamp duties and extension of the credit-linked subsidy scheme have lifted buyers’ sentiment and accelerated housing demand.

Update on PMAY

The government has allocated Rs 480 billion for the completion of 8 million houses under the Pradhan Mantri Awas Yojana (PMAY) in fin­ancial year 2022-23. Against a total assess­ed demand of 11.2 million houses, 11.5 million have been sanctioned under PMAY-Ur­ban (PMAY-U). Of these, nearly 5.5 million hou­ses have been completed/delivered to beneficiaries and the remaining are at various stages of construction/grounding. Over 17 million PMAY-Gramin houses have been completed against the allocated cumulative target of 29.5 million houses. Further, the government has launch­ed af­for­dable rental housing complexes (ARHCs) as a sub-scheme of PMAY-U to provide dignified living to urban migrants/the poor, near their workplace. This scheme is being implemented through two models — Model-1: Converting existing government-funded vacant houses into ARHCs through public-private partnership (PPP) or public agencies; and Model-2: Co­ns­truction, operation and maintenance of ARHCs by public/private entities on their own available vacant land.

Private sector participation

With the high-margin premium segment growing at a sluggish pace in recent years, developers are turning to affordable housing in a big way. Regu­la­tory and government support and inc­reasing urbanisation have further made the segment extremely lucrative. In the past three to four years, several incentives, subsidies, tax be­nefits and, most importantly, institutional funding have been extended to private developers to spur growth in the affordable housing segment. Policies such as PPP for affordable housing and land pooling have further boosted developers’ confidence in the space. Given that the affordable housing segment was the fastest to recover from the first wave of Covid-19 in 2020, more developers are keen on making inroads into this affordable segment.

Housing finance

While banks have been key players in the housing finance segment, over the years, several new players in the form of housing finance co­m­panies (HFCs) have emerged in this space, especially in the affordable housing segment. Though banks have a presence in the smaller-ticket home loan market, their lending to the economically weaker sections and low-income group segments and borrowers without any formal income proof is limited. In this scenario, specialised HFCs have emerged as key players and are tapping this underserved market segment. Even large HFCs have now set up dedicated verticals, focused on the affordable housing segment.

The green residential housing market is also booming in the country. In July 2021, the Hou­sing Development Finance Corporation (HDFC) and the International Finance Corpora­tion (IFC) entered into an agreement to promote green housing in India, throu­gh lending for affordable and low-income housing. IFC has extended a loan worth $250 million to HDFC under this partnership. More recently, HDFC Capital achieved the initial close of its third fund of $1.88 billion, focus­ed on affordable housing. The HDFC Capital Affordable Real Estate Fund-3 (H-CARE-3) will provide funding to affordable housing projects through a combination of innovative financing, partnerships and technology.

Rental market

As Covid-19 has underscored the need for a well-developed rental housing ecosystem in India, a noteworthy move has been the launch of the ARHC scheme as a subcomponent of the PMAY-U. The new scheme will help unlock the existing vacant housing stock to address the housing needs of lower-income groups. The Model Tenancy Act, 2021, approved by the union cabinet in June 2021, will also give a fillip to this segment by ensuring speedy and transparent disposal of disputes.

In sum

The pandemic has resulted in significant reverse migration, which is increasing the de­ma­nd for affordable and middle-income housing across Tier II and Tier III cities. There is a great likelihood that cities beyond Tier I will co­ntinue to see a greater momentum of jobs and en­trepreneurship in the next few years. Massi­ve demand for houses, especially affordable ho­mes, is driving the recovery of the construction sector. In the end, efforts taken by the government are helping stimulate the demand.