There’s a buzz going around in the real estate industry nowadays. It’s made up of just two words.
Heard the buzz? I’m sure you have.
You might be surprised to learn that the real estate industry wasn’t the place from where this buzzword originated. Selling houses that were affordable was never part of a developer’s construction plan. Has anyone ever wondered why? One reason perhaps is because they could not afford to build such dwelling units. Or maybe what they considered affordable was unaffordable for the segment of buyers who would be interested in buying affordable houses.
While real estate is primarily a developer driven sector the government does occasionally provide policy guidelines. In recent times, we’ve seen a flurry of such policy activism, amongst which the RERA bill has been the most significant. The pitch for affordable housing is another recent development, initiated by the Prime Minister of India under the Pradhan Mantri Awaas Yojna.
It began with Mr Modi announcing a subvention on interest rates for housing loans ranging from Rs 6 lakhs to Rs 12 lakhs for certain categories of buyers. The 2017 union budget added some more clarity. The sizes of units located within Metros was capped at 30 sq mts and those outside municipal limits at 60 sq mts. More significantly these were specified as carpet area. But the biggest takeaway was the conferring of infrastructure status on affordable housing thus ensuring developers would be able to raise debt at reasonable rates which would in turn help keep prices low, and affordable. Delivery deadlines were also relaxed from three years to a realistically achievable five years.
So, now developers can afford to construct and deliver affordable houses. Houses which a lot of first time buyers will now be able to book, take a loan on, and eventually live in. With infrastructure improving the locations where most of these projects will be launched should easily be accessible.
How would this defining of affordable housing impact the real estate sector?
Most new launches in 2017 will happen in this category leading to a renewed buyer interest and a subsequent flow of funds towards construction and allied businesses. I also expect some PE funds to spread their investment across affordable housing projects. For large investors, this could be an opportunity to invest in multiple units which could yield good rental returns. Overall, the buzz around affordable housing will grow, and be heard all over.