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The Challenges That Affordable Housing Faces

Affordable housing faces supply mismatch.



A pedestrian walks in front of residential apartment buildings in Palava City on the outskirts of Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)
A pedestrian walks in front of residential apartment buildings in Palava City on the outskirts of Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

The government's ‘Housing for All by 2022’ scheme may fall well short of target as demand far outstrips supply of affordable homes in India – a segment that has the potential to become a big growth driver for the economy.

“We need 22 million homes. Since the launch of the affordable housing scheme, we have sold only half a million,” Arun Nanda, non-executive chairman of Mahindra Lifespace Developers Ltd., told BloombergQuint in an interaction, highlighting the gap between the target and actual numbers.

To spur the growth of affordable housing under the Pradhan Mantri Awas Yojana (Urban), the government has come out with several measures, including giving the sector infrastructure status. Last week, it extended interest subsidy benefit of about Rs 2.60 lakh on home loans under the programme for beneficiaries in the middle income group by 15 more months and offered sops to attract private investment.

Nearly 40 percent of the new customer base of Dewan Housing Finance Ltd. is in the under-Rs 12 lakh bucket, but there isn’t adequate supply, said Joint Managing Director and Chief Executive Officer Harshil Mehta. The company’s housing loan business grew 30 percent in the first quarter, with a big chunk coming through affordable housing from tier-2 and tier 3 cities where the annual income is between Rs 8 lakh and Rs 15 lakh, he said.

The demand is coming from ‘Bharat’ and not India – which is Tier-II & III towns.
Harshil Mehta, Joint MD And CEO, Dewan Housing Finance

Affordable housing finance is expected to become a Rs 6-lakh-crore market over the next five years, according to an India Ratings and Research report. The rating agency has predicted a demand for 2.5 crore homes in the medium-income and lower-income categories during the period. The government’s push, falling mortgage rates, housing shortage, stable property prices are expected to drive the growth.

But along with supply crunch, poor progress on public-private partnership is proving to be another stumbling block for the ‘housing for all’ programme, said Nanda. Mahindra Lifespaces is yet to sign a memorandum of understanding with a state government for an affordable housing project, he said. “A lot more needs to be done by the government on the PPP front for taking the affordable housing scheme into the implementation phase.”

While the interest subsidy may spur demand, Mehta said it is likely to attract more investors than genuine homebuyers. “Lack of growth in high-value homes has shifted investor interest to low-cost houses,” he said. Also, loan prepayment by such buyers soon after availing interest subvention is making banks apprehensive about lending for affordable housing as foreclosures amount to lower interest earnings.