Private developers to tap affordable housing policy push

As India is widely piped to become the world's third largest economy by 2030, the government is giving a strong push to the affordable housing segment as more and more houses dot sleepy towns, Tier 2 cities and metros of the country.

Private developers too are looking to tap the government's policy push and are entering the segment in a big way, offering a wide array of options to end-users. Members of builder's body the Confederation of Real Estate Developer's Association of India or CREDAI – had announced the launch of 375 affordable housing projects across the country with an investment commitment of Rs 70,000 crore.

With the affordable housing segment getting infrastructure status, developers are working overtime to tweak existing projects and convert them into affordable housing projects. The earlier fears of low margins blighting builder's prospects no longer seem to be a factor as the affordable housing segment is expected to drive volumes in the near term. Midlevel housing projects in the price range of Rs 50 lakh to Rs 2 crore are seen as affordable housing units in Tier 1 cities while the threshold is significantly lower in smaller towns and rural India.

Rajesh Krishnan, Founder and CEO, Brick Eagle Group, which is managing affordable housing projects on over 1,000 acres across Maharashtra, Tamil Nadu, Gujarat, Rajasthan and Karnataka, says: "Backed by policies and sops to achieve the government's coveted goal of 'Housing for All' by 2022, affordable housing has shifted the developer's focus from luxury projects. Low-cost housing projects have faster sales velocity since the demand is high. This helps in better cash management. Hence, we are witnessing an increasing interest from even frontline developers who stayed away from this segment due to perceived low margins."

Supported by 20 housing finance companies, Xrbia Developers has also launched the 'No-Income Proof Home Loan Scheme', which enables applicants to apply for finance without submitting income proof documents. "This scheme is a breakthrough for those employed in the informal sector, who have been denied access to housing finance despite a stable income," says Rahul Nahar, Founder & MD, Xrbia Developers. The company, which claims to have maintained a sale rate of approximately 2,000 houses every month in 2017, has supplied 3,776 houses under Rs 20 lakh in 2016 in the Mumbai Metropolitan Region (MMR) and Pune areas.

As the government rolled out the new Goods and Services Tax (GST) regime from July 2017, a major differentiator between markets has been done away with. An integrated national market will help the real estate sector by way of a common indirect tax structure.

"There is no set parameter as to how much cheaper these (affordable housing) units will be. With land being a major cost factor and a subject matter of the concerned states, the price margins will vary from state to state. However, with GST applicable, the cost of construction materials will be more or less similar throughout the nation, eliminating one big disparity amongst the various factors responsible for the uneven cost of property," says Deepak Kapoor, President, CREDAI-Western UP & Director, Gulshan Homz.

With the Real Estate (Regulation & Development) Act (RERA) coming into force from May 1, consumer confidence is expected to rise, which could drive purchases at the lower end of the market. Private real estate developers recognize that they will need to ensure better compliance with delivery schedules and unit specifications.

"A fully operational RERA will mean that there will not be any project delays, hence, promoting the sentiment for investments in the market. Infrastructure status to affordable housing will mean REITs playing a big role in the long run for this segment and with over 30 allied industries working in tandem with the sector, uplift of real estate will mean a better scenario for the overall economy," says Rajesh Goyal, Vice-President, CREDAI-NCR & MD, RG Group.

The government's policy push to cheap housing along with falling interest rates are expected to create an enabling environment for the sector.

"Affordable loan rates are not the sole factor driving the home buying sentiment, especially when it comes to first-time buyers. However, it is certainly one of the crucial considerations. Affordable home loan interest rates are particularly important for budget homebuyers since even marginal reductions in EMI burdens can propel their decisions to buy," says Anuj Puri, Chairman, Anarock Property Consultants.

"Needless to add, this customer base is a very important one for the Indian property market, as healthy residential property sector always finds its foundation in strong demand from mid-income and lower middle-income end-users."

Krishnan of Brick Eagle identifies Rajasthan, Gujarat, Uttar Pradesh and Andhra Pradesh as some of the states that have commendable affordable housing policies. "Rajasthan has a model framework which should ideally be replicated across the country. Other states are also seen catching up slowly," he says, adding more needs to be done nationwide.

"Land is an extremely complicated subject with some extremely cumbersome policies. For example, the process of conversion of agricultural land into non-agriculture land is a tedious process; and, the stamp duty and registration processes are expensive, further escalating housing prices," says Krishnan.

Tax breaks, infrastructure status and easier access to bank loans are likely to boost demand for affordable housing further. With private developers stepping in to augment the government's "Housing for All" policy objective, consumers can hope for handsome buying opportunities in the segment.

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