When one thinks of real estate, often the primary focus is commercial real estate or luxury housing. But as the real estate business faces one of the biggest challenges in recent times, the key to resolving this problem may lie in affordable housing.

What is Affordable Housing?

In India, affordable housing is defined as a house or flat with a carpet area of up to 90 square metres in non-metros and 60 square metres in metropolitan cities, with an estimated value of up to Rs. 45 lakhs. Both the Government and the RBI have taken many steps to boost this sector in the past few years.

A large chunk of the real estate sector is concentrated in the luxury or semi-luxury segment. However, the need of the hour is affordable housing. The target customer is the great Indian middle class. The real estate industry can be the game-changer in providing countless people shelter and employment. Housing projects must be developed by linking them with social infrastructure, that is, schools, hospitals, market places with connectivity to bus, train, etc.

The Affordable Housing for All initiative was launched as an objective under the 2007 National Urban Housing and Habitat Policy (NUHHP).  Soon the economic slowdown and the Global Financial Crisis prompted realtors to focus on affordable housing. This initiative received its biggest boost when the Government of India announced the Pradhan Mantri Awas Yojana in 2015.

Affordable housing is also included under RBI’s priority sector lending programme. The sector saw significant growth in supply during 2016 and 2017.

Why Affordable housing help recover from the COVID impact?

The pandemic and subsequent lockdowns have had a severe impact on all industries including real estate. Not only did it halt construction activity for a significant amount of time, but the cost of material has also increased and the availability of labour went down. This means the cost of construction has increased. Banks and lending institutions have tightened their leash for lending and developers find it hard to avail credit. This and the slump combined have created financial pressure on developers across segments.

One way of mitigating this challenge is to focus on the affordable housing segment.  This segment can rise rapidly if there are the right incentives in place. Since affordable housing is a customer-driven segment, the low property prices and attractive interest rates on loan could tempt home-buyers to speed up their purchase decisions. For example, the extension of the Credit-Linked Subsidy Scheme (CLSS) up to 31st March 2021, is an added incentive for the Middle Income Group buyers. In addition, RBI”s policy rate cuts and National Housing Bank (NHB)’s infusion of Rs. 100 billion into eligible housing finance companies (HFCs) can help boost the supply momentum in affordable housing. Post pandemic, there has been a reverse migration trend in the country that can also lead to an increased demand for affordable housing.

Real Estate Regulatory Authority (RERA) deadlines have been extended to give the developers a breather for project completion. There are many strong factors for the revival of the affordable housing segment to help the real estate sector on the whole. If incentivised well, the affordable housing sector can benefit remarkably merely because of the size of its target group.