The affordability of housing, particularly in urban areas where prices are rising quickly.

India has experienced rapid urbanization in the last decade and a half. According to the 2011 census, 30% of India’s population lived in urban areas, and this is expected to reach 40% by 2030. People in rural India, home to 833 million people, migrate to urban centers because they prefer to live in the city where there is access to jobs and other social and physical infrastructure. This rapid migration, coupled with rising income levels and changing demographics, is driving an increasing demand for housing in urban areas of the country.

The Federation of Indian Chambers of Commerce (FICCI) estimates that the country’s cities will experience a net increase of 900 million inhabitants by 2050. Furthermore, between 2012 and 2050, the rate of urbanization is expected to increase at a CAGR of 2.1%, twice that of China.

The shortage of urban housing exists due to a large gap between the demand and the availability of housing in cities, both in number and quality. According to the technical study conducted by MHUPA (Ministry of Urban Housing and Poverty Alleviation), the urban housing deficit in India is currently estimated at ~19 million. This gap is expected to widen further to around 38 million households by 2030, mainly due to population growth and increasing urbanization.

The Indian real estate market continues to struggle with housing management. The scarcity of developed and unencumbered urban land has increased the cost of construction, and the lack of a viable rental market and master plan restrictions have reduced the growth potential of the formal real estate market in India.

Affordability can be achieved by adjusting factors such as land costs, construction costs and financial support. Implementation is the key here as there is a significant profit margin on these projects.


Land Availability: There is a growing need to review the government regulations outlined above which have created artificial land scarcity and driven up land prices in India, especially in urban areas. Without government support, the limited availability of land in urban areas prevents developers from undertaking housing projects. In addition, the considerable non-marketable urban land used by public entities such as the railways could be used more efficiently. Several of these land parcels are present in centrally located urban areas.

Comprehensive approval for housing projects: Developers often face several hurdles during regulatory approval, after investing a significant amount of capital for land acquisition. Developers have to coordinate with various government and municipal departments, causing a significant delay in the start of construction on the project and effectively leading to cost increases.

Better coordination between multiple authorities in handling various permits/approvals or measures, such as one-stop permits and reduced time spent granting permits, can encourage developers to invest in housing projects, thereby stimulating demand for housing. urban.

Financial support: Real estate developers also face financing problems, especially at the land acquisition stage. Financial support from private and alternative investment funds to property developers for initial investments, such as land acquisition and approval, will improve the housing supply situation in urban centers.

Initiatives such as a single window for approvals and a more predictable timeline for receiving such approvals from government agencies will encourage both private equity and alternative funds to provide such financing.

  • Regulatory intervention: The government has also intervened at several levels to increase affordability in various segments of society. Some important initiatives are
  • Pradhan Mantri Awas Yojana (PMAY) with its Credit Linked Subsidy Scheme (CLSS) was introduced to provide its beneficiaries with interest subsidies to obtain loans to buy or build a house. This scheme is mainly aimed at the EWS and LIG segment where, by offering an interest subsidy of 6.5%, the effective interest rate of the mortgage loan is 5% to 6% per annum. (assuming a home loan of 10-12 lacs)
  • According to the latest data available from PMAY records, around 12.3 million houses have been sanctioned under the scheme, of which around 6.3 million houses have been completed with a total investment of INR 8.3 lakh Cr.
  • The 1% Goods and Services Tax was provided on a unit-by-unit basis. It does not define affordable projects. Any unit in a project (as defined by income tax) with a deal value of 45 lacs or less. This tax saving of 4% on the value of the contract is substantial
  • Income tax deduction to the value of an additional INR 1.5 lacs is allowed under the EER Section 80 for accommodation relevant to the Affordable Segment criteria. This lowers the effective interest rate further
  • The government has granted tax benefits to developers under section 80IBA for developing cultivable segment projects. The advance deduction is 100% of the profit of such projects
  • ECBs are allowed through affordable housing projects as per RBI approval

The above incentives provided a solid foundation to increase housing affordability for buyers and make projects more viable for developers. Well, the PMAY + CLSS scheme provides incentives to the EWS/LIG segment, the government should also give a boost to the MIG segment which currently has a subsidy of only 3% which is an effective interest rate of 8 % giving, even assuming a modest loan of 45 -50 lacs). This, coupled with the extension of tax incentives to the MIG segment, improves the overall affordability of housing across the landscape.