All you need to know about Assessed Income Program
The Assessed Income Program Home Loan is specifically designed for those customers who fall under the…Read More
Just like clothes and food, a house is a basic human need. Rapid urbanization and migration to cities have caused a rapid influx of people into Indian cities. While it has led to the acceleration in economic activities, the impact on housing cannot be ignored. The lack of suitable housing in several cities and towns has led to an urban housing shortage. The shortage is also a result of a mismatch in demand and supply. Most of the Indian developers focused on the mass premium or the high-end segment, but the majority of buyers were present in the affordable segment. However, increased awareness and a host of incentives by the government has brought the focus firmly on affordable housing.
What is affordable housing ?
Affordability is subjective. A house might be affordable for person A, but not for person B. Broadly speaking, affordable housing refers to units that are affordable for the section of society whose income is below the median household income. A large part of the population is not able to buy a house at the market rate and hence the need for affordable housing. The segment largely caters to middle and lower-income households. In India, the definition of ‘affordable housing’ remains ambiguous as various industry bodies, developers and the government classify it based on different parameters like household income, unit size, location, price, employment opportunities, and incentives among others.
Different countries have adopted different methodologies to ascertain the affordability of housing projects. The Pradhan Mantri Awas Yojana is the government’s flagship programme aimed at providing affordable housing to all. Under the scheme affordable housing has been defined based on income and unit size. The government has categorized beneficiaries into four groups based on income–middle income group 1 (MIG 1), middle income group 2 (MIG 2), economically weaker section (EWS) and low income group (LIG). People with annual income between Rs 12 lakh and 18 lakh fall into the MIG 2 category, MIG 1 has people within income between Rs 6 lakh and Rs 12 lakh, LIG consists of people with annual income of Rs 3 lakh to Rs 6 lakh, while people with income less than Rs 3 lakh are part of EWS. Different categories have different limits of the unit size allowed to avail benefits.
The scheme covers only a carpet area of 30 sqm for the EWS Category and 60 sqm for the LIG Category. The limit is 160 sqm for the MIG 1 group and 200 sqm for the MIG 2 group. The permissible size for the MIG 1 group along with the EWS and the LIG groups can be termed as affordable housing. The affordable housing segment is also defined for the purpose of the goods and services tax as the GST rate is different for affordable units and regular units. For the purpose of taxation, an affordable unit has been defined as a housing unit with carpet area up to 60 sqm in metropolitan cities and up to 90 sqm for cities and towns other than metropolitan cities.
The Indian context
The shortage of urban houses has been pegged at 10 million units, with the bulk of the shortage in the affordable segment, as per a report by RICS – Knight Frank. The government has taken various steps like extending access to low-cost capital and tax incentives to promote the development of affordable housing. These measures coupled with lower GST rate and the infrastructure status offered to the affordable housing segment led to an increase in the participation of the private sector. With growth tapering in the broader housing sector, a number of major players have entered the affordable segment as the growth in sales of affordable remains robust. The report by RICS – Knight Frank estimates that an additional 25 million affordable units will be needed by 2030 to cater to the increasing population in urban areas.
Should you invest ?
The affordable housing segment has been attracting a lot of investor attention. However, would it be a pragmatic move to invest in the sector? The question is irrelevant for end-users as the rationale behind the investment is completely different from that of an investor. An investor has to focus on capital appreciation. All affordable housing investments may not be fruitful from an investment perspective. Since the projects primarily cater to a price-conscious customer, the cost of the unit cannot exceed a certain limit. However, with a number of prominent players entering the space, the quality of launches and the return on investment could improve in the future.
Even though the segment has been getting increased attention from developers, customers and the government alike, one should keep a few things in mind while investing in affordable housing. The location and connectivity of the project is of utmost importance. Along with the location and connectivity, investors should take into consideration the required approvals and amenities as numerous developers are present in the market and all may not have a clean track record. With the government aiming to provide housing units to the majority of the population by 2022, the supply is likely to increase substantially. Investors need to have a long investment horizon and invest in the early stages of a project to realize the full potential of capital appreciation.
Contrary to investors, end-users typically opt for projects on the verge of completion, which makes the current market one of the best times to buy a house as a number of reputed developers are operating in the segment and home loan interest rates are at historically low levels. The entry of a number of new-age housing finance companies has made buying a house extremely easy. With Hero Housing Finance, you too can own your dream home in a few simple steps. The differentiated offerings of Hero Housing Finance can be utilized to buy a completed as well as an under-construction unit.