On December 31, the Centre introduced two new middle income group (MIG) schemes under the Pradhan Mantri Awas Yojana (PMAY). These provide an interest subvention of four per cent and three per cent, respectively, for home loans up to Rs 9 lakh and Rs 12 lakh. And, there is now a spurt in demand for affordable houses. The scheme was announced for only a year but might get extended, say market players.
PMAY, first launched in June 2015, provided an interest subvention of 6.5 per cent for a loan up to Rs 6 lakh for the economically weaker section (EWS) and lower income group (LIG) till 2022. PMAY proposes to build 20 million houses for the urban poor including EWS and LIG, by then.
“These are largely first-time buyers working in the informal sector, for whom homes have become affordable with lower interest rates, coupled with the government subsidy,” says Banerjee. Tata Housing has a fifth of its total inventory in the value and affordable segments that consist of sub-Rs 20 lakh, targeting buyers in Mumbai, Chennai, Bengaluru and Ahmedabad. It has sold the bulk of its available inventory in this segment and is expected to launch at least three projects this year to again target such buyers.
There are others targeting these new buyers. In March, Karrm Infrastructure launched an affordable housing project with 5,120 flats for below Rs 10 lakh each at Palghar in Thane district of Mahrashtra. Signature Global launched Serenas, a sum of 1,244 homes at less than Rs 20 lakh each, at Sector 36, Gurugram.
From data provided by PropEquity, projects with 13,122 new homes in the sub-Rs 20 lakh category were launched during the six months ending March 2017. This took the total inventory of sub-Rs 20 lakh homes to 120,000.
Rating agency ICRA says HFCs operating in the affordable housing space, with a total portfolio of Rs 1.2 trillion, continued to grow at a faster pace of 28 per cent in 2016-17, against total housing credit growth of 16 per cent.
“These HFCs’ growth was supported by an increase in supply of affordable housing projects, infrastructure status accorded to the sector and improved borrower affordability, supported by lower interest rates and capital subsidy through the credit-linked subsidy scheme,” said Rohit Inamdar, senior vice-president and group head, financial sector ratings, at ICRA. “Traditional lenders that historically focused on the prime segment have also started lending to this segment.”
However, the success of affordable housing projects will also hinge on availability of supply. For instance, initiatives by state governments and urban local bodies to provide land and keep the prices affordable. Also, ensuring of adequate return for the developers would be critical.
“New entrants are clearly excited by the government addressing the supply and demand-side constraints,” says Sudhin Choksey, MD, Gruh Finance. Affordable housing has been a part of the ruling Bharatiya Janata Party’s election manifesto. The rise in new HFCs started with the government coming to power three years ago. About 30 new ones have come in this period, taking the total number to 85. “These new entrants are also making a natural progression to an HFC from an NBFC (non-bank finance company), seeing a larger opportunity,” says Choksey.
The progress in implementing PMAY has been limited so far. However, the pace has started to pick up. NHB has signed memoranda of association with 34 states and Union Territories; at least 700,000 housing units have been sanctioned across states. The infrastructure status awarded to affordable housing in this year’s Union Budget is likely to support supply creation.
“The rush for opening of HFCs indicate the impending boom in affordable housing,” says Sriram Mahadevan, business head at Happinest, the affordable housing project from Mahindra Lifespaces. “To see the real surge under PMAY, one will have to wait till the year end.” Mahadevan himself is waiting for approval to launch a project at Palghar that will have a majority of houses under Rs 20 lakh each.