Expected recovery for affordable housing after COVID-19

Expected recovery for affordable housing after COVID-19

Affordable houses have always been a popular real estate segment in India. Furthermore, the government is constantly trying to promote affordable housing so that even the economically weaker sections of the society can enjoy modern urban lifestyles. Right now, the real estate sector is suffering from the adverse effects caused by the coronavirus epidemic. However, it is expected that the affordable housing segment will bounce back relatively normally after the epidemic.

Back in 2007, the National Urban Housing and Habitat Policy came up with the goal of ‘Housing for All’. When the real estate sector faced muted demand problems during the Global Financial Crisis in 2008, many developers began to focus on affordable housing. However, the Pradhan Mantri Awas Yojana (PMAY) launched in June 2015 was the most significant boost for the affordable housing segment in India.

After the introduction of PMAY, the government and RBI continued to introduce various reforms that gave huge benefits to developers and buyers of affordable residential properties. Between 2017 and 2019, developers were offered several incentives to develop affordable housing. These included various tax benefits, subsidies, and institutional funds. In 2019, GST on affordable housing was reduced to reduce housing costs and attract higher sales.

In 2020, the tax holiday enjoyment was extended by one year by developers on profits earned from approved affordable housing projects before 31 March 2020. Similarly, buyers of affordable homes were given a 1-year extension of the additional deduction of interest. Loans related to affordable housing are also included in the priority list of the Reserve Bank of India. In this way, the government and RBI have been trying to encourage developers and buyers alike for affordable housing.

However, despite these continued efforts to promote affordable housing, this segment is facing many challenges. For example, land rates are increasing. Land parcels are very difficult to acquire in any major city at a low cost. This leads to a high cost of production, which, in turn, makes it difficult to develop inexpensive projects.

The overall growth of real estate in India has been disrupted over the years. The NBFC crisis resulted in a lack of adequate debt for most developers. An economic slowdown that emerged due to multiple policy overhauls resulted in a drop in property sales. In addition, most millennials are now inclined to rent homes instead of buying new ones. Otherwise, they would have provided an economical segment with a potential market. All these factors have prevented the segment from growing to its full potential.

On a positive note, the situation is expected to improve significantly. After the outbreak of COVID-19 people showed the need for their own residence, more and more house renters have now started buying homes. Demand is particularly high for affordable homes, due to a sudden drop in the purchasing power of potential buyers.

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