21st Century

06/06/2023

03/06/2023

03/01/2017

Affordable housing to benefit the most in 2017

A major sales chunk in 2016 came from the affordable housing segment, where developers across the country are focusing towards the government’s decision of Housing for all. NCR realty market was the top performer in offering affordable housing units, where for instance, Gurugram is ready with almost 50,000 units in pipeline to be delivered by 2021.

The central government has been very actively working on the mission of Har Parivar Ek Ghar and with huge number of units are in pipeline, the year ahead surely seems progressive. The ripple effect of Gurugram’s affordable housing scheme will soon be observed in the adjacent regions too, boosting the scheme further and delivering homes to large number of people in the coming year.

The recently passed GST & RERA will also act as a catalyst in the real estate sector and turn up to bring more transparency and credibility to the sector. The possible reduction in lending rates along with the attached benefits of PMAY wherein a certain portion of the loan is disbursed at an even lower rate is sure to boost the hopes of achieving the mission of Housing For All by 2022.

03/01/2017

Affordable housing is the flavour of the season

The contribution of mortgages to the banking industry’s advances has grown from 1.5% to 10% in the past decade, as most bankers see opportunities in the market.



What do Anshu Jain, Jaspal Bindra, Gunit Chadha and Pramod Bhasin have in common? They are all global bankers from India. Right? Yes, they have all been high-profile bankers and now they want to dabble in the affordable housing loans segment.

And, they are not alone. Essel Group’s Subhash Chandra; former managing director and CEO of Sriram Capital Ltd R. Sridhar; Shantanu Mitra, who had managed consumer banking and risk at Citibank and Standard Chartered Bank in the past; Rakhee Kapoor Tandon, daughter of Rana Kapoor of Yes Bank Ltd; and many more either already have one foot in this space or are knocking on the doors.

There are at least 17 new entrants in the affordable housing space even as 14 existing lenders are significantly expanding their portfolios of low-cost home loans by broadening their distribution channels through direct sales and community-based loans. The Indian home loan market consists of 76 housing finance companies and state-owned as well as private banks and all have started using technology to reach out to the lower end of the customer segment. There has also been a rate war to woo the customers.

Axis Bank Ltd, which has a little over Rs60,000 crore mortgage portfolio, disburses around Rs2,000 crore home loans every month; out of this, Rs150 crore flows into affordable housing through its Asha home loan product for first-time buyers. Similarly, Dewan Housing Finance Corp Ltd, with a portfolio of around Rs62,000 crore, disburses Rs1,700 crore every month , Rs300 crore of this goes for relatively low-cost housing. The story is similar with DCB Bank Ltd, Yes Bank, PNB Housing Finance Ltd, and most others who have been in the business of home loans.

A burgeoning middle class, rising disposable incomes and fiscal incentives on home loans have increased the affordability of homes in Asia’s third-largest and the world’s fastest growing major economy. The average age of a new home buyer in India is now 32 years, down from early 40s, a decade ago.

Even though the little over Rs10 trillion Indian mortgage market has been growing at around 18-19% every year, its size is too small in relation to the economy—around 8% of the GDP, less than half of what it is in China. Singapore’s mortgage market is 32% of its GDP, lower than Hong Kong’s 41%, and in the US and the UK, it is 81% and 88% of GDP, respectively. In Denmark, the southernmost and smallest of the Nordic countries, the mortgage market is 104% of GDP.

Most bankers are seeing opportunities in the market. This is reflected in the fact that the contribution of mortgages to the banking industry’s advances has grown from 1.5% to 10% in the past decade. At this rate, the mortgage to GDP ratio is expected to rise to 20% by 2020, according to an estimate by consulting firm BCG.

Many are betting big on this segment because the opportunities are enormous with a shortage of close to 19 million units in urban India and around 40 million in rural pockets. The housing finance companies are increasingly focussing on the middle class and aspiring lower middle class segments with average annual income of Rs1.5 lakh to Rs10 lakh. Within this segment, the emphasis is on small and medium entrepreneurs and self-employed individuals and professionals.

Most of the new entrants and the aspiring mortgage lenders are operating from Mumbai and Delhi and a few from Bengaluru and Haryana. From there, they are keeping a hawk eye on eight Indian states that have 80% share of the shortage of housing in urban pockets— Madhya Pradesh, Rajasthan, Bihar, Tamil Nadu, Andhra Pradesh, West Bengal, Maharashtra and Uttar Pradesh.

They are reaching out to the developers who have been constructing affordable smaller format (one room plus kitchen) dwellings, costing less than Rs6 lakh, as such units are sold faster than the larger formats (one/two bed-room plus kitchen and a hall). Gujarat, Maharashtra and Madhya Pradesh have been doing better than other states in selling such units even as the supply is limited in north India. The southern region is the least attractive market because of longer time taken for various approvals and the cultural resistance of people to move to flats in multistoried buildings. In eastern India, developers have been active in Kolkata and Bhubaneswar.

A look at Vastu Housing Finance Corp. Ltd, a new entrant, gives us a sense of the opportunities. The nine-month-old company, with focus on Maharashtra, Karnataka, Madya Pradesh, Gujarat and Rajasthan, has acquired 850 customers and built a loan book of Rs100 crore.

While the government push and the initiatives of the high-profile bankers are giving a leg up to the affordable housing segment, the recent clamp down on cash economy will force affordable housing financiers to take a relook at their business model. Many of their customers are not in the income tax bracket and they earn their salary and wages in cash. Till now, while assessing their repayment capacity, these firms were taking into account the customers’ official income as well as the surrogate income but now they would need to overall the risk assessment process since the surrogate income, in cash, may dwindle.

I understand that the so-called bounce rate in the low-cost housing market in December has risen following the demonetization move. The bounce rate refers to the incidence of post-dated cheques meant for paying monthly loan instalment bouncing or an instruction given for fund transfer electronically at a specified date not being honoured because of lack of funds. Many businesses across India such as diamonds and textiles in Surat, handicrafts and brass industries in Moradabad and gold jewellery manufacturing in Kerala have been fully or partially shut and the workers are not being paid. Naturally, they do not have funds to pay the monthly instalment for their home loans. The industry is confident that the pain is short term and in the longer run, the drive for a cashless economy will have a positive impact through transparency and correction in prices.

Body blow to LAP
Indeed, in the medium and long run, the opportunities will increase in this space but one casualty of the clamp down on cash will probably be a product called loan against property or LAP. While home loans are the safest bet for the bankers as they are backed by securities, LAP is the equivalent of home-equity loans internationally. For many large and established players, particularly the non-bank entities, it is a growth-driving profitable product. LAP could be more than 50% of the total mortgage book of a few.

LAP, a secured loan, takes a residential or a commercial property as collateral and typically, self-employed individuals and professionals are LAP customers. Such loans support business expansion and diversification and even meet working capital needs. They are also used for weddings, education, medical exigencies, repayment of previous loans and debt consolidation. Small and medium entrepreneurs are big buyers of LAP and as their transactions are mostly in cash, they are being hit the hardest. As a product, LAP will find it difficult to grow.

03/01/2017

What affordable housing really means in India?

Affordability, especially in the Indian real estate sector, can mean a wide range of things. Specifically, the term holds different meaning for different categories of demographics. Further, there are also several socio-economic variables governing a city or location to consider. Generally, ‘affordable housing’ refers to residences that have been especially designed for the economically weaker section (EWS) and Lower Income Group (LIG) who are looking for the same comfort and security of a self-owned property/home that the more fortunate middle class enjoys.

In the earlier years of real estate development in India, the EWS and LIG categories did not get much attention to their needs. However, with changes in administration and especially with the current government coming to power, a significant amount of changes has taken place in this respect. These two sections make up the thickest segment of the demographic for India, and form the base of the country’s economy. It has been overdue that their requirements are looked into.

Thankfully, there have been several initiatives by the BJP government under the leadership of PM Modi that have boosted affordable housing sector. For example, it is seriously looking into the betterment of accessibility – read reduced commute times. Lack of accessibility has been one of the top reasons why low-cost housing was inaccessible. Even if such housing is outside of the main city periphery, improved connectivity makes distances shorter and such areas more viable and desirable as residential destinations.

Why is affordable housing important?
Creating affordable housing is not just about helping a certain demographic to achieve their dream of home ownership. True, from a political viewpoint it is obviously important to cater to the demands of a massive vote bank. But there is an important economic angle to be considered, as well – the working class must have a good- enough reason to not move out of their city to be able to work and earn. It is important to understand that we are not just talking about people living on below or on the edge of the poverty line.

In 2012, the Housing and Urban Poverty Alleviation Ministry made an upward revision on the criteria that define EWS. With this revision, families with an annual household income of up to Rs 1 lakh now come under the classification of Economically Weaker Section (EWS). This was a significant change from the earlier limit of Rs. 5, 000/month or Rs. 60,000 annually. The category of Lower Income Group or LIG also saw an upward revision – now, families with an annual income of between Rs. 1-2 lakh came under the LIG category. Previously, the definition applied to families earning Rs 5001-10000/month or Rs 60000-120000 annually.

The people who fall under both these categories are extremely important for the country’s economic progress. They provide myriad services which our cities can simply not do without, but are very prone to migrating out of cities which do not support their needs. For them, as for everyone else, home ownership provides not only a strong psychological anchor but also financial security and a better lifestyle – important incentives to stay put rather than migrate elsewhere.

What about affordable housing for the middle class?
This is an important question, and calls forth the real definition of affordability in the Indian context. Affordable housing also comes under the ambit of a much wider local meaning, wherein it constitutes homes that are affordable to the maximum segment of demographics. It can also apply to the local population in a city which, despite being more economically fortunate and flexible than the EWS and LIG segments, are sensitive to high home prices within their city.

Such buyer groups will have sufficient funds to buy a decent-sized property on the outskirts, but face challenges when buying a home closer to the employment hubs and conveniences available within the city limits. Another way to understand this situation is the deficiency of properties within the city locations for buyers in the budget groups of Rs 35-50 lakh. Thus, a city would be said to be deficient of affordable housing even if it has enough homes in the outskirts within a price range of Rs 20 lakhs. In this case, the potential buyers are those who can pay beyond Rs 20 lakhs and are not interested in living on the outskirts.

Affordable housing as a whole is a profitable business because of its high rate of absorption. However, such housing also advances socio-economic growth both at a locality and city level, because it invites in higher earning groups. Overall, if the majority of a city’s working class does not find suitable homes meeting both their needs and budgets, it can be said that there is a dearth of affordable homes.