By: Pranay Vakil, Chairman, Praron Consultancy
Track2Realty Exclusive: There is no clear-cut definition of the term ‘affordable’, as it is a relative concept and could have several indirect meanings in different contexts. In India, private developers primarily target luxury, high-end and upper-mid housing segment, since it fetches a premium over low income housing. This leads to a sustained supply for this segment, increasing market competitiveness for developers.
On the other hand, the housing for the poor and EWS is primarily provided by the government for welfare purposes. However, it is insufficient compared to the existing shortage in the segment.
Thus, it is the housing requirements of the lower middle-income and lower income groups that are grossly neglected, and there exists a huge dearth in the supply of affordable houses primarily demanded by this income group in India.
Now, the vulnerable market realities have forced developers to look at affordable housing construction facilities as next feasible option. Affordable housing has been in the picture for the past few months since recession hit the economy. Developers who were profiting from a high-end luxury projects were suddenly struck by a liquidity crunch.
Thus, it gave rise to the concept of affordable housing in India. Shortage of land and expensive housing option has raised the demand for affordable houses. Although the government initiated various policies to revolutionize the situation; these initiatives have not influenced existing policies, which is a hurdle in the growth of affordable housing.
A critical issue that needs to be addressed is why the private sector is not coming forward in a major way to develop affordable housing projects in the country. There are few major concerns voiced by realtors, which they feel are coming in way of their playing a greater role.
It includes lack of availability of land, long pending project approval procedures and licensing, higher central and state taxes, high cost of credit, rise in cost of construction and lack of proactive state policies.
To make affordable houses a reality, a planned model needs to be followed, along with the help of market forces rather. By market forces I mean some effort from the builders in providing affordable housing, effort from the banks in providing access to credit for the poorer sections, and the rest need to bank on the rental housing alone.
The relationship between income and affordability for various income groups follows a non-linear trend. The costs on food, non food essentials and house rent form a significant portion of income for lower-income groups.
As we move towards higher-income levels, the rise in costs do not increase at the same pace. Disposable surplus income, which is often used to purchase a new house, drops significantly at lower-income levels and is higher at higher income levels.
Actually, it is somebody who is able to buy the property within the five years of their gross earnings. Wherein his EMI cost should not exceed 50 per cent of his or her take home gross salary and if it exceeds this limit, it will be cause of concern.
EMI will be difficult to pay in the very long tenure depending on the age factor and rate of interest. Hence, the two issues like gross earning and repayment years proportionate to the age should be taken into account.
…..to be continued
