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Affordable housing in India – what’s in it for a home buyer – Home Loans: Everything You Want To Know

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Affordable Housing is set to be the next wave for the Indian real estate market. Over the next few weeks, join us as we explore different aspects of this segment and see how you can make most of it.

 

The term ‘Affordable’ could mean different things to people depending on the country, incomes, family size etc. But in general,‘affordable housing’ refers houses that a majority of people can afford to buy. 

There are two aspects to this segment:

  1. Low cost housing driven by Government initiatives
  2. Affordable housing, driven by demand from home buyers in the middle income group 

Low cost housing

Many ruling political parties have floated schemes for housing to poor Indians in the past. But it is only over the last two years that this segment has received tremendous thrust. Low cost homes mainly refer to a basic pakka house of 30-60 sq mtr (~323-645 sq feet). The target segment is specifically slum dwellers and households with incomes less than Rs.3,00,000 and Rs.6,00,000 a year.

Here are some of the schemes and initiatives floated for this segment by the present Modi Government:

  • Pradhan Mantri Awas Yojana – CLSS 
    One of the most talked about Government initiatives, PMAY CLSS scheme for LIG/EWS and PMAY CLSS scheme for MIG have taken the housing sector by storm. Under this, first time home buyers get instant subsidy amount directly into their bank account. This eliminates the need for any intermediary and the benefits come to the home buyer without losing any commissions and bribes.

         Here is a highlight of the scheme. 

    Income Maximum loan value Size of house
Economically weaker sections EWS Up to Rs. 3 Lakhs Rs.6 Lakhs ~ 323 sq feet
Low income group LIG Up to Rs.6 Lakhs Rs.6 Lakhs ~ 646 sq feet
Middle income group MIG – I Up to Rs.12 Lakhs Rs.9 Lakhs ~ 1292 sq feet
Middle income group MIG – II Up to Rs.18 Lakhs Rs.12 Lakhs ~1614 sq feet

 

  • Declaring low value home loans as a priority sector for lending
    To encourage banks to lend to the poor and low income groups, RBI has designated home loans less than Rs.35 lakhs as priority sector loans. This includes new home loans and also balance transfer from other banks.

         Here a quick look at the value of homes and home loans: 

Loan value House value Cities    
Rs.40 Lakhs Rs.50 Lakhs Mumbai,
New Delhi, Chennai,
Kolkatta, Bengaluru, Hyderabad
Rs.50 Lakhs Rs.65 Lakhs Other cities/towns

         There are few other schemes like rehabilitation for slum dwellers and private – public partnerships for projects
         in this segment.

Affordable housing 

While Government is backing low cost homes, there isn’t much profit in these projects for builders. For them, Profitable demand lies somewhere else. 

Over the past ten years, Indians have started to realise that real estate is not entirely a fail-safe investment. Gone are the days when you would put together every penny of your savings and purchase a house even if it is out of your reach. These are times when smart home buyers are looking for developers who can offer:

  • Value for money
  • Good quality of raw materials 
  • Higher chances of resale
  • Basic and luxury amenities
  • all the above at affordable prices 

For builders who can offer these features – there is profit in volumes. Government has also offered tax breaks for profits made on such projects. So overall, builders are focusing in this direction. 

What is in it for you 

Affordable housing is receiving attention from the Government, builders, buyers and media like never before. You can not ignore this segment if you are a home buyer. If the builder meets regulations and quality standards, this could make a very profitable investment in the long run. 

If your home loan is less than Rs.30 Lakhs, your interest rate cost will be less than other by at least 0.05% to 1%. Over a period of 15-20 years this could translate to savings of a few lakhs! You will also make more profit if you are buying the house as an investment. Added to this if you are eligible for PMAY, you are set for some good savings.

While you consider investing in affordable housing sector, as a home buyer just keep these things in mind: 

  • Don’t compromise on quality 
  • Make sure the builder adheres to all regulations 
  • Apply for all benefits that your bank and Government have to offer 
  • Be prepared for suburban locations 
  • Be on the look out for affordable projects by well known reliable developers

To sum up, the next few years will see a rise in the number of affordable housing projects across the country. As a home buyer, if you keep a few basics in mind you are off to a great start!



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