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Indian Real Estate News : Haridwar
Affordable housing, a reliable sector
Source: Livemint Feb 16, 2014
The affordable housing segment has emerged as one of the most vibrant and dynamic sectors in the Indian real estate industry. Various factors have contributed to this growth - on the supply side it is the entry of various real estate developers and availability of financial options; whereas rapid urbanization, growing trend of nuclear families and rising income levels have fuelled the demand for affordable housing. There is hardly a dispute that there still is a considerable supply shortage in this segment.

As a concept, affordable housing is not a new one. It is at least a decade old, with the local development agencies of big cities being the original pioneers with their lower income group flats. While the market for affordable homes never really diminished, large real estate firms started focusing almost exclusively on premium and luxury projects between 2004 and 2008 as the economy expanded rapidly and banks and financial institutions adopted a more liberal approach to giving out loans.

Since 2008, however, with the overall changes in the economy and the real estate market, companies, even large ones, have turned to low-cost housing projects with a renewed focus. Large scale real estate firms have launched low-cost homes at various locations in the price bracket of Rs.10 lakh to Rs.30 lakh and investments in the affordable housing sector are moving north. A recent news report spotted a rising trend of homes in the affordable segment being bought for investment. These were bought by people who do not plan to stay in them as the houses are located too far away from commercial areas and have lesser support infrastructure. Gujarat, Bangalore, Madhya Pradesh and Ahmedabad are among the states that have seen traction in affordable housing. Given the lower off-take of mid-range and luxury units in India that are clearly seeing some challenges, the growth is going to be sustained from rural and affordable housing in the range of about 18-20% coupled with the aspirational need to have a house and by the acute shortage in this sector.

While less than five years ago there were not many financiers for customers of affordable housing, today most big names are entering rural housing with built-in risk pricing so as to make it a viable business model. Big names in the industry are rushing into the sector to cater to the existing demand supply gap. More and more projects are being promoted across India. Tier II and III cities have seen a higher rate of adoption for these projects. Low-income customers are happy with their new homes, improved living conditions, safe neighbourhoods and enhanced overall social status, which are some of the benefits that the segment has been able to provide. Many banks may be slow to approach affordable housing properties because of their remote location and the estimated land value not meeting their expectations. In such cases, loans would be harder to come by and the perceived higher rates of interest may deter potential buyers from approaching non-banking financial companies (NBFCs) that now focus on retail housing finance business, a sector dominated by commercial banks. NBFCs, though, have been able to offer loans at competitive rates. While banks have been able to provide loans at relatively cheaper rates since their cost of funds is lower, debt markets have come in handy for NBFCs to raise cheaper funds. Essentially, their focus on growth segments, efficient loan recovery, individual focus and simple processes have helped them keep the cost low and reduce interest rates on home loans, passing it on to borrowers.

Indians consider their homes their most important possession, and, therefore, make paying their financial obligations towards them their highest priority. In a challenging economy, people may think twice before making any new high-value financial commitments. They tend to be very cautious about doing so during times of financial uncertainty but pursue their home ownership dreams when they perceive that stability has been restored in the economy.

The concept of affordable housing as a whole has been well received by consumers, developers and financiers; this has led to end-to-end servicing of this segment, thus becoming a lucrative proposition for one and all. Housing finance companies are expanding to new geographies and encouraging developer perception of real demand and ensuring there is enough awareness and education being imparted to prospective customers on the home ownership process through standardization of processes and campaigns. It helped that in December, the Reserve Bank of India allowed real estate developers and housing finance companies to raise up to $1 billion through external commercial borrowings to promote affordable housing projects. This will help them access cheap overseas funds and reduce the overall costs. Affordable housing is the "sunshine" sector for the next five years from a developer and lender perspective. To put it simply, this will be the growth engine of the future for all stakeholders.

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