Indian affordable housing: post-Covid-19 scenario

India’s residential market remains resilient during the first two waves of Covid-19 in India; what’s the future of affordable housing?

October 08, 2021

The pandemic brought with it a realisation of how important it is to own a house. Incentives such as home loans at historically low rates, stable prices and reduced stamp duty in certain states helped to translate the pent-up demand into sales. Although recovery continued at the beginning of 2021, the second half of March witnessed a resurgence of Covid-19, Derailing the growth trajectory. However, residential sales were far more resilient as compared to the first wave.

The Government of India had launched “Housing for All by 2022” under its flagship mission Pradhan Mantri Awas Yojana (PMAY) in 2015. This scheme aims at providing affordable homes to the economically weaker section of society. Since the inception of the PMAY scheme, the affordable segment has been a major driver of residential real estate in India.

The definition of affordable homes varies from city to city. As per the latest orders, a 60 square metre house in a metropolitan city having value up to INR 45 lakh (around USD 60,000) will now be marked for affordable housing. The same limit has been revised to 90 square metres and a value of up to INR 45 lakh for non-metropolitan cities/towns. In H1 2021, residential launches in the affordable segment accounted for about 22% of the total launches in India. The southern cities of Bengaluru, Chennai and Hyderabad alone contributed to 59% of the affordable residential launches in India.

The factors that drove the demand for affordable housing primarily include an increase in the value of owning a home, stability of jobs and rising wages, reduction in home loan rates, and government policies and incentives. The pandemic fuelled the demand and importance of owning a house. The onset and resurgence of Covid-19 forced many organisations to reassess their real estate portfolio and move from a traditional office setup to a more flexible working environment such as work from home and hybrid working models. This led employees to spend a lot of time at home and became an aiding factor in increasing the trend of owning a house.

The impact of Covid-19 created stress in the stability of jobs in certain industries. However, the sectors that drive the affordable category such as IT/ITeS, manufacturing, healthcare and BFSI bounced back faster, and the hiring in these sectors remained healthy. The stability of jobs and rise in wages in these sectors will continue to drive the affordable market in the future. 

Home loan rates are at an all-time low. Most banks are charging below 7% interest, and the trend is expected to continue until the impact of Covid-19 is absorbed. Notably, home loan interest rates were more than 11% a couple of years back. The majority of homebuyers in the affordable category are dependent on institutional funding to buy a home. An all-time low interest rate coupled with the post-pandemic pent-up demand will aid this category to come back strongly into the property market.

The Government of India has been extending several benefits to boost the affordable segment in the country. Some of the benefits announced include granting infrastructure status to affordable homes, extension to construction timeline for affordable projects, reduction of GST from 8% to 1%, tax holidays to the developers of affordable housing projects and financial incentives to first-time home buyers.

The supportive government policies focused on affordable housing coupled with lower interest rates, attractive pricing and incentives offered by developers are likely to drive the demand for affordable homes in India post-pandemic. This will revive the residential segment and turn the dream of owning a house into a reality for everyone.