Policy revision, aligning affordable housing definition with the residential markets required: Gulam Zia of Knight Frank
India’s affordable housing segment is expected to reach ₹67 trillion by 2030 and demand is expected to be around 31.2 million units. However, there exists a mismatch in the definition of affordable housing when one compares how policy-makers and developers see it, said Gulam Zia, Senior Executive Director – Research Advisory, Infrastructure & Valuation, Knight Frank India and Lead, CII Task Group on Affordable Housing.
For instance, between 2019 and 2024, the average launch prices in Mumbai Metropolitan Region (MMR) increased at a CAGR of 8 per cent for residential units below 30 sqm (EWS category) vs 4.4 per cent for a residential unit between 60 and 160 sqm (MIG).
The average price of a house under 30 sqm in Mumbai is ₹26 lakh with a required home loan of ₹25 lakh. An EWS household with an annual income of under ₹3 lakh would find it challenging to avail this loan as the EMI requirement is above the FOIR (fixed obligation to income ratio) limit set by the banks.
This, therefore, calls for a policy revision aligned with the residential markets, he explains.
Zia does not rule out a “bubble” happening in the real estate sector with there being significant price rise in the mid, premium and luxury categories.
In an interview to businessline, on the sidelines of a CII conference on Indian housing landscape, he talks about the affordable housing segment, the growing push in premium segment by developers and the impending real estate bubble in the upper end of the spectrum.
Edited excerpts:
There has often been discussions on redefining the scope of affordable housing; and Knight Frank India in a recently released report too spoke of a “mismatch”. Your comments.
The RBI, under its priority sector lending, in defining affordable housing sets a loan eligibility based on the value of the house, differentiating between metro and non-metro cities. But, there exists a mismatch in the definition of affordable housing by the policy makers and the existing residential market. The average unit cost in the affordable housing category has significantly increased as compared to the pre-pandemic period of 2019. There are also state-wise variations and city-wise variations. In fact, within cities there are locality-wise variations. This has impacted the affordability for home buyers, especially in the EWS section.
Is there a price formula that can be worked out?
In 2019, ₹45 lakh as affordable housing for metros and ₹35 lakh for non-metros was given as the price bracket by policy-makers. What we are now saying is, even if you consider the CPI and overlap it with 2019 numbers (of ₹45 lakh), then it becomes at least ₹57 lakh or so in metros. That much has to be considered at least. Ideally, it should be closer to ₹60 lakh.
So are developers losing money if they opt for affordable housing?
It is not that developers are losing money or making losses. Nor at they making a ₹65 lakh house and selling it for ₹45 lakh. But look at it this way, I make a particular number of houses, each priced at ₹50 lakh. The question is who is my target buyer then. Anyone with a household income of up to ₹45 lakh cannot buy it. A developer will have to be wary of how he places his offerings so that it fits in a particular category. The point here is developers are not creating that supply in afforadable housing, in the first place. It is not the other way round, that is they are building homes but are not getting buyers.
If there is demand for affordable housing, why are developers not creating the supply?
Developers see that a certain category of projects are selling more over other segments (premium over affordable), and there is viability or profits coming in from those sales, why would they spend energies in creating homes for the lower end of the society.
Also for the developer, one way to make easy money by selling – as this suits his logistics or infra set-up – houses where people are already queuing up to buy it. The developer has already pre-sold them. Now compare this to a scenario where new homes are built, but the developer has to wait for someone to come and buy, sales are not assured and then there has to be huge thrust on marketing to move that stock. In comparison, the first one is an easier solution for the developer.
The price rise in residential real estate is phenomenal. And it is out of reach of many. Are we witnessing a bubble?
Price rise is not as much in the lower end of the market as compared to the upper end (₹80 lakh and upwards). In affordable housing, we haven’t seen a price rise.
Here – in the upper end – the price rise is pronounced, because people are paying any price to buy homes. People are queuing up and it is leading to a lot of upward pressure on prices. But this is restricted to a particular segment.
So obviously, the concern or observations (of a bubble) are valid when it is luxury or upper-end of the market. In a few situation, I feel, it has already breached the top. Of course then, there is a bubble in the making; and developers are accepting it in private too. The velocity of sales may slow down in select locations.
Urban consumption slowdown is now a reality. Does it have a spillover effect in affordable housing?
Affordable housing was always affected. Immediately after Covid, the segment saw their spending propensity take an adverse hit. A year or more later (post Covid), people were impacted by interest rate up-cycle. So home loans saw a 200 – 250 bps increase. From 6.5 per cent, it is around 9 per cent, at present. And has made homes unaffordable to the lower end of the market. Home loan interest rate movement is a concern.
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