India’s growing population indicates about 100 million affordable homes are required by 2022. High real estate costs, delayed timelines among others have pushed buyers away. Thus, affordable homes, fixing both the demand and supply gap of housing units, and the supply of budget-friendly finance have been key priorities for the government.
The twin-moves to offer subsidised home loans under Pradhan Mantri Awas Yojana (PMAY) and Real Estate Regulation Act (RERA) have put affordable housing on the top of agenda, while simplifying home buyer’s job of a home-buyer easier. This reformist outlook is paving the way for pocket-friendly homes and capital that will usher in accountability. The 12-year low mortgage rates, and subsidies create the best-ever affordability conditions today.
Aiming to benefit close to 90% of the Indian population across categories, the Housing For All scheme aims to bridge both the gap in funding and supply; Pradhan Mantri Awas Yojana (PMAY) and Credit Linked Subsidy Scheme (CLSS) is granting 3-5% interest savings, and according infrastructure status to affordable housing and affordable housing programme.
With the cost of owning a home being high and a home being a product with high emotional investment, access to easy finance is a sure-shot way to encourage buyers. That said, without attractive sops, even home-finance can do very little. Mortgage contribution to GDP in India is 9%, compared to 52% in the US. The policies are now in place, to offer equity support to individuals via interest subsidy under PMAY and other regulatory support for housing finance companies (HFCs), including allowance of debt MFs to invest up to 40% in HFC assets.
The National Housing Bank has been providing a steady source of refinancing to extend credit to weaker section of society while also supporting, low and middle income group buyers. These schemes now allow HFCs to access lower cost of funding from the regulator and then lend it at a fixed spread, helping HFCs and banks to cater to this segment profitably. When loans to developers become cheaper, buyers benefit.
Additionally, focus on information sharing and digitisation driven by Aadhaar-based eKYC verification has resulted in lower costs while speeding up turnaround time for home loan processing. The further increase in eligibility under the CLSS scheme — from income bracket of Rs 6 lakh to up to Rs 18 lakh (for one year), will make the benefits accessible to a sizeable urban and middle-income population.
The amount of delays in project completion is one of the major reasons contributing to high costs. With RERA coming into effect, home buyers interests remain protected. Nearly 19,000 projects across 27 cities will come under RERA’s purview bringing in greater accountability on sources of project financing and usage of project funds. The scope of hiding information about land, project, construction and progress will be eliminated, building trust for the buyer.
This means more transparency in dealings which was missing previously. This is bound to sow the seeds of ‘improving consumer confidence’ and is, in fact, bringing in fence sitters.
RERA has tilted the balance in favour of the buyer. The establishment of a regulatory authority for real estate comforts the buyer. Additionally, transparency in fund inflow and outflows of a project safeguard buyer’s money in a big way.
Mis-selling tactics will also slowly vanish due to RERA. Customers are now no longer in the dark about project plans, as RERA ensures that they know clearly what they are paying for as against today’s practice of saleable area. While the cost of compliance for developers may increase property prices, increased transparency will keep things competitive. One can also expect easy monitoring for HFCs, CF and partly-disbursed home loans.
Bright days have indeed arrived for affordable housing in India.
- With rising home cost, access to easy finance is a sure-shot way to encourage buyers
- Without attractive sops, even home-finance can do little
- Amount of delays in project completion a big factor for soaring costs
The writer is executive director and CEO, Reliance Home Finance