Housing Industry-an over Look
The year 2017 has been quite stagnant for the housing industry in India. Housing industry in India faced new turns in the respective years. In the very first quarter of the year 2017, the demonetization policy introduced by the government of India caused prices of the houses to decline. Demonetization resulted in lower prices of the houses in India. This however benefited the buyers willing to invest in this particular industry. Lower prices of houses made houses more affordable for the end users. Thus the new change brought about by demonetization policy benefited end buyers with decreasing prices of the houses. However this state didn’t continue for a very long time. In the same year on April the government announced GST and RERA. Due to introduction of these new taxes a state of confusion was create among buyers. The buyers thought that the industry has stabilized yet introduction of this particular policy created confusion about whether they should invest in the housing industry or should wait more for better prices (Can Affordable Housing in India Be Really a Game Changer?, 2018).
Sales of houses in India declined due to change in government regulation. The buyers’ are holding back money to see the effects of new government policies. However one good news for the housing industry is that the economy is likely to experience triple effect due to the new policy of demonetization. Due to this new policy the housing industry is expected to recover from downturns and investors and buyers holding back their purchases. It is believed that new policies including GST and RERA are likely to make things better for buyers willing to purchases new houses. Affordability, delivery as well as accountability of houses are meant to improve with the introduction of new government regulation. It is expected that sales that have been stagnant and have slowed down are likely to boost up due to triple effect that is predicted to hit the economy (Pai, 2017).
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Indian housing sector is a part of real estate sector of the country. India is experiencing increasing demand both from the side of local and foreign investors who are willing to make an investment in the real state sector of India. Real estate sector is among the rising sector in India. There has been a huge demand and to meet this demand, demand for build up space areas are increasing. The demand is experienced for commercial and residential segment. Commercial segment includes offices, shopping areas and other such sectors while residential sector includes the housing industry. The housing sector of India is expected to grow in the coming years. There are many reason that explain this prediction. Urbanization, changing family structure, government policies, loans, rising population, affordability and purchasing power of buyers have contributed towards the huge demand in the housing sector and this demand is likely to grow at a rapid pace in the coming years (Indian Housing Sector Outlook 2018, 2014).
The housing sector of India provides mainly two types off homes to buyers. They are luxury and affordable homes. Demand for luxury homes is much higher than affordable homes. This is because of the purchasing power and changing life style pf consumers. Consumers want to invest in better lifestyles, thus the demand of luxury homes is much greater than affordable homes. Investors are also focusing on luxury homes since profit margins are greater in this sector than affordable homes (Khan, 2017).
However it has been seen that the demand for affordable housing sector is gradually rising. This is due to many factors such as rising middle class and low economic group in the country. Urbanization has also contributed towards rising demand for affordable houses. The government has introduced several initiative to cope up with the rising demand and to fill the demand supply gap. The government has introduced new housing programs along with the grant of infrastructure status to the housing sector of India. The government has initiated a program where it aims to build about twenty million affordable houses in the urban areas and about ten million affordable houses in rural areas. This plan is expected to fill the demand supply gap in the affordable housing sector. However due to several issues, the government is only able to build about 0.3 million units so far. Lack of availability of land, high cost involved in construction and delays in disbursement of subsidy has caused delays in construction of new affordable units (Money Control.com, n.d.).
However the government is still making efforts to improve the demand supply gap and to make sure that the people of the country have access to affordable housing. A new plan initiated by the government allows private sector to step in the plan and to help the government meet the expected targets. This contribution is likely to minimize risks that are related to capital investment and land financing (Research and Markets, 2017).
Affordable houses in India-the current status:
Despite of government efforts, there is a huge demand for affordable houses. According to a survey there has been a huge demand gap for affordable housing sector. Affordable houses fall short of the current demand. The demand shortage is roughly estimated to about twenty million housing units. Thus the government needs to gear up its efforts to meet the increasing demand. Houses that cost around ten to twenty lakhs Indian rupees make a sizable share in the housing sector. The demand for this sector is again rising yet the supply has fallen short. The people of the country are facing issues related to unavailable to affordable houses and lack of finances available to middle and lower income groups to purchases these houses. The problem can only be tackled if more funding is provided both to developers and buyers. With micro finance loans provided to lower and middle class, the purchasing power of buyers will improve. If government and financial institutions help private developers to invest in affordable housing project, the demand and supply gap for affordable housing can be shortened (Agarwal, n.d.).
There has been a positive response from the side of financial institutions to meet challenges of affordable housing such lack of funds, lower purchasing power in the lower and middle class and reduced affordability from the sides of buyers. Affordable homes built in major cities of India such as Mumbai has experienced a positive response from financial sector. These financial institutions provide funds to buyers to make purchases. Funding in affordable housing projects is likely to yield a huge internal rate of return to about twenty five percent. This IRR is likely to be even higher for well-located affordable homes than other affordable homes. Thus with the intervention of financial institution the issues are likely to resolve (ETMarkets.com, 2014).
Affordable housing in India is defined as the provision of adequate shelter to people. The shelter must provide security to common urban household along with the assurance of security of the tenure for households.
Following are the categories of affordable housing in India
EWS with a minimum of three hundred square feet of buildup area
LIG with a minimum of five hundred square feet of buildup area
MIG with the minimum of six hundred to twelve hundred square feet of build up area
The housing industry of India is among the fastest growing sector. It has been estimated that this sector is likely to make a huge share in the GDP of the country. About 11 % of the share in the GDP is expected by the year of 2020. This projected share in the GDP reflect the promising growth in the respective sector. Also the sector is likely to grow by a compound annual growth rate of 11.2%. Thus the housing industry of India represent a promising growth (IBEF, 2018).
Private equity investment in the housing sector has a promising future too and is likely to grow at a fast pace. It has been estimated that by the year of 2026 private equity investment in the housing sector is likely to grow by hundred billion United States dollars (Singh, 2017).
Issues in the affordable housing sector of India are summarized as
Huge demand for affordable housing due to rapid urbanization and rise in lower and middle class groups moving am emerging in major cities of the country
High construction cost
Least funding available to help buyers to purchase and for government and private companies to contrast affordable homes
Land availability issues (KalpanaGopalan & MadalasaVenkataraman, 2015)
Following are the list of initiatives introduced by the government of India to meet challenges of housing sector in the country.
Narindra Modi announced a scheme under which two crores homes will be built by the year of 2022. The scheme is known as ‘’housing for all.’’
Infrastructure status to be granted to affordable housing schemes. Developers will be provided access to funds to invest in the scheme for affordable homes
Developers will be allowed to pay their taxes in a year time
Deadlines for affordable housing scheme has been extended to five years
Refinancing of loans by national housing bank will help buyer to invest in affordable homes
Real estate regulatory authority ensure availability of funds to first time buyers in the housing sector of India (The Hindu .com , 2016).
Agarwal, S. (n.d.). Affordable Housing In India – Current Status, Future Prospects. Retrieved from IIFL Website: https://www.indiainfoline.com/article/news-sector-others/affordable-housing-in-india-current-status-future-prospects-114070300083_1.html
Can Affordable Housing in India Be Really a Game Changer? (2018, janurary 18). Retrieved from https://www.nkrealtors.com/blog/affordable-housing-in-india-game-changer/
ETMarkets.com. (2014, December 14). Affordable Housing: An attractive trigger for all-round growth. Retrieved from https://economictimes.indiatimes.com/markets/stocks/news/affordable-housing-an-attractive-trigger-for-all-round-growth/articleshow/62066464.cms
IBEF. (2018, March). Indian Real Estate Industry. Retrieved from https://www.ibef.org/industry/real-estate-india.aspx
Indian Housing Sector Outlook 2018. (2014, October). Retrieved from https://www.rncos.com/Market-Analysis-Reports/Indian-Housing-Sector-Outlook-2018-IM716.htm
KalpanaGopalan, & MadalasaVenkataraman. (2015). Affordable housing: Policy and practice in India. IIMB Management Review, 129-140.
Khan, P. (2017, Janurary 4). What does affordable housing refers to in India? Retrieved from https://www.quora.com/What-does-affordable-housing-refers-to-in-India
Money Control.com. (n.d.). Affordable housing in India: Where is the supply? Retrieved from https://www.moneycontrol.com/news/business/personal-finance/-1880965.html
Pai, R. (2017, December 29). Indian Real Estate Industry in 2017 and predictions for 2018. Retrieved from https://www.businesstoday.in/buzztop/buzztop-feature/indian-real-estate-industry-in-2017-and-predictions-for-2018/story/267018.html
Research and Markets. (2017, December 12). Affordable Housing Market in India 2017 – Research and Markets. Retrieved from https://www.businesswire.com/news/home/20171212006209/en/Affordable-Housing-Market-India-2017—Research
Singh, A. R. (2017, July 11). Affordable housing set for growth in 2017. Retrieved from https://www.indiainfoline.com/article/article-latest/affordable-housing-set-for-growth-in-2017-117071100396_1.html
The Hindu .com . (2016, August 2). Affordable housing: a game changer. Retrieved from http://www.thehindu.com/real-estate/affordable-housing-a-game-changer/article19401953.ece