Fuelling The Growth Engine Of Indian Realty: Mid-Income Housing
Painting a brighter picture for the industry, the strong growth prospects are finally paving way for a plausible journey of the Indian Real Estate sector to touch $ 1 trillion mark by 2030 with affordable housing as one of the by-products
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Retracing our steps back a few years, with burgeoning population growing at the rate of 2.1% on an average every year, high operational costs, low purchasing power and regulatory issues, meeting the 40 million urban housing gaps seemed like a distant dream. Until the government announced its flagship mission, ‘Housing for All by 2022’, to promote affordable housing for weaker sections through Credit Linked Subsidy Scheme (CLSS), partnership between public and private sectors while ensuring additional tax benefits for both developers and home buyers, etc., in order to facilitate our Prime Minister’s dream of establishing a roof over every Indian’s head. While the priority was to increase the purchasing power of the population, empowering every stakeholder in the industry was a crucial factor, especially private developers who are capable of spurring development of quality affordable homes and infusing the much-needed stability in the market. The involvement of private developers in affordable housing peaked after the segment was granted infrastructure status, giving developers a leeway of obtaining loans at preferential or lower rates, and as a ripple effect pass on the savings to buyers.
The residential revival was further fortified through the introduction of ground-breaking reforms like RERA and GST that transformed the real estate industry as a whole and accelerated transparency. Implementing Real Estate (Regulation & Development) Act (RERA), primarily to focus on and safeguard the rights of the home buyers, to ensuring a grievance redressal platform namely Real Estate Authority and Appellate Tribunal for each state, aided in consolidating the effort of building a more efficacious system. With favorable concessional schemes and a highly conducive environment for various stakeholders, the industry was buoyed with the much-needed subsidization of costs to accommodate the housing shortage - anticipated to increase with changing aspirations of the demography, nuclearization of families, migration to urban areas, and more.
Thereafter, the industry has been witnessing monumental upward trajectory on the back of resurrected confidence of home buyers and a positive sentiment towards developers and the sector, alongside augmenting growth of allied industries. As per Anarock research, there has been a 50% increase in new housing launches in Q2 2018 as compared to Q1 2018, along with 100% increase in supply and housing sales which increased by 24% (Top 7 cities) – clearly showcasing the strong resurgence of Indian realty.
However, there is still immense potential in the affordable segment that remains untapped. Following the slew of policy changes, affordable housing still offers 6-8 billion sq. ft. development opportunity in India over the next 3-4 years (CARE Ratings report). Some of the facilitators that can accelerate this growth potential are:
* Advent of first-time homebuyers- The average age of a first-time home buyers in the present time is ranging from 30-35 years. Though currently 2/3rd of the population lies below the age of 30, the next 5-15 years shall witness this population reaching a stage to buy a house and result in a demand surge
* Emerging micro markets: Affordable housing has been witnessing momentum within the peripheries of the Tier I cities as well as beyond them in Tier II & III cities, as there is a necessity to create and develop alternate economic hubs. This market largely caters to first time home buyers, NRIs, young professionals and also lower income group within the urban landscape, who are faced with the challenges such as low finances and lack of space.
* Tapping the NRIs: The affinity towards micro homes and affordable housing of the NRIs is owing to two factors, from an investment perspective i.e. profitable rental yields and the ease of liquidity that micro homes provide in comparison to extravagant homes.
* Newer formats: It is not uncommon knowledge that millennials are the newer target market, not only for the real estate sector but businesses across sectors. Swaying away from the traditional method of housing, they tend to look for new age and contemporary formats within the affordable segment. From micro homes, studio apartments to student housing, innovative and optimum space utilization is adding to the demand in the affordable segment
* The investment infusion: Coming years are anticipated to be bigger for private equity and FDI investments. In 2017 alone, private equity real estate firms made 67 investments with an announced value of $6.1billion in India, data from Venture Intelligence showed. Around 57% of this went into residential projects with affordable housing accounting for major part of the investment pie. In the March quarter, private equity inflows into the residential sector more than doubled from a year ago $1.32 billion or Rs. 8,518 crore.
Being cognizant of the above, we can say that till now we have only scratched the surface of a segment that is witnessing a rising appetite. The substantial thrust from the government and looming benefits for private developers has made it possible for Indian real estate to ride the revival wave on the back of affordable housing.
Overall, painting a brighter picture for the industry, the strong growth prospects are finally paving way for a plausible journey of the Indian Real Estate sector to touch $ 1 trillion mark by 2030 (KPMG Survey), with affordable housing as one of the by-products.
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