Why the Indian government needs to amp up its efforts in the housing sector

The government needs to address the issue in India by creating the right incentive mechanism

Subhankar MitraUpdated: Thursday, December 01, 2022, 06:06 PM IST
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The housing shortage in urban areas continues to remain a challenge for India. The rate of urbanisation is expected to reach 40% by the end of the decade, making it a third of the country’s population.

Consequently, the demand for dwelling units is also going to rise, and much of it would be in the range of lower to middle income group level.

According to estimates, the gross dwelling unit demand in urban areas should be around 25 million units. The Government of India, under the PMAY scheme, has approved about 12 million houses, mostly in the EWS, LIG and MIG category, of which ~6.4 million have been delivered.

The ministry of housing defines the affordability in terms of annual income. The income group of INR 3 - 6 lakh will be categorized under LIG segment while the INR 6 – 12 lakh income falls under MIG. The income group earning below INR 3 lakh per annum is considered the EWS segment, and INR 12 – 18 lakh will be classified as upper MIG. Compared to the demand of the present decade, the supply lacks quite a bit in number.

According to the project launch data, the prices of residential units in MMR dropped to INR 12,000 per sq. ft. on carpet area basis in 2020 from 14,000 per sq. ft. in 2019. However, at present the rate shot up to INR 22,000 per sq. ft. and the average area of the units also increased by 43% to an average of 1,171 sq. ft. from the previous 820 sq. ft. in 2020. The rest of the metro cities also showed a similar trend where the average area of dwelling units increased by 20% – 40% and the rate on carpeted area swelled by 10% – 40%.

As a result, the overall ticket size has grown significantly, taking a toll on the supply towards more affordable units.

Apart from the house on ownership basis, there is also a need to develop an adequate supply of affordable rental housing, particularly to cater to the migration from smaller towns and rural areas. On an average, 28% of the urban dwellers live in rental housing, and in some states like Tamil Nadu, Andhra Pradesh, and Karnataka, it is over 40%.

The Ministry of Housing and Poverty Alleviation recognized the need to provide affordable rental housing for the poor urban migrants and initiated the “Affordable Rental Housing Complex” (ARHC) across all cities under public-private participation. But the rental yield from residential buildings remaining in the range of 3-4% discourages institutional players in participating in and developing the much-needed stock of rental housing. The government needs to address this issue by creating the right incentive mechanism that will persuade the private sector players to participate in these developments.

Trend tracker

There has been a shift towards the ‘spacious home’ during the lockdown. That trend kept continuing in 2022 and developers have launched their projects in line with the demand. With the home sales remaining strong despite increase in the home loan rates, the developers will continue to focus more on the luxury segment. The market might see some change once a saturation level is achieved for this segment, after which we can expect some attention towards affordable homes.

(The writer is Managing Director, Advisory Services, Colliers International India)

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