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Indian real estate most affordable in 20 years

The situation for the housing sector in India is ripe, with 69% of the country's population belonging to the prime home buying age between 20 to 40 years, the per capita income growing at a CAGR of 10% for the past five years (according to CLSA) and the burgeoning middle class that is demanding better housing.

Mumbai-based Liases Foras Real Estate Rating and Research Pvt. Ltd. founder Pankaj Kapoor says that while last decade was focused on price appreciation, this decade will be about volume growth.

Government policies and their effects

The much-debated announcement of demonetization, a Government initiative to stamp out corruption, affected the real estate market negatively in the first quarter post its announcement, with a 20% slump. However, signs of recovery are already beginning to show, with a 19% growth in sales across 9 cities in the March quarter, according to PropTiger.com.

India has reached a stage where demand is greater than supply in the urban cities, with more people migrating here, whereas Government funding is largely focused on the rural areas. This has pushed up land costs, thereby increasing building costs.

To address this issue, the Government under Prime Minister Narendra Modi has introduced the Affordable Housing Scheme in 2015, with a vision to provide "Housing for All" by 2022. Under this program, 20 million urban homes and 30 million rural homes are proposed to be built by 2022. As a result, a property has become the most affordable in two decades. The builders engaged in affordable housing are eligible for state incentives, subsidies, tax benefits and institutional funding. Households with income up to INR 1.8 million are eligible for interest rate waivers and rebates.

Hurdles

Although all these initiatives sound promising, it is yet to be seen if they are realistic. The first hurdle to cross is the availability of land for affordable housing, which seems to be a challenge these days, especially in major cities, where affordable housing is most required.

The second hurdle is the project delivery, which invariably gets delayed by at least a year in 30 percent of the cases, owing to the ensconced bureaucracy.

Despite the possible hurdles, more and more developers are turning to affordable houses owing to the various incentives offered. 113,508 homes have been completed thus far, and another 755,083 in progress.