The term ‘Affordable’ could mean different things to people depending on the country, incomes, family size etc. But in general,‘affordable housing’ refers houses that a majority of people can afford to buy.
There are two aspects to this segment:
Low cost housing driven by Government initiatives
Affordable housing, driven by demand from home buyers in the middle income group
Low cost housing
Many ruling political parties have floated schemes for housing to poor Indians in the past. But it is only over the last two years that this segment has received tremendous thrust. Low cost homes mainly refer to a basic pakka house of 30-60 sq mtr (~323-645 sq feet). The target segment is specifically slum dwellers and households with incomes less than Rs.3,00,000 and Rs.6,00,000 a year.
Here are some of the schemes and initiatives floated for this segment by the present Modi Government:
Pradhan Mantri Awas Yojana – CLSS One of the most talked about Government initiatives, PMAY CLSS scheme for LIG/EWS and PMAY CLSS scheme for MIG have taken the housing sector by storm. Under this, first time home buyers get instant subsidy amount directly into their bank account. This eliminates the need for any intermediary and the benefits come to the home buyer without losing any commissions and bribes.
Here is a highlight of the scheme.
Maximum loan value
Size of house
Economically weaker sections
Up to Rs. 3 Lakhs
~ 323 sq feet
Low income group
Up to Rs.6 Lakhs
~ 646 sq feet
Middle income group
MIG - I
Up to Rs.12 Lakhs
~ 1292 sq feet
Middle income group
MIG - II
Up to Rs.18 Lakhs
~1614 sq feet
Declaring low value home loans as a priority sector for lending To encourage banks to lend to the poor and low income groups, RBI has designated home loans less than Rs.35 lakhs as priority sector loans. This includes new home loans and also balance transfer from other banks.
Here a quick look at the value of homes and home loans:
New Delhi, Chennai,
Kolkatta, Bengaluru, Hyderabad
There are few other schemes like rehabilitation for slum dwellers and private – public partnerships for projects in this segment.
While Government is backing low cost homes, there isn’t much profit in these projects for builders. For them, Profitable demand lies somewhere else.
Over the past ten years, Indians have started to realise that real estate is not entirely a fail-safe investment. Gone are the days when you would put together every penny of your savings and purchase a house even if it is out of your reach. These are times when smart home buyers are looking for developers who can offer:
Value for money
Good quality of raw materials
Higher chances of resale
Basic and luxury amenities
all the above at affordable prices
For builders who can offer these features – there is profit in volumes. Government has also offered tax breaks for profits made on such projects. So overall, builders are focusing in this direction.
What is in it for you
Affordable housing is receiving attention from the Government, builders, buyers and media like never before. You can not ignore this segment if you are a home buyer. If the builder meets regulations and quality standards, this could make a very profitable investment in the long run.
If your home loan is less than Rs.30 Lakhs, your interest rate cost will be less than other by at least 0.05% to 1%. Over a period of 15-20 years this could translate to savings of a few lakhs! You will also make more profit if you are buying the house as an investment. Added to this if you are eligible for PMAY, you are set for some good savings.
While you consider investing in affordable housing sector, as a home buyer just keep these things in mind:
Don’t compromise on quality
Make sure the builder adheres to all regulations
Apply for all benefits that your bank and Government have to offer
Be prepared for suburban locations
Be on the look out for affordable projects by well known reliable developers
To sum up, the next few years will see a rise in the number of affordable housing projects across the country. As a home buyer, if you keep a few basics in mind you are off to a great start!
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