The focus on affordable housing in India has increased considerably in recent years due to the various incentives and schemes that are being supported by the government. Plus, as the icing on the cake, home loans have become cheaper. Hence, this is indeed a time when various investors and home buyers are buying affordable homes in India. The 2017 Union Budget announced that affordable housing will be the main basis for the development of “infrastructure” in the country. Businesses that are dedicated to offering affordable housing can receive cheaper loans from different nationalized banks and also certain tax concessions. Also, there are various foreign funds that are significantly boosting the infrastructure sector in India. With this particular move, the Government of India aims to provide the infrastructure sector in India with a major boost.
There are various property buyers in India who dream of owning their own houses on an affordable budget. Some of these buyers aim to purchase affordable homes for residential purposes, while some intend to purchase these properties as an investment avenue. In case you are one of the many Indians planning to buy an affordable home, then it is time to take a good look at this before you buy.
According to a survey report published by the prestigious real estate consultancy Monitor Deloitte, affordable housing projects are a very profitable business proposition for developers. In most of the prominent cities in India, such as Mumbai and Delhi, the internal rate of return (IRR) is 45% and there is a gross margin of 24%. So taking on affordable housing projects from developers is a lucrative proposition for them. It goes without saying that there are many private construction organizations that are rapidly entering this segment in recent years.
Special Initiatives to Boost Affordable Housing in India
Some of the initiatives recently taken by the union government in India regarding affordable housing during the Union Budget are analyzed in the following indicators:
• Previously, developers often complained about the high interest rates they had to pay on their loans to develop real estate projects. The infrastructure label that has been introduced by the Indian government that makes it easy for developers and builders to obtain loans at much lower and attractive rates to develop the affordable housing projects.
• Apart from the proposed ‘infrastructure label’ for the Union budget, there have been various allocations and there are various house plans which have been introduced by the Government of India. One of the most important and popular investment schemes that increases the budget for affordable housing is the Pradhan Mantri Awaas Yojna. The budget for this government housing plan has been increased from Rs. 15,000 crore to Rs. 23,000 crore in the financial year 2017-2018. This is an increase that goes up to 50%.
• To further boost investment in housing, the holding of long-term capital gains has been significantly reduced from a three-year term to a two-year term. So if you are willing to buy affordable home property for investment purposes, you can sell the property right after two years and then claim some long-term capital gains that have indexing benefits. This would also encourage various people looking for properties with low and medium term investments.
• There is a 3% interest subsidy offer on home loans ranging up to Rs. 12 lakh and a 4% interest subsidy on loans ranging up to Rs. 9 lakh. Individual affordable home buyers who are willing to purchase affordable home ownership can take advantage of this subsidy benefit if their income is less than Rs 6 lakh per year. They have the option of borrowing Rs. 20-30 lakh at most. This range of amounts constitutes approximately two-thirds of the amount of the mortgage loan that banks are disbursing. Therefore, the industry expects these specific steps to drive the growth of the Indian real estate scenario in the currently weakened real estate sector.
Top factors to consider if you are considering affordable housing from an investment standpoint
Let’s take a quick look at some of the factors that determine the overall potential for returns you can get from an affordable housing investment. Since the investment option mainly involves large amounts, it is advisable to analyze very well the entire reward, as well as the risk factors related to the project.
• Infrastructure: A well planned infrastructure close to the property site is very essential for the property price to be appreciated. Infrastructure such as the availability of energy and water, good wide roads, schools and hospitals are important aspects to consider. These are the main factors that help to obtain an appreciated resale value. While schools, hospitals, and other amenities may take some time to develop, basic essentials like water, power, etc. You have to necessarily be present at the time you are considering the property.
• Location – This is one of the most important factors to consider when planning a real estate investment. Ideally, you should buy in those locations where the growth prospect is greatest in the near future. You can also consider paying a premium when you get certain top locations.
• Smart city label: Finally, cities that have the ‘smart’ label would undoubtedly be a great option for investment in affordable housing. The government of India identifies 100 cities that would be developed as smart cities. These particular cities are being selected to possess all the required infrastructure in place and within a few years, these cities are expected to expand as the largest urban cities in India. In fact, there is great growth potential for these cities and therein lie great opportunities and long-term profitability possibilities.
