By Ruma Dubey

The buzz word in the Indian realty market has changed. If, couple of years ago, it were ostentatiously priced ‘luxury housing’, it is now ‘affordable housing’.

Anybody and everybody is talking about this – affordable housing. Reports are being put out by brokerage and analysts about the pot of gold which affordable housing represents. In fact Axis Bank, in April launched a 30-year ‘affordable housing loan, known as ‘Asha Home Loan’.

The realty sector has put out estimates of a shortfall of around 19 million housing units of which 90% demand is from the low income group and below. Haven’t they woken and smelt the coffee pretty late? We all knew this truth all along – there are more people needing affordable houses than luxury ones.

Recently Maharashtra Housing and Area Development Authority or popularly recognized as MHADA concluded the application process for the lottery for its low-cost housing projects in some parts of Mumbai. The response was overwhelming, to put it lightly. It received a total of 1,23,254 applications for the 2,641 houses it plans to sell. Of this, some 74,136 have applied for the 814 houses in Mumbai, which means there are 91 buyers for one flat, up from 69 people per flat ratio in 2013. This year, last month, MHADA reduced its housing priced by 2 to 10% by bringing down the interest it charged on the capital set aside for the project from 14% to 10.28%. On the other hand, there were very few takers for their Konkan flats. Thus demand for flats continues in Mumbai, more so in the low cost, affordable housing section.

Now this concept of ‘affordable housing’ is very tricky. Affordable is a very subjective word where what could be affordable to you could fall in the ‘unaffordable’ category for me. And for the builders – does this term have any meaning at all. There are projects indeed lined up for affordable housing in many parts of Mumbai, where the starting price of a 1BHK is from Rs.50 lakh, and this is ‘cheap’ as these are in the far flung, beyond suburbs kind of areas.

Often these words are used interchangeably – low cost housing and affordable housing. But both are like apples and oranges. KPMG has tried to explain this differentiation, stating that affordable housing can be defined using three key parameters viz. income level, size of dwelling unit and affordability. While the first two parameters are independent of each other, the third parameter is correlated to income and property price, and hence can be termed a dependent parameter. It has made four categories- Economically Weaker Section (EWS), Lower Income Group (LIG), Middle Income Group (MIG) and Higher Income Group (HIG).

EWS has an income level of less than 1.5 lakh per annum and the size of their dwelling would be upto 300 sq.ft, LIG income is higher than Rs.1.5 lakh but lower than Rs.3 lakh and size of dwelling will be 300 to 600 sq.feet. MIG income is higher than Rs.3 lakh but lower than Rs.10 lakh and size of dwelling unit is between 600 to 1200 sq.feet. And then the question of affordability – two parameters are used wherein EMI to Monthly Income is 30 to 40% or the House price to Annual Income ratio is less than 5.1.

Also the construction makes this stark difference very clear - Low-cost housing, meant for EWS category comprises of very basic minimum housing facilities, usually carried out by Govt agencies. On the other hand, affordable housing will be developed by mostly private sector developers or sometimes the Govt and will include basic amenities like schools, hospitals and other community facilities and services.

The market for low cost and affordable housing is huge. We are talking about people earning between Rs.10 to 15k per month. They simply do not have houses built for them any more so they continue to live in rental houses, in terrible conditions though rent goes up every year. They come under the ‘informal’ sources category in banks, meaning they cannot be given loans due to low income and most of them do not have any documentation. So does that mean they continue to live on the periphery of the society, the very same one which they actually are the very fabric and essence?

Some low cost housing projects did take off but not from big builders. It is usually small, local builders who are happy with whatever they make and it is they only who then come up with similar projects. Yes, once he graduates into MIG, he never looks back on the very same people on whom he rose to success.

Clearly, builders when on TV or talking to the Press, speak very altruistic, as though they are the messiah for the poor. But in reality, they are never for the EWS category; they never take this project up as they make no money here. And then in affordable housing, if it is affordable at all in the first place, they play on the super built up and automatically prices get jacked up. People in LIG and MIG category end up paying 40-50% on the super built up area. So the builder might say your flat is 700 sq.feet but what you get looks pretty much like a match box, which ends even before you begin. And then of course, they will sell some ‘premium’ flats, which will be the same but the buyer will get a water filter, fans, nowadays an AC, geyser, and such amenities ‘free’. Mind you, builders never give you anything free; it’s a misnomer to say builder and free in the same breath, just like saying affordable housing and builder.

Agreed that the builders have their challenges – high cost of land as space is scarce and then the cost of labour and material adds up. Of course, the bags of money which a builder has to pay to get his NoC from the municipal corporations cannot even be accounted for. It is like our education system – to become a doctor, a child has to pay donations to the tune of Rs.50 lakh to Rs.1 core, over and above his yearly fees and other costs. Naturally, when he becomes a doctor, he will first to recover his money back – so how can doctors be affordable any more. Ditto is the vicious cycle created by the builders.

Obviously the loser always is we the people. We pay crores for a roof over our head and live around squalor and poor quality of life. Life has become very cheap while all things required to live have become a luxury.

Thus affordable housing as a concept sounds very good, almost spiritual. But sadly, it does not exist. Deloitte Monitor Inclusive Markets (MIM) put out a report and that says it all – only 30,000 low cost houses were built over the past five years while demand is for millions. 

What can be done to correct the situation?

• Govt needs to be the main promoter – give land and also build or else collaborate and build
• More projects like MHADA required
• To entice builders, give free FSI for low cost housing projects, allowing use of unused FSI in prime locations.
• Demarcate areas for low cost housing
• Cost of land can be subsidized when project is for low cost housing
• Govt can waive off stamp duty; after all they make a lot from the other MIG and HIG projects.
• Easier finance for this informal sector at slightly lower interest rates.