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February 19, 2018

Affordable housing in India is set for a big boost in government funding, a move that could lead to greater investment in the supply-starved sector.

India’s Finance Minister Arun Jaitley recently announced a dedicated affordable housing fund that aims to boost construction, especially in rural areas. The announcement, made during the Union Budget 2018, is aligned with ongoing government efforts under its ambitious program, Pradhan Mantri Awas Yojna (PMAY), to provide more abodes for people in the low-income category.

While the government is yet to confirm the size of the fund, it will be used to refinance the housing finance companies and banks engaged in the development of affordable properties.

Over the last three years, the Indian government has been targeting growth in housing supply. Several reforms such as incentives to low-income groups, accordance of infrastructure tag and an interest-subsidy scheme have resulted in a sharp rise in new housing projects in the affordable segment.

With better credit facilities available, more companies developing affordable housing projects could enter the market, said Ramesh Nair, CEO and Country Head, JLL India. These companies in time could become interesting investment targets, he said.

A lack of affordable housing has become a major issue in countries around the world over the last decade. Governments have sought to address shortfalls with extra funding and tax incentives.

India requires more than 18 million new housing units, with a majority of the demand in the affordable segment, according to industry estimates.

The new funding scheme announced during the budget will go some way to making further gains, Nair said.

Still, India has a long way to go to reach these targets. While states have their own plans in place to address the housing shortage, challenges such as controversy around land acquisition, execution hurdles and regulatory bottlenecks often result in time and cost overruns.

The PMAY will provide 51 lakh houses during 2018-19 exclusively in rural areas. For urban areas, the government has sanctioned funding assistance to build 37 lakh houses for the lower income groups and economically weaker sections.

Click to read more about the real estate investment landscape in India.

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Ramesh Nair

Country Head, JLL India

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