Affordable Housing – A key Growth Driver in Indian Realty Sector?

By KPMG INDIA

The Indian and world real estate has changed significantly after the global financial meltdown caused by defaults on sub-prime loans in US. India was no

exception &  the real estate market witnessed a contraction in both volume & value.

Real estate developers / builders/ promoters were gripped with the liquidity

crisis & were forced to change the ways of doing business.

Downturn &  liquidity crunch forced developers to adopt a 2 pronged

strategy - smaller units at lesser prices. This oriented developers focus

on the Affordable Housing segment, which has become the buzz word in

the real estate market for the past few months.

3  Key Parameters..!

KPMG & CREDAI believe that the significant demand in Affordable Housing would be a key growth driver for the real estate sector.

In this KPMG & CREDAI study we have attempted to define Affordable Housing by using 3  key parameters

viz. income level,

size of dwelling unit &

affordability.

While we have assessed the demand and supply constrains, we have also highlighted the initiatives taken by key stakeholders and their perspective concerns. We hope this study will throw light around enabling better collaborative partnerships between all the stakeholders.

Introduction and definition of “Affordable Housing” in India Change of focus towards Affordable Housing and its indicative potential

Demand & supply constraints Stakeholders perspective – Key initiatives and concerns Role of PPP in Affordable Housing

House buyers face challenges while deciding “when” to purchase home.

While favorable economic conditions lead to higher incomes for home

buyers, it also leads to spiraling real estate prices making it difficult for a

buyer to purchase houses even given their higher incomes.

On the other hand, during economic downturns while real estate prices decline, people become skeptical about their incomes and adopt a more cautious

approach to purchases.

Affordable Housing - Definition..!

Defining Affordable Housing “Affordability” as a concept is very generic

and could have different meanings for different people based on differences in

income levels.

Affordable housing refers to any housing  that meets some form of affordability criterion .

Different countries have defined affordable housing to present the economic potential of an individual buying a house.

Affordable housing may be a good strategy to this home - buyers dilemma

and can help ensure housing across different sections of society.

In the United States and Canada, a commonly accepted guideline for affordable housing is that the cost of housing should not be more than 30 percent of a

household's gross income.

Another point to note is that the definition of affordable housing is not just restricted to the three categories mentioned above, but applies to people across the country.

Affordable housing can be defined using three key parameters viz. income level, size of dwelling unit and affordability. While the

first 2 parameters are independent of each other, the 3rd parameter is correlated income.

Housing costs here include taxes and insurance for owners, and utility costs.

If the monthly carrying costs of a house exceed 30 to 35% of household

income, the housing is considered unaffordable for that household .

Defining affordable housing in India is a difficult task given that at every square

kilometer of the country, the dynamics of the market are different.

At KPMG and CREDAI, we have therefore broadly defined affordable housing in India for Tier I, II and III cities based on 3 key parameters: to income and property price, and hence can be termed a dependent parameter.

While the above definition is a generic representation at an all India level, the

actual definition of affordable housing may

Definition of Affordable Housing...!

Details	Income Level	Size of Dwelling Unit
EWS*	<Rs. 1.5 lacs per annum	Upto 300 sq. ft.z
LIG **	Rs. 1.5 to 3 lacs per annum	300 to 600 sq. ft.
MIG***	Rs. 3 to 10 lacs per annum	600 to 1,200 sq. ft.

* Economically Weaker Section, **Lower Income Group.***Higher Income Group

Source: KPMG Analysis, Knight Frank

Affordability:

EMI to Monthly Income 30 to 40%

House Price to Annual Income Ratio:

Less than 5.1 (Mr. Deepak Parekh Task

Force)

Is affordable housing and low-cost housing the same?

Affordable and low-cost housing are often interchangeably used, but are quite different from each other. Low-cost housing is generally meant for EWS category & comprises bare minimum housing facilities while affordable housing is mostly meant for LIG & MIG and includes basic amenities like schools, hospitals and other community facilities and services.

                                   

Parameters	Low-Cost  Housing	Affordable Housing
Amenities	Minimum to none	Basic
Target Income Class	EWS and LIG	LIG and MIG
Size of Dwelling Unit	<=300 Sq. Ft.	300  to1,200 Sq. Ft.
Location	Generally within city but can also be located on city peripheries due to high cost of land.	Within city
Project Developer	Mostly Government agencies	Private Developers & Government
Mostly available source of finance	Micro finance institutions	Traditional banking system
EMI to Monthly Income	Not exceeding 30% of gross monthly income	Not exceeding 40% of gross monthly income

            

Source: Credit Suisse, Knight Frank and KPMG Analysis

KPMG Contacts

Mr. Jai Mavani, Executive Director and Head - Infrastructure,

Government and Healthcare

E-Mail: jmavani@kpmg.com

Tel: +91 22 3090 2410

Mr. Amit Mookim

Director

Lead - Real Estate Advisory

e-Mail: amookim@kpmg.com

Tel: +91 22 3090 2141

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