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Prior to 2008, booming economy led to higher incomes for investors and home buyers. Economic boom also resulted in skyrocketing real estate prices which made it difficult for buyers to purchase homes despite higher incomes.
Post 2008, economy reversed its direction and real estate prices declined, but scepticism about income sustainability also grew leading to cautious approach towards house purchases.
This dilemma regarding house purchase gave rise to concept of affordable housing which intends to ensure housing across different economic groups of the society. In this article, we will try to find out the need and suitability of affordable housing investment and points to keep in mind before making investment in such schemes.
What is Affordable Housing
Affordable housing represents any housing project that’s suitable as per affordability criterion of various economic groups (Specially lower and middle income groups). Income level, size of the housing unit and affordability are the key criterion for development of such houses.
There is no standard definition for affordable housing, but affordable housing projects aim to provide low/medium income group the chance to live in 200 to 700 square feet apartments at an average cost of around Rs 5000 per month.
Need for Affordable Housing and State of Indian Housing Market
Rapid urbanisation, housing shortage and rising income levels of lower and upper middle class are the key drivers for affordable housing projects. Government is also supporting affordable housing projects and Investors looking to buy a low budget house have more reason to cheer. RBI has opened the External Commercial Borrowings (ECB) route for developers and housing finance companies using which they can raise up to $1 billion for affordable housing. Several developers like Mantri Realty, Provident Housing and Value and Budget Housing Corporation are planning to tap this route.
Cost and Main Players
Cost of 600 square feet mid income or affordable houses range from INR 15-20 lakh. Renowned players in this space are Tata Housing, Godrej Properties, Mahindra Lifespaces, DLF, Puravankara and Unitech. There are other smaller private players like Mantri Realty, Provident Housing and Value and Budget Housing Corporation in different parts of the country. Almost all realty players are offering affordable housing in sub Rs 20 lakh category in various parts of country like Ahmedabad, Chennai, Bangalore, NCR etc.
Should you Buy?
Before making an investment decision, crosscheck the housing project on the following parameters:
1. Productivity Loss – Most of the affordable housing projects are located far away from the city (20 to 25 Km away) as lands are costly near the city. If you have to travel daily for work, there might be a productivity loss due to travel time and exertion.
2. Construction Quality – Do cross check the construction quality of the houses. You can read reviews online or visit the site and take opinion of people already residing there. Brand name of the developer also plays an important role.
3. Project Schedule - Check if the project is running on schedule or not. Enquire about the hassles while taking possession so as to avoid future surprises.
4. Civic Facilities - Important civic facilities and public utilities like schools and hospitals should be integral part of the project.
Conclusion
Successful execution of affordable housing projects can address the ever growing housing needs of India. As renowned developers are entering the market, construction quality and transparency should not be an issue now. Economic recovery is expected to gain momentum, which will drive the demand for affordable houses leading to price appreciation in future. Keeping these factors in mind, one can plan an investment in this area for future gains.
Source: InvestmentYogi.com is one of the leading personal finance webistes in India
