BFSI Summit: 'Supply pressure for affordable housing despite strong demand'

The Reserve Bank of India (RBI's) had said that housing finance companies find the pre-payment penalty imposed as a challenge for the lenders. However, there is better clarity on regulations

Despite increasing demand for affordable housing in India, there is a shortage of supply as developers are not adding inventory for end customers, housing finance experts said at Business Standard BFSI Summit here on Thursday.

 

However, the affordable housing segment will continue to remain a critical sector, said the experts. They were discussing the Banking on Bricks - Knight Frank housing report.

 

“Affordable housing caters to an unorganised segment of the society. I believe there is a demand for affordable housing, but the supply is limited. I don't think many of the developers are interested in getting into affordable housing. It's low-cost, it's mostly on the outskirts of a city where they are not sure of demand due to lack of livability conditions,” said Tribhuwan Adhikari, managing director (MD ) & chief executive officer (CEO), LIC Housing Finance.

 

 

“And, developers are into a business and they want margins. I don't think the affordable segment is as margin intensive as semi-luxury or luxury. However, I believe that the demand for affordable housing is there and will continue to be there in years to come,” Adhikari added.

 

Meanwhile, Gulam Zia, senior executive director, Knight Frank India, said affordable housing stocks are very limited and developers are not adding more.

 

“If one project is giving them almost double the annual revenue target of that organisation, then what case does it make to do 25 affordable projects of 1,000 apartments each, and continue to put so much effort into selling them?” he said.

 

He added that in an industry where a single luxury housing project can deliver twice the annual revenue target of a developer, the developers see very little incentive to focus on affordable housing.

 

However, Zia points out that while the government's Pradhan Mantri Awas Yojana (PMAY) has generated significant demand, the real challenge lies on the supply side.

 

He said, “The stock of affordable housing is limited, and if developers do not step in to fill the gap, prices will inevitably rise, exacerbating the affordability crisis.”

 

However, housing financiers believe that affordable houses have become more urgent than ever.

 

Despite this, the supply of such homes remains limited, leaving a significant portion of the population without access to suitable housing.

 

Further, other key challenges include high land cost and lengthy project timelines, regulatory challenges and low profit margins.

 

Girish Kousgi, MD & CEO, PNB Housing Finance, said, “The problem in supply is developers. They don't come out with affordable projects, because there are three, four challenges. One, land costs are very high. Number two, the time taken from land acquisition to launch of the project is quite long. Number three, the project itself, at this point in time, is not viable, and therefore a lot of developers don't want to get into affordable housing. But that is just 20 per cent today. If you look at the entire country, barring the top two cities, only Mumbai and maybe Delhi, rest of the markets, there is a good portion of affordable housing.”

 

On the regulatory front, housing finance companies find the prepayment penalty imposed as a challenge for the lenders. However, there is better clarity on regulation.

 

“The government regulations were a bit unclear earlier. Now that the regulations have been clarified, every single affordable housing finance company, housing finance company, non-banking financial company (NBFC) and bank follows them. It's not something which is specific to the housing finance company. I would personally think that there are no regulations which are detrimental to the affordable household finance company in comparison with a regular housing finance company. However, I think prepayment penalty is a challenge for us,” said Ravi Subramaniam, MD & CEO, Shriram Housing Finance.

 

Another key challenge for the lenders has been the switching consumers between companies. Customers switch to the lender offering lower interest rates affecting the long-term stability of the sector.

 

PMAY 2.0 steps to ensure that switching does not happen.

 

“However, affordable housing is there and the demand for it will continue for the next 25 years. Affordable housing finance companies will stay and that's why the government has launched affordable housing schemes,” said Deo Shankar Tripathi, vice-chairman, Aadhar Housing Finance.