Demand for affordable housing in India is vast and the need enormous. However, this segment is not explored to the best possible extent by the developers. Given the developers’ tendency to focus on luxury housing as that gives them a premium, the demand-supply mismatch in the segment continues to increase across cities. Lack of available land, information asymmetry, poor access to credit to low-income homebuyers, regulatory constraints and delays in approval are among the major causes that deter developers from venturing into the segment. However, given the enormous need for affordable housing, the regulatory landscape is changing in India to be more conducive to promote affordable housing initiatives.

The government has engaged in both – demand and supply-side reforms. The flagship scheme, Housing for All by 2022 or the Pradhan Mantri Awas Yojana, is a prominent supply-side measure taken by the government. It aims to construct two crore houses in India, in three phases, till 2022. It also includes an interest subsidy on housing loans to female and special category beneficiaries falling in the Economically Weaker Section (EWS) and Low Income Group (LIG), giving an impetus to the demand for affordable housing. Another scheme, Affordable Housing in Partnership (AHP) approved by the government as a part of Rajiv Awas Yojana (RAY) is aimed at encouraging private sector participation in efforts to increase the supply of affordable housing in towns and cities. Under it, 21 projects have been sanctioned in three states (Karnataka, Gujarat and Rajasthan) for the construction of 24,141 dwelling units (DUs). The first installment of `44.19 crore has been released. Out of these constructions, 4,968 DUs have been completed and almost half of those have been already occupied while the construction of 15,504 DUs is under progress.

The government in its budget for 2016–17 has given tax incentives to both, buyers and suppliers. It provides for a tax exemption of an additional `50,000 to first-time homebuyers. It also provides for a 100 per cent tax exemption on profit to undertakings for the construction of houses of up to 30 sq metres in four metros and 60 sq metres in other cities along with providing exemption on service tax for construction of affordable houses up to 60 square metres. The budget also focuses on digitisation and streamlining of land records.

On the demand side, of late the RBI has introduced a string of reforms to widen and deepen India’s dormant corporate bond market. As a part of these new reforms, banks can now issue Rupee bonds overseas (Masala bonds) for their capital requirements and also for financing infrastructure and affordable housing. This is indeed an important reform for the housing sector that faced enormous funding challenges due to the underdeveloped nature of India’s corporate bond market. Micro-finance institutions too faced constraints in financing low-cost houses.

Demand and supply-side measures apart, the initiatives towards creation of affordable housing does not confine to the creation of low-cost dwelling units. It prompts the government to create an entire ecosystem supporting residential and other needs of the buyers, in the form of creating physical, social and financial infrastructure in the generally less developed areas chosen for affordable housing projects. Above all, it requires the developers to stay proactive in terms of price rationalisation, timely deliveries and other customer-friendly initiatives.