India’s affordable housing demand to reach 31.2 million units by 2030

V Nagarajan

India’s affordable housing sector offers both opportunities and challenges in the midst of rapid urbanisation reshaping the country. There is a paramount need to the growing demand in order to foster sustainable economic growth and ensure housing for all.

While the government’s policy measures have made significant progress, there continues to be a mismatch between supply and demand.

Challenges such as rising construction costs, limited loan accessibility, and the need for greater private sector engagement call for innovative strategies and collaborative solutions.

According to Knight Frank survey, 22.2 million units of housing will be required in urban centres in India. 95.2 per cent of this demand, which is equivalent to 21.1 million units, will be concentrated in the affordable housing segment.

A predominant share of 45.8 per cent of the demand will be concentrated amongst the EWS households. There is already an existing shortage of 10.1 million units. Cumulatively, the existing shortage plus upcoming demand for affordable housing segment in India is estimated to be 31.2 million units by 2030.

With the decline in private participation, there has been a decline in institutional investments in affordable housing projects in India. To promote affordable housing, the government has made efforts to create an enabling environment and eco-system. In FY 2017, a key provision was made in the form of granting of infrastructure status to affordable housing to provide benefits such as lower borrowing costs, tax concessions and increased inflow of private capital. However, despite the policies, private participation along with developers and the institutional investments in affordable housing segment in India has remained negligible.

Between 2011-2024 (until September 2024), the capital inflow into affordable housing segment was $.6 billion, which is merely 9.8 per cent of the capital inflow into the overall residential sector or 3.6 per cent of the total inflow into the real estate sector.

Primarily, it is the inflow of foreign funds that has been muted.

Of the total PE inflow into affordable housing, merely 15 per cent of the PE funds are investments by foreign funds.

In India, to gain private participation in development with investments in affordable housing, such innovative financing mechanisms need to be adopted adequately. While some of the instruments such as impact investing, VGF etc already exist and are supporting sectors such as agriculture, infrastructure etc, these need to be adequately extended to the affordable housing segment as well. Mechanisms such as Housing Trust Funds wherein the funding is through state revenue collections, can be done through Value Capture Financing (VCF).

States and the ULBs can pool revenue sourced from real estate activities such as property taxes, land revenue, registration fees etc and deploy it for funding affordable housing projects. Additional provisions such as corporate bond guarantees will help in gaining interest of the private equity investors in the development of affordable housing in India, as these instruments mitigate the financial risks.

Technology is playing a crucial role in solving the affordable housing crisis by making the process of construction, financing, and living in affordable homes more efficient, sustainable, and accessible. By leveraging innovations in building techniques, digital platforms, energy management, and data analytics, a more affordable and equitable housing landscape can be created that benefits both low-income residents and the larger community. The challenge remains in ensuring that these technologies are accessible and equitably distributed across regions and populations. Globally, several technologies are being developed and used with an objective to reduce construction cost for developers and utility cost for long term cost saving for consumers, raising funds for the developers, mapping housing units etc.

In conclusion, the current state of India’s housing market reflects an upcycle driven by factors such as the formalisation of the economy, rising income levels, increasing number of nuclear families, and ample financing options. Policy measures such as development of affordable housing in the industrial corridors, increasing the free FSI would adequately address the supply side bottlenecks of developing affordable housing units in the urban centres in India.

Looking ahead, as India pursues ambitious economic growth targets, it is necessary for policymakers to introduce robust initiatives to resolve the existing challenges hindering both the demand and supply side of the affordable housing market.

My brother-in-law has gifted a flat to my wife. Does it attract tax liability? Please clarify. Raj Mohan, Sharjah

While the gift tax is tax-exempt, it should be verified if there are specific duty considerations for transfer of property. Maintaining all documentation would help in avoiding legal or tax related issues in future. If the flat is sold in future, capital gains tax may apply.

I have invested in commercial property in Hyderabad and planning to mortgage the unit to raise short-term funds. Does it require approval from the authorities? Mohamed Ali Khan, Dubai.

You can mortgage the commercial property to an authorised dealer/housing finance institution in India without the need to get any approval from the authorities. You can also mortgage to a party abroad but with prior approval of Reserve Bank of India.