A look at the key drivers for India’s affordable housing story

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Since the beginning of the new millennium, India’s demographics has undergone a major shift, particularly in terms of its household size and composition. There has been an exponential rise in the number of nuclear families across the country.

According to the 2001 census report, India’s 51.7% of households were nuclear families. This number further grew to 52.1% in the 2011 census report. This change in India’s demographics has spurred demand for the housing sector, especially the affordable segment.

Additionally, it has given a big flip to the rental market in the urban areas. This trend has been further boosted by the opening of foreign direct investment across multiple sectors in India, and the growing job opportunities that came with it in the metro and the big cities in the last three decades.

Since the housing cost takes away a large chunk of savings out of a family’s income, the low-income households have always struggled to own a home of their own. The lack of availability of housing units focused on the requirements of the low income group, and limited access for them to home finance, means that millions of Indian families still live in poorly constructed and cramped houses.

Housing is a key part of a family’s well-being and social mobility. As the monthly family budget plays a big role in this decision, be it the rent or EMI of a home loan, the low income groups are usually always striving for an affordable option.

Ongoing urbanisation and the reverse migration that has followed after pandemic, is only intensifying the demand for affordable housing across India’s tier 1 to tier 3 cities. While how the reverse migration will hold will be an interesting trend to watch out for over the next three to five years, there is a great likelihood that cities beyond tier 1 will continue to see a greater momentum of jobs and entrepreneurship, as the government’s focus to ensure business growth levels out across cities and towns emerges stronger for the new economy to shine.

Overall, the change in India’s demographics has made a positive impact on housing consumption. Moreover, the pandemic has made people more inclined about living an affordable life, the one high on experiences, and focusing on basic amenities. This will spur more demand for affordable homes.

In the last five years, India’s home loan market has grown annually at a CAGR of 20% and is expected to grow by 15% CAGR by FY2022 to reach Rs 28.4 trillion. The affordable home loans are expected to contribute nearly 36% of the total home loan disbursals estimated by FY2022.

Given the affordable home loans are now categorised as a disbursal up to Rs 40 lakh from Rs 25 lakh earlier, the favourable demographics has paved way to significantly expand the scope and size of the affordable housing market across India.

Moreover, with the remote culture likely to gain higher importance in the post-Covid era, demand for housing should go up beyond metro cities significantly. The government has also continued to put thrust on the development of the affordable housing segment beyond the big cities, by extending the various incentives of the affordable housing scheme for consumers till 2022.

The government’s goal of ‘Housing for All’ aims to provide a home for every Indian by 2022 might be an ambitious target, but will pave way for India to grow from a developing to developed economy status quickly. A dignified home is a least the government can do for the citizens who are aspiring to be the world’s best in various fields.

The change in socio-demographics, rising urbanisation, increase in penetration of financiers in rural and semi-urban areas, and the government’s aspirations for ‘Housing for All’ are the key demand drivers for India’s affordable housing story.

The need of the hour for this drive to bring homes to the country’s 1.3 billion people lies now in how our policy encourages an institutional framework promoting well-planned and sustainable urbanisation.

(The writer is co-founder & CEO, BASIC Home Loan)