India is one of the most densely populated country in the entire world and at the same time the number of people owning their own home is very low compared to many major economies of the world. This makes a perfect case for the low cost housing sector in the country. Also, Indian economy is one of the fastest growing economies of the world and it’s needless to say job creation in the country is strong. This also generates the demand for housing. Labourers’ from villages are migrating to the large cities looking for their lively hood and eventually they end up buying a home for themselves. The Indian household dynamics are shifting from joint family to nuclear family concept which further propels housing demand. Overall the low cost housing demand in the country has been very strong considering the above factors.
Over and above this with demonetisation happening recently and the evaporation of cash from the market, the builders are left with no choice but to accept 100% cheque. Previously, some builders were asking for the cash component from the buyers which was making it difficult for the first time home buyers to arrange and shell out the cash. Now just with down payment a home can be purchased provided income documents by the buyer are strong enough. Also, after demonetisation the bank accounts are flooded with money, which banks absolutely need to pump out in the form of loans and real estate sector will be one of the top industry which will benefit out of this. Also, the interest rates have sharply declined in last two months with SBI taking the lead with a decline of 0.9% in the lending rates. In the near future, further rate cuts are expected and this will increase the affordability for the first time home buyers.
Prime Minister Mr. Modi has recently subsidised home loan rates by 3% and 4% of the loan amounts of 9L and 12L respectively, for Economically Weaker Section (EWS) and Low Income Group (LIG) population under Pradhan Mantri Avas Yojana scheme. With the lower interest rates, the monthly instalments will sharply decline and will generate a huge housing demand in the section of the population, which is already in need of a shelter of their own. So far the low cost housing sector was served by small unorganised developers and government units which resulted in poor quality living and a huge shortage of available units against the demand. After demonetisation and government benefits for EWS & LIG population, the low cost housing market seems to be promising and many developers have started hunting for the land for this type of projects. This will ease out the supply issue and the availability of quality developments will increase.
While there is hardly any doubt for the future demand for low cost housing, there are some challenges that the developers will face in servicing this sector. One is the income of such buyers is not consistent in India as most of the prospective buyers of low cost homes are daily wage workers or salaried workers in the private sector. Also the buyers of this segment are not highly educated and do not have proper income tax returns filed over the past few years, which is required by the banks to get their loans sanctioned. Regardless of these challenges, the outlook for the low cost housing has never been stronger and in the coming years we shall witness many first time home buyers accomplishing their dream of owning their own dwelling.