The government has continued its support to affordable housing by including taxation benefits to developers of such projects, Hiranandani said. For example, GST levied for under-construction homes in this segment is 1% (compared with 8% for the rest of the market), he said. “The perception is that the process of permissions and clearances for affordable housing projects is largely quick and hassle-free.”
According to Amit Goenka, managing director and chief executive officer at Nisus Finance, one of the major incentives for affordable housing developers has been 100% deduction of profit (under Section 80 IBA) from affordable housing projects.
“To further boost ‘Housing for All’ by 2022, the Finance Ministry in February 2018 budget granted infrastructure status to affordable housing, enabling projects to avail the associated benefits such as lower borrowing rates, tax concessions and increased flow of foreign and private capital.”
That prompted developers of mid-luxury homes to foray into affordable housing. Mumbai-based Wadhwa Group launched its first affordable housing project in 2018 under the Pradhan Mantri Awas scheme.
“We tried to capture the growing demand in this segment through our expertise of planning and design,” said Bhasker Jain, head, sales, marketing and customer relationship management at Wadhwa Group. The prospects of this segment is good but a lot of supply is coming in, Jain said. “The good thing is this where the future is going to be for at least the next 5-10 years.”
According to Jain, developers who plan well, deliver on time, and can create projects with good amenities should continue to do well.
Mahindra LifeSpaces is another developer to enter affordable housing through its Happinest projects six years ago. The group has three new launches planned in the affordable housing segment for 2021.
Urbanisation will increase the demand for affordable housing, said Vimalendra Singh, chief sales officer, Mahindra Lifespaces. “This is because as people move into urban locations, affordable space is the immediate requirement and not the mid-premium segment as people move up the ladder over a period of time.”
Developers, however, say the benefits of affordable housing are underutilised because of the cap on the value of the home.
According to the PMAY scheme, affordable home is a house or an apartment worth Rs 45 lakh, and up to 60 square metres in metros, and up to 90 sq m in non-metros.
The cap of Rs 45 lakh is not viable in metros and tier 1 cities, said Hiranandani. “It’s in these markets where the demand for such homes is higher due to urbanisation, economic growth and job creation,” he said. “In such markets, the scheme can’t take off as projects in such locations do not meet scheme parameters.”
Developers have been asking the government to increase this limit in bigger cities where rates are higher.
To be viable from a business perspective, such projects need to have huge volumes, Hiranandani said. “To ensure that a large quantum of supply can be created in this segment, the scheme needs to be tweaked to enhance attractiveness for real estate developers.”