No easy solution to falling share of low-cost housing
With real estate prices showing no signs of correction, owning a house, especially for the economically-weaker section and the low-income group, has become a major challenge. Even more worrying is the fact that the banks are not too keen to lend to these sections. In 2012, only 3.3% of the total housing loans disbursed by housing finance companies were less than R5 lakh, down from close to 10% in 2010. As housing finance companies account for about 35% of the retail home loan market and their loan portfolio grew by 20% in FY12, they are critical for increasing home ownership, especially in the affordable homes segment. The National Housing Bank estimates that the market size of affordable housing—defined as 300 square feet super built-up area for EWS, 500 sq ft for LIG and 600-1,200 sq ft for MIG, and the EMI not exceeding 30-40% of the monthly income of the buyer—is around R25,000 crore and is bigger than the top end of the market. The shortage of housing units for the urban areas is around 18.75 million units where 99% of the shortage is in the economically-weaker section or the low-income group. However, the value of houses in this segment, which should ideally be below R5 lakh, has been inching above the R7-8 lakh level.
To stimulate demand for housing loans in the low-income segment, the government gave 1% interest subvention for loans up to R10 lakh in Budget 2010-11, which was increased for loans up to R15 lakh in the next year’s Budget. While the subsidy in interest rates reduces the burden of EMIs on the borrowers and creates additional demand for housing—disbursement under the scheme grew from R38.54 crore in FY11 to R300 crore in FY12—it is not a pertinent solution to address the demand-supply mismatch. Scarcity and high price of land are major reasons for the housing shortage. A viable solution for affordability cannot be found unless land-related issues like clear titles, appropriate valuation, land utilisation, property registration, etc, are sorted out first. Also, low transaction costs, especially in stamp duty, and investment in low-cost and localised building technologies like pre-fabricated structures can reduce the cost and make housing more affordable.