Knight Frank India, a real estate consultancy firm reported that home buying affordability levels have dipped in India. The report postulated that a tight monetary policy and subsequent increase in home loan rates, an upward movement in residential prices, and an overall increase in price levels are the contributing factors to this fall in home buyer affordability. However, the report also puts forward that affordability is still better than the pre-pandemic levels in 2019. 

Affordable housing in India

Housing affordability is a key aspect for economic competitiveness. Housing affects various choices and facets like employment, household, wealth, health, education, child mortality and women’s participation in the labour force being a few. 

The Government of India recognizes affordable housing as “any housing that meets some form of affordability criterion, which could be income level of the family, size of the dwelling unit or affordability in terms of EMI size or ratio of house price to annual income”. Affordability can further be characterised into rental affordability and purchasing affordability. Most of the housing shortages is within the economically weaker groups. Rising incomes and an expanding middle class have led to an increase in demand for housing, and hence led to an upward pressure on housing prices, along the years, this can be seen in  Fig 1, which shows the All-India House Price Index. 

There are few concrete issues that hamper affordability in the housing. They are Scarcity of land, Scarcity of maketable land parcels, Rising costs and regulatory constraints. 

The demand for housing in India increased by 34% in the Year 2022, mainly due to post pandemic need for security. The Knight Frank Report suggests that house sales in India stood at around 3.12 lakhs, mainly in the higher income segments. India has been the fastest growing economy globally, and this is  visible by the seemingly resilient and shock proof real estate sector, which stood strong to global headwinds in 2022. ESG was also a crucial element in the Indian real estate sector. Importance was placed on sustainability, certifications and procuring green power. Despite inflationary pressures and continuous interest rate hikes by the RBI, the housing sector in India, had shown significant and swift recovery. This was rather dichotomous, as data suggests that home buying affordability dropped by 100-200 bps in 2022 compared to 2021 levels. The yet, resilient performance of the sector suggests rise in income levels and economic growth and change in consumer utility preference bundles.

Source: Reserve Bank of India; Compilation and Visualization By Arthashastra Intelligence.

Budget 2023 on real estate

Real estate and investment in infrastructure, have a crucial role in economic growth through the multiplier process. Some (not all), of the important elements of the real estate budget for 2023 are:

• 66% increase in allocation of outlays for the Pradhan Mantri Awaas Yojana (PMAY)
• Programs for Green buildings
• Tax exempetion for income to development authorities
• Preparing the cities for municipal bonds
• Establishment of the Urban Infrastructure Development Fund (UIDF) 

The increase in outlay under PMAY, is a great and strong move by the government to ensure affordable housing. This would improve real estate situation at both the rural levels and maximise welfare in the lower sections of the society. The budget has been viewed in a positive towards a better situation for the real estate in the year 2023 and ahead.