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Affordable Housing

Affordable Housing
Reading Time: 2 minutes

This article explains the rationale behind the smallcase ‘Affordable Housing‘ – a smallcase that has companies that are expected to benefit from the government’s affordable housing push.

affordable housing smallcase

What is affordable housing?

Defining affordable housing in an Indian context is challenging as the dynamics of the real estate market are very different across various cities. Broadly, affordable housing addresses the housing needs of economically weaker sections (EWS) and lower income households (LIH). Based on the size of housing units, a dwelling unit between 300 – 600 square feet is considered affordable for EWS and LIH families.

Need for affordable housing

  • The 2011 census puts shortage of urban housing stock at 0.38 million units. A majority of this shortage pertains to the EWS and LIH groups. Close to 10 million people migrate to cities every year and a majority of them hail from EWS and LIH backgrounds. This group is expected to drive demand for affordable housing units in urban areas
  • Indian economy has been growing at a rapid pace since the late 90s, leading to higher income levels. While the middle and lower middle classes constituted just 18% of the population in 1995, this segment is estimated to be around 62% of the population today. Income expansion is another cause of demand increase

Government of India initiative

In June 2015, the government announced the Pradhan Mantri Awas Yojana with an aim of building 2 crore houses over the next 7 years. The dwelling units are meant for economically weaker groups and low income households.

Some of the incentives provided to affordable housing projects are as below:

  1. Affordable housing projects have been granted “infrastructure status” in Budget 2017. This will allow developers to access funding at lower rates
  2. Budgetary allocation for fiscal year 2018-19 towards Pradhan Mantri Awas Yojana has been increased from Rs 29,043 crore to Rs 33,000 crore. The amount will be utilised towards providing subsidy for buying homes as well as for interest subvention
  3. Post obtaining completion certificate, a tax holiday for 1 year on notional rental income will be given to the developers. Notional rent refers to the guideline rental price that the government will consider for taxation purposes
  4. Developers engaged in affordable housing projects do not have to pay GST
  5. They can also claim 100% deduction on profits from affordable housing projects subject to meeting certain conditions
  6. First time home buyers can claim additional interest deduction of up to Rs 50,000 per annum, in case the house cost does not exceed Rs.50 lakh

Stocks in the smallcase belong to various segments like housing finance companies with a strategic focus on financing low and middle-income segments, real estate developers who are working on the construction of affordable houses across the various parts of the country, cement and building products manufacturers, etc. The basket provides exposure to a diversified set of stocks, to play the theme.

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