Are affordable houses actually affordable?

Real estate is an ever fluctuating sector where experts are constantly trying to predict the future. Recently, people are realizing how the so called ‘affordable houses’ are doomed to stay ‘unaffordable’. There are a number of reasons for this, one of which is the subdued state of the real estate sector. The other reason is the poor state of infrastructure. Yet, there is an anticipation and hope of a revision in the prices. Even besides this notion, there has been a 10% growth in home loans. This growth is due to the balance transfer and offtake that was seen in the resale property sector. Another reason for this is the increased growth in Tier II and Tier III opposed to most major cities in the year of 2015.

In the current financial scenario, ICICI Bank home loans witnessed a 30% increase in Tier II and Tier III as opposed to 20% in Tier I. Experts believe that there has been a slowdown in the sector of sales and new launches. This has lead to a huge inventory stock in major cities such as Delhi and Mumbai. There were around 3.5 lakhs of units that were sold between October 2014 to October 2105, out of which only 41,000 units actually fell under the affordable housing range. There is no fixed definition of affordable housing and the price range is different according to the market. For example, it is 50 lakhs in Mumbai whereas, 30 lakhs in Chennai. Regardless of that, it has been asserted that the loan offtake in the first half of the financial year has been between the 50 lakhs to one crore category.

It has been observed that the third quarter has seen a slowdown because the demand in this particular segment of affordable houses comes from the middle class or salaried class. Here, buyers are now holding back due to a slowdown in the overall real estate sector. In fact, the middle-class is further anticipating a decline in the prices of real estate property. But experts are expecting demands to increase in the next financial year and witness a potential growth of around 25-30% in this segment of real estate. On the other hand, disbursals in the rural and affordable segment have witnessed a yearly growth. However, it is important to note that this growth was seen on the lower base.

There have been various financial institutes who are part of the real estate sector that are facing this issue. Shriram Housing Finance, a company that was commenced 4 years ago is one of them. They have seen a growth of 11% in the disbursals in this particular segment in the third quarter, as compared same time last year. In fact, there have been reports that indicate demands that are less than normal, especially in major cities like Delhi, Mumbai and Ahmedabad.

By
Sanjay Hatti

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