Affordable housing - emerging invetsment alternative for NRIs

For the residential sector, 2013 was not one of the best years, as prevailing caution affected investors as well as end users in the real estate market, due to the predominant economic risks. Moreover, real estate prices have traversed affordability levels in most cities due to various reasons, such as escalation in input costs, high interest rates and burgeoning land prices. Despite huge demand, transaction volumes have come down in 2013. Pressures of increasing unsold inventory and a liquidity crunch resulted in fewer project launches in most of the metro-cities. There is an increase in the incentives being offered to sell property, such as easy payment plans, discounts and free gifts with bookings. However, such incentives have not proved to be much of a boost in the current environment. Interestingly it was observed that even during the recession, projects with the right price point witnessed high absorption levels. The classic example of this is Tata’s Shub Griha, a 52-acre township located on the outskirts of Mumbai in Boisar that sold like hotcakes even during rough time. Similarly, Tier II cities where houses are relatively cheap also witnessed consistent demand. Affordable housing is also emerging as a favourite investment avenue for NRIs. To own a home back in India while living in another country is one of the priorities of most middle-class non-resident Indians. Even NRIs in a higher income bracket are looking for affordable housing as an investment option to diversify their portfolios. This demand is not only visible in metro cities but in Tier II and Tier III cities as well, where they are based. The dual advantage of investing in these projects is while the initial cash outflow is minimal, the competitive rental yields also compensate for the EMI component of home loans. Moreover, fiscal incentives enable them to minimise their tax liability, for example, rent on a house leased for a minimum of 300 days in a calendar year is exempted from the wealth tax. At the green field level, for overseas investors, the community, the residential sector is emerging as one of the preferred investment avenues. This was primarily because of the ease of exit through capital inflows and the residential sector being considered as less-recession-prone asset class. The focus has now shifted to less-capital-intensive projects having a small ticket size investment with a three to five year project cycle. This sector is known as affordable housing and emerging as one of the growing real estate sectors primarily due to the high demand; it seems to be recession proof. Affordable housing does not have any specific definition, although the concept is gaining prominence. Affordability is a relative term and the definition and scope of affordable housing is greatly dependent on the market and income levels in that particular market. Nonetheless, now developers and policy makers are realising the multitude of strengths and opportunities in the affordable housing market. The government is promoting affordable housing through a number of initiatives that have been introduced in the market. There are tremendous opportunities and the market is underdeveloped, providing plenty of room for upside potential.

 

About the author

Surabhi Arora, leads the research team in India and has more than 13 years of experience in carrying out multi-disciplinary research and analysis in the area of finance and real estate industry. Surabhi specialises in real estate economics, policies, commercial and residential real estate research with in-depth knowledge of market dynamics across major markets in India.


 

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