India is facing a serious housing shortage due to its fast-growing population and rapid urbanisation. The need for affordable homes, especially in cities, is increasing quickly and continues to be a major challenge for millions of people.
According to the 2011 census data, the Ministry of Housing and Urban Affairs estimated an urban housing shortage of 18.78 million from 2012 to 2017. As of January 2024, the PMAY scheme has approved 1.19 crore houses, with 80.02 lakh already completed. Although the 2024 Budget highlighted a strong focus on housing for all, progress on the ground is still limited.
The affordable housing gap
According to a United Nations report, India’s urban population is projected to grow from 34 per cent in 2020 to 40 per cent by 2030. This rapid urbanisation has bolstered the demand for housing, especially in metro cities like Delhi, Mumbai, Chennai, Bengaluru and Kolkata. Unfortunately, the supply of affordable housing has not kept pace with this growing demand.
Recognising the demand for affordable housing, the government introduced various schemes and even tax incentives for builders investing in this sector. These measures have generated interest among developers in investing in affordable housing, albeit with mixed outcomes.
Innovative finance mechanisms
While the government has laid the foundation for affordable housing, innovative financing models are transforming the Indian real estate landscape by addressing issues related to affordability, accessibility and liquidity. Traditional financing methods, dominated by banks and NBFCs, are being complemented by new approaches that address diverse requirements.
Some of these include :
- Public private partnership: In this model, the government collaborates with private real estate developers to build affordable projects. Government provides the land, usually at a subsidised rate, while the private players contribute the capital. This collaboration has been instrumental in lowering costs and accelerating project completion, making affordable housing far more viable.
- Micro-finance institutions: In recent times, micro-finance institutions have emerged as practical options for funding low-income housing. These institutions offer small loans with flexible repayment terms to individuals often excluded from the traditional banking system.
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- Social impact bonds: Social Impact Bonds (SIBs) are innovative financing mechanisms for affordable housing projects. They involve private investors funding social initiatives, with the government repaying them based on the success of the project. When it comes to affordable housing, SIBs can be used to finance realty projects aimed at providing housing for low-income families. If the project meets its goals, the investors receive a return on their investments.
- Crowdfunding platforms: In this scenario, online platforms enable organisations and individuals to combine their resources and invest in housing development projects. Crowdfunding has the potential to democratise real estate investment, allowing small-scale investors to contribute towards social issues like affordable housing.
- Digital lending platforms: Digital lending platforms have revolutionised financing for affordable housing in the recent past. These platforms implement advanced technologies like big data analytics, artificial intelligence and machine learning to assess creditworthiness accurately.
These lending platforms frequently collaborate with real estate developers to offer customised loans and schemes that help lower upfront costs for buyers. Such partnership makes housing not only affordable, but also financially sustainable for homebuyers in the long-term.
Challenges and the way forward
Despite progress made through various innovative financing solutions, many challenges persist. Land acquisition in urban areas remains difficult due to constraints which drives up the cost. Also, the success of affordable housing projects relies heavily on the availability of basic infrastructure such as roads, sanitation facilities and proper water supply.
Affordable housing conundrum is a complex issue that demands a multifaceted approach. Innovative financial solutions have the potential to transform the sector, particularly when it comes to addressing specific needs of low income households. While challenges persist on the path to provide housing for all, the right financial mechanism can make this goal achievable.
As rapid urbanisation progresses, it is essential to ensure that every Indian citizen has access to safe and affordable housing.
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