Affordability to buy houses has increased over the past three years (especially in urban areas), even as property prices have remained flat, incomes have risen and mortgage rates have fallen by around 250 bps from five-year peak leading to 15 per cent reduction in EMI payments.
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One of the reasons why affordable housing never took off was the issue of the applicant not having enough money to give the margin for taking a housing loan. The government has done three things to make it affordable.
First, it is giving a subsidy of the 6.5 per cent at the lowest rung of the ladder. Secondly it is crediting the entire subsidy of a 20-year loan to the loan account of an applicant, which reduces EMI, which further makes it more affordable to the applicant.
Thirdly, they have allowed withdrawals from the EPFO to the extent of 90 per cent of the amount for housing in case there is a group of eight other people who are doing so for a house in the same society. The demand for housing in the affordable segment has increased in cities due to a large migrant population. The main reasons for rise in shortage in affordable housing on the supply side is lack of availability of urban land, rising construction costs and regulatory issues while lack of access to home finance for low-income groups are constraints on the demand side. Affordable housing in India remains one of the most straightforward growth stories in India. Even if the private sector capex revival takes some more time, there will be an acceleration in economic activity in India in the coming 18 months driven by housing.