Affordable housing in India: Role of Housing Microfinance
‘Affordability’ can be defined as the consumers’ ability to purchase but it is a relative term that could acquire different meanings under varying circumstances. With a bevy of real estate companies riding on the wave of economic growth the focus on the “fortune at the bottom of the pyramid” has become an important component of their strategy evident in numerous low price housing projects sprouting across the nation. For instance Tata Group has come up with a project at Boisar near Mumbai, Godrej Group is building a township outside Ahmedabad, Ansal Properties is constructing homes for low income groups in U. P. and Rajasthan and the list goes on and on.
However, the availability of adequate financing sources for the consumers is a major factor in determining the sale of these projects. Thus, the role of microfinance institutions in enabling the low income consumers, mostly employed in the informal sector in purchasing these “Affordable houses” is of much importance. This is evident from the fact that real estate developers constructing low cost housing projects are partnering with microfinance institutions like Micro Housing Finance Corporation Ltd. (MHFC) and SKS Microfinance etc. Demand for Affordable housing:
There is an enormous unmet demand for low-income housing finance. The segment earning between Rs 7,000-Rs 15,000 has never been considered significant for home loan offerings. While the prospects of getting a home loan for the formal sector employee do exist, chances for informal sector employees and the self-employed like drivers, NGO staff, small caterers and others are bleak. This is despite the fact that they have marketable skills, steady jobs/incomes and employer/customer recommendations. Moreover, urbanization has played a key role in making India’s housing problems worse. In the present, scenario the total urban land is estimated at 2.3% of India’s total geographical area, which accommodates 30% of population. Pres- sure on land and infrastructure is only going to increase further with 40% of the nation expected to inhabit cities by 2020 at which time urban population is expected to be 455 million. Apart from this, with 200 million people anticipated to be living in slums and slum like conditions by 2020, the focus is bound to be on urban housing.
These people have the capability and willingness to make a 20%-25% down payment on houses costing between Rs 4 lakh-5 lakh and are happy and able to take on a 15-year loan obligation, at market rates, in order to realise their dream home. Given that in these small-sized homes, the land cost represents a small percentage of the overall cost, the speculative risk is low, with a very low probability of a drop in these property prices.