Affordable Housing – The Next Big Phenomenon?
Affordable Housing – The next big phenomenon?
For several years, one has been hearing the phrase ‘Affordable Housing’. When this phrase started gaining popularity, say around 10 to 12 years ago, there were people who considered it a newly coined oxymoron! Something that can be likened to phrases like ‘detailed summary’ or ‘happily married’.
Can Housing be really Affordable?
Over the next decade or so, the real estate and housing finance industries have tried to answer this question. It took many years to get clarity on what constituted ‘Affordable Housing’. Prior to 2005, when the industry was on a roll, there was no need for any of the players to worry about the concept of affordability in housing. Business was walking itself into their offices. The business of real estate and housing finance companies played in the ticket size ranges, that could not in the common parlance be referred to as ‘affordable housing’. However, post 2005, when business started getting slack, the industry was forced to look outside of its comfort zone. And slowly, they discovered that there is a huge segment of customers who required cheaper houses, who are gainfully employed and earning income, but did not show much on paper and therefore were not serviced by any organised lender in terms of financial assistance for buying a property. This segment that largely consisted of micro and small business enterprises came to be known as ‘missing middle’. The term was to indicate this segment missing from the segmental map of the banking and financial services sector.
As the industry started exploring this segment, there seemed promise in this segment. But reaching out to this segment, meant rewriting the rules of the game. And several real estate projects came up to cater to this segment. The houses were priced in the range of Rs.10 to 15 lacs, which actually meant ‘affordable’. The target buyers of these homes also required housing finance. But there were not many housing finance companies (except Gruh Finance Ltd.), which were ready to cater to this affordable housing customer segment. So that gave an opportunity to new housing finance companies, which could cater specifically to the needs of this customer segment. The industry witnesses several such housing finance companies sprouting in this segment.
The period 2010 to 2014, have been the initial years for these housing finance companies. They have catered to this ‘missing middle’ segment. The growth has been gradual and cautious. And it had to be. The housing finance industry was catering to a customer who had no income documents to substantiate his income for the first time. There were no previous trends to look at. The industry so far has seen mixed results. Some portfolios are doing well, while others have performance issues.
However, the ice has been broken and the industry is viewing this ‘missing middle’ segment for affordable houses as a large potential segment, offering immense opportunities for growth. Geographically, this segment is concentrated in urban / semi-urban centres. Most of the branch presence is in tier 2 to tier 5 cities. Metros and Tier 1 cities may also have some branches, but there would be challenges in sourcing the right mix of customer and the property to be funded. There are approximately 200 towns and cities in the country, where at least one housing finance company, specialising in lending to affordable housing segment is present.
And what of the supply of houses in this segment? Is there a large enough supply to cater to the growing demand. The answer to that: Supply is also growing, maybe at a gradual pace for the time being, but will see faster pace of growth in the coming years. If there is any segment in real estate, that would see growth in the coming years, it is this segment. In the backdrop of so much lull in the real estate industry, where a huge portion of inventory across cities is either lying unsold or is in a state where construction is stalled, the affordable housing segment could well be the saviour.
Therefore, it is no gainsaying the fact that Affordable Housing as a segment is here to stay. And so are the housing finance companies catering to customers for affordable housing. Various estimates place the value of disbursements required to cater to one section of this customer segment (Low Income Group) at over Rs.300,000 crores. This does not include Economically Weaker Sections or Middle Income Group. With such huge opportunities present, we are going to hear a lot about affordable housing and affordable housing finance in the years to come.
Sineedge Consulting can be contacted for any assistance with respect to development of feasibility plans for real estate projects in affordable housing. Also, we work towards designing and development of customer evaluation models in ‘informal segment’. A customer without any income document has to be evaluated and profiled differently. Sineedge Consulting, has this experience and knowledge of designing modules and templates for evaluation of credit-worthiness of customers without income documents. If you are a housing finance company or an NBFC and are catering to a customer segment that is unable to provide income documents, we can help you organise your appraisal methods. Connect with us at www.sineedge.com. Write to us at [email protected] or [email protected]. Or just pick up the phone and call us at the numbers given in our website.
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