Affordable Housing and the growing Real Estate Market in 2023

Similar to other sectors, Indian real estate’s downslide began during the early years of Covid-19 pandemic. A sudden lack of unskilled labour coupled with strict restrictions caused projects to come to a standstill with several developers slashing down prices. The Russia-Ukraine war and rising inflation rates across the globe added to its misery. Despite these factors, the real estate sector showed a sudden rise in the second half of 2021, and it has kept growing ever since. 

In this article, the aspects which have led to the rapid growth of the housing sector and the impact of government initiatives to boost investment and development of affordable housing have been dealt with.. 

 How is the real estate sector performing in India?

When it comes to the real estate sector as a whole, a growth rate of 9.2 percent is estimated between 2023 and 2028. India’s real estate market is expected to reach Rs 13,00,000 crore by 2023. This is fuelled by the digitization of properties and increasing transparency of the market for shareholders. 

Infrastructure projects undertaken by the government such as highways, metros and airports have contributed to India’s urbanisation and added to the housing demands. Real estate is not susceptible to the volatility of the stock markets and this, along with increase in returns, has created a large growth in private investment. In addition to it, the global fear of a recession has led investors to favour the real estate market which has performed steadily for some time now.

 Commercial real estate is also expected to grow rapidly following the 2020-2021 slump, particularly in cities like Delhi and Gurugram. Retail and office spaces are projected to grow at a rate of 15-20 percent in 2023 causing a huge boom in real estate leasing.

Despite this boom, what are the current concerns regarding affordable housing?

It is important to understand what this comprises and the current issues affecting it. Affordable housing is characterised by a lower percentage of income spent on housing as compared to annual or monthly income if it is measured in terms of EMI. Increasing interest rates along with the increase of demand over supply has led to a boost in private investment thus implementing growth in the real estate sector. However, these same factors have decreased affordability to a large extent. Despite soaring investments in real estate, affordable housing remains an issue to be addressed. Urbanisation is set to grow over 40 percent by 2030 leading to a further shortage of land and increasing prices as investment by non-resident Indians and millennials keep rising.

How has luxury real estate deepened the problem?

The primary driver behind the resurgence of real estate has also been due to luxury housing and this is predicted to continue well into 2023. This trend is healthy for the market as higher income groups are investing large sums of money. Although this plays a key role in the boom of this sector, it has adversely affected the sector ventured by the lower and middle income groups. Growing population and limited land has created soaring prices which while revitalising the real estate market has created this new problem. Coming out of a 2 year economic slump, these groups are in desperate need of government assistance in order to sustain their housing requirements. 

How has rental real estate been affected?

All these factors combined have had a huge impact on the growth of rental real estate. The demand for the same has gone up to 15 percent in some of India’s major cities. With the prospect of buying a home becoming steadily impractical for several groups of people, the natural choice has been rental homes. Several people have no other alternative as the demand for living in cities rapidly increases. A majority of India’s population, largely families live in rented homes. Owning a home is not yet a priority in India because of lack of funds and households are inclined towards the cheaper option. However, this market has not remained affordable either. Increasing demand as a result of urbanisation has caused soaring prices, some of which have reached pre-pandemic levels and are projected to grow more. Although this is a good sign for investors, the sky-rocketing prices as a result of higher demand is a further addition to the current problems regarding affordable housing.

What is expected from the Union Budget 2023 in terms of affordability in the real estate sector?

In the present landscape, there are many expectations from the Union Budget 2023 to improve the issues regarding affordable housing and stimulate further growth in real estate related to this sector. Some of these include:

• Stakeholders in the real estate sector are expecting tax rebates on housing loans to provide a crucial impetus to affordable housing. Increase in tax rebate from Rs 2 lakhs to Rs 5 lakhs is considered a necessary step towards this.
•  A change in tax slabs is also deemed necessary to increase disposable income of India’s middle class. Increasing the basic tax exemption limit could allow a larger percentage of people to invest in housing as well. 
• The current parameters of affordable housing are also not suited for the market structure, especially in metropolitan cities. Doubling the pricing limits of the present RS 45 lakhs is deemed a necessary step towards attaining lower GST benefits and escalating the number of homeowners in India.
• Considering the impact of the pandemic and soaring inflation on the lower income groups, it is expected that initiatives will be taken to create an investment-oriented India. Decreasing the cost of infrastructure through methods such as land acquisitions or implementing advancing technology is also a way out of the current prices of housing and their negative impact on the majority of India.

India’s economic growth has been steady, and statistics have pointed towards the doubling of India’s middle class by 2030 and a rise to 63 percent by 2047. As a result, the purchasing power will inevitably see an upward trend. However, a sudden explosion of investing in real estate by high income groups and NRIs have continued to influence the rising prices of this sector. It is essential that the government offers an impetus to the real estate sector by launching schemes to support both the developers as well as the people who are in dire need of affordable housing.

Key Takeaways:

1. The Indian real estate sector is growing at a rate of 9.2% p.a. despite the  Covid-19 induced slump. 
2. With rapid urbanisation, land crunch related issues have become increasingly prevalent leading to skyrocketing prices.
3. Inflation and the growth of luxury real estate has affected the supply of affordable housing.
4. Though the rental real estate market has boomed, it has been affected by the increasing prices.
5. There is a dire need for a shift from the current situation and people are expecting several immediate changes from the Union Budget 2023 to improve the landscape.