Affordable Housing in India

Affordable Housing in India

Affordability per se is non-specific, the actual meaning of which changes with the context, level of economic development and income levels. K. K. Ramani, the veteran Mumbai based advocate gives his views.


It is estimated that 900 million households will be added in urban areas by 2050 requiring 2.0 Crore affordable units across all urban locations. The government’s financial and fiscal policy measures coupled with regulatory support could convert the increased demand for affordable housing into a commercially viable opportunity. The Pradhan Mantri Awas Yojna was launched in 2015 under which construction of affordable houses are to be taken up under various public- private schemes. To support the program a “credit linked subsidy scheme” (CLSS) was also framed.  A comprehensive mission “Housing for all by 2022”, approved by the cabinet in .2015, was formulated as Centre sponsored scheme.

KPMG jointly with CREDAI developed the concept of affordable housing for tier I, II and III cities based on the parameters which are income level, size of residential units and percentage of gross annual income one can be expected to spend on housing. They placed EWS in income below Rs. 1,50,000; LIG in income between Rs. 1,50,000 and Rs. 3,00,000 and MIG in income range between Rs. 3,00,000 and Rs. 10,00,000 with size of residential units as up to 300 sq. ft. for EWS, 300-600 sq. ft. for LIG and 600-1200 sq. ft.  for MIG.  The expected expenditure on housing as proportion to gross monthly income for EWS and LIG  is 30% and 35% respectively and for MIG 40%.  These are, however, estimations to define the magnitude of the problem being faced in India.


Housing for all by 2022’- an ambitious program

Targeting construction of two crore housing units by 2022 is riddled with challenges of scarcity of land and high cost of construction. The solution lies in release of governments unutilized and under- utilized land for infrastructure projects, including affordable housing, in urban areas.

According to a survey by the government’s Land Information System, based on the information provided by 41 of the 51 Union Ministries and only 22 of over 300 public sector enterprises, the government owns at least 13504 sq. km. of land.  The figure will be substantially higher when information is received from all the ministries and PSUs.

The mission takes care of supply side by releasing locked up land in slums under in-situ development schemes. As a measure of further encouragement, the Budget 2017 imparted infrastructure status to affordable housing sector. This will enable the developers to avail incentives and subsidies at central and State level, including access to cheaper sources of funding for such projects.

On the demand side, measures needed to place funds at affordable cost in the hands of the potential buyers has been made possible by the Credit Linked Subsidy Scheme and other central assistance schemes for construction by them. As per the operative guidelines, the mission is to promote affordable housing by-

  1. In-situ slum redevelopment by using land as resource.
  2. Promoting affordable housing through central housing schemes in partnerships with State/ UT.
  • Promoting affordable housing for weaker section through credit linked subsidy scheme; and
  1. Beneficiary led construction with central assistance.


The in-situ slum redevelopment is to be carried out mainly with private partners selected through open bidding process. In order to incentivize the private builders, the government of States/ Union territories is authorized to grant additional FSI/FSR or TDR or relax density norms. The project will have slum rehabilitation component and free sale component. The States shall decide the eligibility criteria, preferably through legislation. Government of India will grant   Rs. 1,00,000/- per house as assistance.


Promotion of affordable housing in partnership with State/ UT envisages partnership with private sector or public sector including parastatal agencies. It is supply side intervention involving financial assistance at the rate of Rs. 1.5 lakh per EWS unit. The central assistance is provided to projects in which at least 35% units are for EWS category and a single project has at least 250 houses.


Promotion through credit linked subsidy scheme takes care of the demand side by the central government which enables the individuals belonging to EWS and LIG category (extended to MIG category also in two income segments viz MIG-I and MIG-II with effect from 01.01.2017) to get loans from banks, housing finance companies and other institutions at subsidized rate of interest for new constructions or for addition of rooms, kitchen, toilets etc. to existing dwellings as incremental housing.

CLSS Scheme type EWS and LIG MIG 1 MIG 2
Eligibility Annual Household Income Up to 6 lakhs Rs. 6-12 lakh Rs. 12–18 lakh
Carpet Area – Max (sqm) 60 sqm 120 sqm 150 sqm
Interest Subsidy 6.50% 4.00% 3.00%
Max loan Rs.  6 lakh Rs. 9 lakh Rs. 12 lakh
Loan Purpose purchase/self-construction/extension purchase/self-construction purchase/self-construction
Validity of Scheme 31.03.22 31.03.19 31.03.19
Maximum Subsidy Rs. 2.67 lakh Rs. 2.35 lakh Rs. 2.30 lakh
Woman Ownership Mandatory Not Mandatory Not Mandatory

Assistance to beneficiary led individual house construction
involves central assistance for new house or an enhancement of existing house up to Rs. 1.5 lakhs for individuals and eligible families in EWS category who are not able to take advantage of other components of the mission. The assistance is available if the beneficiary has carpet area of up to 21 sq. m. or a semi pucca house lacking. room, kitchen, toilet, bath or a combination of them. The total carpet area after enhancement must not be less than 21 sq. m and not more than 30 sq. m. The beneficiaries should be part of HFABA i.e. beneficiaries having kutcha house in slums which are not being developed.

The HUDCO and the National Housing Bank are the Central Nodal Agencies for implementation of the scheme. The beneficiaries are permitted to build a house of larger area but in that case the interest subvention is to be limited to the maximum permissible loan and for 20 years.


Tax-Incentives- Direct Taxes

The Finance Act 2016 provided profit linked incentive by way of 100% deduction in respect of the profit or gain derived from developing or building low cost housing, (projects approved after 1.6.2016 but before 31.03.2019) on a plot of land not less than 1000 sq. m. (Metros) and 2000 sq. m in  their peripheral area i.e. within 25 km. from the municipal limits and in other places.

As a measure of making the tax incentive better workable and housing under it reasonable in size, the Finance Act 2017 relaxed the conditions for deduction by

  • Raising the prescribed period for completion of the project from three to five years
  • Substituting the size prescribed with reference to built-up area by the carpet area
  • Increasing the prescribed size of units in areas peripheral to the Metros from 30 to 60 sq. m.


Other fiscal incentives are

  • Reducing the holding period of three years to two years for categorization of the property as ‘long-term assets’ which will encourage liquidity
  • Providing for indexation from 01.04.2001 in place of existing 01.04.1981 which will mean exemption of gains as a result of accretion in value up to April 2001 ]
  • Making gains arising from redevelopment arrangements taxable in the year of completion of the project
  • Exempting taxation of notional income under the head income from property in respect of unsold units for a period of one year.


Goods and Services tax

Goods and Services Tax (GST) has been reduced to effective rate of 8% (12% subject to one third abatement) in cases of following categories of affordable houses:-

(i)  In-situ rehabilitation of existing slum dwellers using land as a resource through participation in Housing for All (urban) mission /PMAY.

(ii)  Beneficiary led individual house construction/enhancement under the Housing for All (urban) mission/PMAY

(iii)  Low cost houses up to the carpet area of 60 sqm per house  under the ‘scheme of affordable housing in partnership’ framed by the Ministry of Housing and Urban Poverty Alleviation.

(iv)  Low cost houses up to the carpet area of 60 sqm per house under the “affordable housing in partnership” component of the ‘housing for all (urban) mission/PMAY.


The Impact

The financial and other incentives granted to the lower strata of public and the builders and other demand and supply side interventions are having the desired effect. Between January and June 2017, launch of projects of units below, Rs. 50 lakhs were 71% of the total launches. The interest of the financiers is visible with the World Bank group tying up with HDFC Ltd. to create an $ 800 million fund to finance construction of affordable homes. The property developers can borrow from the fund if they build houses that qualify as affordable under the PMAY. As reported the fund will be managed by the HDFC and will be available for 5 years.



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