India’s Housing for All programme offers social and economic benefits

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The Indian government’s greater focus on affordable housing adds a building block to the economy’s recovery, contributing to a revival of investment and providing steady support for home building, especially after the government’s demonetisation push hit demand for high-end residential real estate.

The ‘Housing for All’ programme, awarded a 40% higher budget allocation of INR 290 billion in the budget for the year to March 2018, brings another benefit too. It contributes to solving the challenge of creating at least 10 million non-agricultural jobs a year to address the increase in the working-age population. The construction activity generated could employ an additional 1.5-2 million people each year.

What is India’s ‘Housing for All’ progamme ?

Housing for All, also known under the abbreviation PMAY, is a government scheme launched in June 2015 to bridge India’s low-cost housing shortfall. The plan is to build 50 million dwellings over five years – 20 million in towns and 30 million in rural areas. Housing for All is designed to cover the average cost of USD 5 000 for a rural house and USD 20 000 for a city dwelling (see Exhibit 1 below).

Exhibit 1: The Indian government has given a significant financial boost to the affordable homes schemeHousing for All

1)RE: revised estimates  (2)BE: budget estimates  (3) compound annual growth rate

Source: Government budget documents, CLSA, as of March 2017

By November 2016, the government had already approved the building of 1.3 million urban home at a total cost of some INR 700 billion, almost matching the 1.4 million city dwellings authorised for construction over the previous 10 years. The greater autonomy of India’s states has facilitated successful execution. They can run their own projects and improve state-level construction laws.

How does ‘Housing for All’ work?

To achieve its goal to provide a roof over everyone’s head, the government put in place a system involving up-front subsidies run through four different schemes. The credit-linked subsidy scheme (CLSS) is the most popular of these and has proved attractive to financiers and low-cost property developers due to its efficiency. The CLSS is designed to facilitate home loans for eligible low-income citizens to either buy or build a house by providing an interest subsidy which is paid deposited into bank accounts.

A boon for the housing finance and cement sectors

The rise in Housing for All-led construction activity is expected to lead to an increase in annual cement demand of 8%-10%, or 25-30 million tonnes, and lift mortgage demand in a country with a low mortgage penetration rate of 9%. This compares with 32% in Malaysia (see exhibit 2 below).

The demonetisation move might also boost the mortgage penetration rate, particularly in the real-estate sector, where between 35% and 40% of sales are transacted in cash.

Exhibit 2: Mortgage financing in India should get a boost from the affordable homes scheme (the graph shows mortgage financing in India and other countries as a percentage of GDP)

Note: Data for 2015/FY2016

Source: European Mortgage Federation, Asian Development Bank,, HDFC, CLSA, as of March 2017

A building block on the path towards recovery

While the Housing for All programme may not on its own be enough to revive investment activity in the Indian economy, it is expected to provide steady support for construction activity, especially since demonetisation has hit demand for high-end residential real estate.

Furthermore, to address the increase in its working-age population, India needs to create at least 10 million non-agricultural jobs a year. In that regard, Housing for All could contribute to solving India’s job creation challenge, as the increased construction activity it generates could employ an additional 1.5-2 million people each year.

Written on 7 April 2017

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Paul Milon

Investment Specialist, Indian equities

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