Affordable Housing - the opportunity

Housing for All is a stated mission of the current govt. The plan is to ensure that the identified housing shortage is plugged by creating 50 million pucca homes by 2022. The opportunity size is immense but also fraught with many implementation issues some of which i will try and highlight.

The Opportunity Size

The government trying to make housing more affordable is not new and many previous governments have also attempted but not been really successful in its implementation.

The opportunity size is 50 million homes ( and growing) spread over the next 5 years and the enabling scheme is PMAY ( Pradhan Mantri Awas Yojana ). The breakup is 20 million homes in Urban areas under PMAY(U) and 30 million homes for rural areas under PMAY (Gramin). An article in hindu pegs the urban shortage to increase to 3.2cr homes by 2022 ( Urban housing shortage to touch 3.4 cr units by 2022: report - The Hindu BusinessLine)

Geographical Spread of the Opportunity

Where are all these shortages? In the urban areas ( i havent been able to get the data for rural areas) the govt has calculated the shortages in states as follows ( as on 2012 )

The distribution for rural can be expected to follow the urban lines. In sum the top 10 states account for approx 3/4th of all the shortages. Interesting to note that Delhi accounts for not more than 2.6% of the shortage. The top 2 states ( UP and Maharashtra) account for 1/4th of all shortages & these would be big focal areas going forward.

How is the govt going to manage to pull this off?

Some of the important financial perks given by the govt to help people adopt affordable housing are

1. Credit Linked Subsidy Scheme

The PMAY (U) has split first time housing customers into 4 groups

EWS - those with a total household income of upto 3 lakhs
LIG - those with total household income of 3.01 to 6L
MIG1 - 6.01 to 12L
MIG2 - 12.01L to 18L

These customers are eligible to receive an interest subsidy under CLSS ( Credit Linked Subsidy Scheme). The subsidy is directly credited to the bank account of the eligible beneficiary. The max loan that can be availed is 3L ( EWS), 6L (LIG), 9L(MIG1) & 12L(MIG2) & the max subsidies are 6.5% (EWS/LIG), 4% ( MIG1) & 3% (MIG2).

Representative calculations are available at the MHUP website ( These subsidies are also available for house repair, renovation and expansion of the current home.

The max carpet areas that qualify are 30 Sqmtrs ( EWS), 60 Sqm (LIG), 90sqm (MIG1) & 110Sqm (MIG2). The definitions of carpet areas are important because it gives you a sense of the opportunity in the urban space. ~96% of the shortage is in the EWS/LIG category (56.18% in EWS ) and (39.44% in LIG)

An interesting theme crops up immediately. Floor tiles. The installed capacity of the top 11 players in ceramic tiles was 208.99 million sqm in 2015 (

If only the Urban EWS component is successful the additional demand expected would be ~337 million sqm (11.236 million homes X 30 Sqm). Add demand for urban LIG & MIG and you are looking at a nice opportunity amongst the floor tile manufacturers. Add demand for the 30 million rural consumers and the opportunity size only in one single sector ( ceramic floor tiles) assumes gigantic proportions.

So you can clearly see that Affordable Housing is a Volume game & not a margin game.

2.Income Tax Benefits for Developers

Profits from Affordable Housing schemes are fully exempt from income tax upto 2022 provided completion certificate or occupancy certificate is acquired by then. The details can be found in the relevant section of the IT act ( section 80IBA). It is important to note that as per the IT act affordable homes are those with a carpet area of 30 sqm in case of the 4 metros (Delhi, Mumbai, Kolkata & Chennai) provided that they lie within the municipal limits (this restriction has now been removed) & 60 sqm in case of other cities.

So for all practical purposes these are the definitions of “Affordable Housing”. Affordable housing is not linked to the price but to the size of the unit.

3.Other Benefits envisaged for developers

There are many other benefits that the govt is planning to give to get developers on-board. Some of them are :-

a. higher FSI if developer makes an affordable housing project
b. permission to create a high end housing project if developer creates an affordable housing prj in return thus the high end housing subsidizes the low end housing
c. Since govt owns large tracts of land, a JDA between the govt ( as the land owner ) & the private developer at attractive terms.
d. Redevelopment ( slums/ramshackled homes etc)

4.Other Benefits

There are other benefits in the form of grants etc to govts for each EWS/LIG home created. Slum development grants of 1L per home, 1.5L per EWS home where at least 35% of the houses in the projects are for EWS category and a single project has at least 250 houses, central assistance of Rs.1.5 lakh is available to individual eligible families belonging to EWS categories etc.

So are developers biting the bullet?

The short answer is not yet. However developers that have fully paid for land available are in pole position to take advantage of this opportunity and are even takeover/merger candidates unlocking value. The reason being is simple, the margins are much lower in affordable housing projects and now that RERA implementation has started in various states developers have become selective about the projects that they are willing to construct going forward. An affordable housing project requires a developer proficient in working capital management & operational aspects like financing etc, since it is a pure volume play. Affordable housing for EWS/LIG also carries with its collection issues because of the financial status of the target group and that poses a big risk going forward.

As per the STANDING COMMITTEE ON URBAN DEVELOPMENT (2016-2017) of the 16th LOK SABHA only 11425 homes have been created since the PMAY was launched ( refer to references at the end )

However the well capitalized developers like Lodha, Oberoi etc (and many others) have stated their intent to do affordable housing ( After Budget incentives, Oberoi Realty & Lodha to enter affordable housing | Business Standard News).

I will keep updating this post as i get more information. Request all to expand upon this theme.


references ( report of PMAY status of lok sabha )


@bheeshma Wonderful Initiation. The second obvious sector to get benefit if this plays out is the cement sector. I can sort of understand that but I have no clue on the cement story. Maybe yourself or someone with knowledge of cement can help us here. I see two types; one will be urban cement which should be something that includes a percentage of bag cement plus more premix type and the rural which should be more the bag of cement type. Apologies if I am simplistic with my words like bag of cement and premix; I really do not know of the business. Help invited. Best.

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@valuestudent, This was a recent blog by Ashwini Damani explaining about Indian cement industry (in layman terms). Pretty good one.


Affordable Housing is a great story, and the re-rating of HFC’s & Realty scripts proves same, though RERA can be a short term challenge. I am very positive on this theme.

For me the real winners will be things that go inside the house which are sourced / supplied by unorganised suppliers for eg. plywood is one such product / domain which will gain substantially.

Keen to hear from thoughts here.

Asking for ur Permission to open d evernote link so grant me

Is there any thread on Ramco Industry in VP ?

Smallcase offers following stocks in its affordable housing group

  1. Crompton Greaves Consumer Electricals
  2. Bajaj electricals
  3. Indiabulls Housing Finance
  4. Dewan Housing Finance
  5. LIC Housing Finance
  6. Repco
  7. Sintex industries
  8. Asian Granito
  9. Heidelbergcement India Limited
  10. Birla Corp
  11. APL Apollo
  12. Finolex
  13. Mahindra lifespace developers
  14. Ashiana Housing
  15. Puravankara
  16. Kansai Nerolac

1 year return is 66% vs 18% on Nifty


From an opportunity point of view the 5 major raw materials ( apart from land ) are cement steel bricks tiles and cp sanitary ware


Is it Sintex Industries or the new new entity SINTEX Plastics ?

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It would be the new & yet to be listed plastics as current one is now a textile play.

Ah ok…Thanks. Sintex Industries is also a good Play in textile. Only issue is huge debt.

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I think electrical fittings and plumbing will also come under raw materials. But the idea is we should take differentiated products. Something like cement sand or steel has nothing much to differentiate. Going by that, we can see the following:

Moderately to highly differentiated:
Tiles / Sanitary Ware - Cera
Electrical fittings - Havells / CG / Bajaj / Finolex
Pipes -?
Paints / Chemicals - Asian paints / Pidilite
Furnishing -?

Banks: DHFL Canfin etc

I recently went through a world bank data bank. I specifically studied consumer spending patterns in India. The data was classified by income groups and the heads of expense. For the poor people, food, transport and energy were major expenses. As we move to middle income group, the Incremental spending on Housing is huge (be it rent or EMI). Same case with transport (bike or car or Ola) and technology and education. And the strange pattern was as we moved up to the affluent, the Incremental share of housing and transport was high. So even rich people aspire for homes and cars.

Hence housing is a good segment for the very long term, if the Rich poor divide were to narrow…


I have spoken to a few developers regarding affordable housing segment. Have also visited few development sites. Also tracking hsil which was supposed to be the biggest beneficiary of this initiative. What i found was that the story is real but with very different ground realities. The construction being done is very poor at the moment with contractors prime concern being cost. They are not using branded stuff let those be wires, sanitaryware, ply. They are sourcing these from unorganised sector which are way cheaper. So linking affordable housing with organised players being the beneficiaries is highly overplayed.

One can listen to hsil concall where mgmt accepts that this segment has generated business for smaller fringe players and not much for branded organised players. Demand is for cheap products, and noone is concerned about quality (at least for now).


Oh that’s a great thought. Would you able to tell who is financing generally? I think Dewan is a good player on Tier2-3 cities a d can be used as a proxy for affordable housing?

Hi @mridul

While its true that developers intending to do affordable housing projects use the lower priced material esp when it comes to electric fittings etc it is also an opportunity as the substandard quality material will have a short life and will need to replaced by the customer with the better quality material. Also once project is registered under RERA the developer is going to be responsible for any structural defects for a period of 5 years. So any internal plumbing and wiring which forms part of the building structure will necessarily be of higher quality as no developer will want the prospect of litigation.

As far as tiles are concerned the big organised players all have stakes in the unorganized players, so any demand offtake in the unorganised sector will indirectly benefit the organized players by default.

The uncertain part is will the government be successful in getting developers to build affordable homes in the first place?



Thanks Bheeshma for initiating a much needed thread - with excellent details - in your usual meticulous style. We need to build on these.

The way I see it, we need to focus more clearly on 2 aspects

This is a volumes play, cheaper products play for Cement, Cement Roof, Asbestos (?), Switches, Fans, LED Lights, Meters, Water Tanks, etc as ancillaries to affordable housing segment.

So NOT a Cera but a Orient Bell, Asian Granito types??
Sintex Water Tanks types?
Switches/Electrical wires - who are the cheaper volume players??

Thanks Mridul. You and everyone else can start taking this a bit further - buy quizzing developers you know - their sourcing strategies/partners for key components.

2.In all that noise above, I get a feeling one may miss the Woods for the Trees. Some of my friends say the Construction Companies may end up making the most of the Moolah. NOT to forget, this is the only category that has got 100% tax exemption !!

The hype around AH will sustain only if there are developers falling over themselves to construct AH. If houses are not constructed at that scale, whom will lenders lend to, and where will ancilliary players supply to. If AH has to do well, there have to emerge players who will build efficient low-margin business models around large scale volume AH Construction - (in mixed-pricing communities) offset by 100% tax incentives.
Views Invited.

Next it will be time to collect and present data on-the ground about Affordable Housing projects vis-a-vis other housing projects. Affordable Housing is the only housing segment where there is demand. Some of my learned friends tell me 90% of listed Developers will try to convert to Affordable Housing players. Wherever they have land pockets acquired for existing projects (but satisfying AH criteria), they will convert part of those large parcels.

Example in point - Hiranandani

“We are going to focus on affordable housing segment,” Mr. Hiranandani said. “The work will start in the next six months and we will offer homes for less than ₹20 lakh.”

“There is a huge aspirational crowd commuting to this place from long distances for work. We are going to focus on this segment. Though we have not decided upon the number of dwelling units, we will earmark 10 acres for it,” he said, adding that the new project would be named ‘Aspire.’

“We have already constructed and handed over low-rise buildings. We will offer Aspire with a single and double bedrooms ranging from 350-700 sq.ft. It will be offered for ₹3,000 per sq.ft.” he said.


Profits are not 100% tax exempt. Developers have to pay Minimum Alternate Tax (MAT).
However, services availed by such developers are GST exempt.


Curiously, the report notes, the share of the affordable segment in total launches during the said period (i.e., April 2016-March 2017) has improved to 30% compared to 25% in the same period in 2015-16. The share of the high-end and luxury segments came down to 11% from 13% during the corresponding period. Sales have been particularly weak in the high-end and luxury segments over the last quarter owing to mismatches between demand and supply.

The data cited above is based on Cushman & Wakefield report…Anyone has access to these kind of Reports? one might get a heads up on which developers are moving the fastest??

So again, it makes sense for us to collect ground level data - let’s get down to that effort earnestly. Developers must be already biting the bullet - this is the only housing segment that continues to grow. And as learned friends have been saying, most listed Developers may have no option but to convert significant number of projects to AH.


Was proposed in Budget?

With a view to incentivise affordable housing sector as a part of larger objective of ‘Housing for All’, it is proposed to amend the Income-tax Act so as to provide for hundred per cent deduction of the profits of an assessee developing and building affordable housing projects if the housing project is approved by the competent authority before the 31st March, 2019 subject to certain conditions which inter alia, include:-

To promote affordable homes, the government also proposed to amend the Section 80-IBA, relaxing the condition of period of completion of the project for claiming deduction from the current three years to 5 years. “We propose to facilitate higher investment in affordable housing. Affordable housing will now be given infrastructure status, which will enable these projects to avail the associated benefits,” Finance Minister Arun Jaitley said.