India's affordable housing market is gearing up for significant expansion, with projections indicating it could reach a staggering Rs 67 trillion by 2030. According to a comprehensive report released by the Confederation of Indian Industry (CII) and Knight Frank India, the country is facing a cumulative affordable housing shortage of 31.2 million units. This analysis highlights the growing need for affordability, particularly among economically weaker segments of society, and outlines the multiple opportunities this presents for real estate developers and financial institutions.
At the heart of these rising demands are factors such as urbanization and increased employment opportunities. The report adds, "Of the total required housing units, approximately 95.2 percent—around 21.1 million units—will be concentrated within the affordable segment." It's worth noting too, nearly half (45.8 percent) of this demand is expected from economically weaker section (EWS) households.
Currently, there is already a considerable deficit, with existing shortages estimated at 10.1 million units. The total cumulative demand for affordable housing is expected to rise sharply as India’s cities continue to swell with newcomers seeking both jobs and homes. By 2030, total demand is projected to reach 31.2 million units, solidifying the market size estimate at Rs 67 trillion.
Today's existing portfolio for the affordable housing loan market sits at roughly Rs 13 trillion. Housing Finance Companies (HFCs) hold significant portions—around Rs 6.9 trillion—while scheduled commercial banks account for about Rs 6.2 trillion. Given the accelerating demand, there's clear potential for substantial growth within this market.
Interestingly, the report projects financing opportunities for banks and HFCs within this segment could soar to Rs 45 trillion. This figure is significant, marking three times the current loan volume and supporting the need for financial backing as housing initiatives expand. The researchers based their assumptions on a 77 percent dependency on loans and applied loan-to-value (LTV) ratios for various thresholds.
From 2011 up until September 2024, the affordable housing segment managed to attract around USD 1.6 billion, which, alarmingly, only accounts for approximately 9.8 percent of all capital funneled toward India’s residential sector. To put things even more starkly, foreign investments constitute a mere 15 percent of total private equity investments directed at affordable housing. This limited influx has hindered the sector's growth, signaling the need for greater foreign interest and investment.
Shishir Baijal, the Chairman and Managing Director of Knight Frank India, emphasized the pressing need for action: “The anticipated demand will largely stem from urban centres, driven by the needs of economically weaker section (EWS) households. To adequately address this demand will require innovative strategies, including public-private partnerships, policy interventions, and advancements in construction technologies.”
Various strategic recommendations were made to help meet the housing supply crunch. Suggestions included increasing available free (Floor Space Index) for affordable housing projects and offering favorable tax incentives to developers, which could stimulate more development and alleviate shortages. The report also indicated the need for approximately 1.9 lakh acres of land to accommodate these housing projects.
This anticipated market growth not only signifies burgeoning urbanization trends but also hints at potential job creation across various sectors, ranging from construction to finance. By proactively engaging with these projected trends and needs, India can not only build extensive housing units but also bolster its economic framework and nurture growth.
With much at stake, it will be interesting to see how public and private entities collaborate over the coming years to address the pressing affordable housing demand and the resulting economic opportunities.