The affordable housing sector in India, which once promised to bridge the gap between growing demand and the aspiration of middle-class homebuyers, is facing an existential crisis. Rising costs and a lack of government incentives are pushing
Indian Listed Developers Affordable Housing to move away from affordable housing projects. According to real estate consultancy ANAROCK, the share of affordable housing sales dropped from 38% pre-COVID to just 21% in the first half of 2024. This trend signals a larger shift in the priorities of listed developers who are now focusing on premium and luxury segments.
The Economic Strain:
One of the primary reasons for this shift is the significant rise in costs associated with land acquisition, construction materials, and labor. In cities like Mumbai, Delhi, and Bengaluru, skyrocketing land prices make affordable housing projects financially unviable. Developers such as Signature Global and Shriram Properties have openly stated that the margins in the affordable housing sector are too thin to justify investment.
Vivek Rathi, Head of Research at Knight Frank India, points out that home loan interest rates have also increased, from 7% in 2021 to nearly 9% in 2023. This not only affects the purchasing power of homebuyers but also makes financing more expensive for developers.
Pradeep Aggarwal, Chairman of Signature Global, highlights that the steep increase in land prices and raw material costs has made it almost impossible for developers to continue with affordable housing projects. The sector needs incentives and a supportive policy framework to revive it.
Decline in Affordable Housing Supply:
Knight Frank data reveals that affordable housing supply has dropped from 40% in 2019 to a mere 18% in 2023. The overall inventory of affordable homes has shrunk across major cities. For instance, in Bengaluru, the inventory fell from 19,127 units in Q3 of 2023 to 16,569 units by mid-2024. The story is similar in Mumbai and other key cities where developers have shifted their focus to more lucrative segments.
Despite this, the demand for affordable homes remains robust, driven by the middle-class aspiration of owning property. Local developers are stepping in to fill the gap left by listed players, especially in emerging suburban regions where land is still relatively affordable. For example, the outskirts of Bengaluru, like Whitefield and North Bengaluru, continue to see affordable housing projects being launched by smaller developers.
Lack of Government Support:
Developers argue that without government support in the form of tax breaks or subsidies, affordable housing projects will continue to decline. The expiration of crucial tax incentives, such as the 100% tax holiday under Section 80-IBA, has left developers with little motivation to pursue such projects. This tax benefit allowed developers to receive substantial relief on profits generated from affordable housing projects, but its removal has further disincentivized them.
Experts, including Anuj Puri from ANAROCK Group, suggest that revisiting these policies could breathe new life into the affordable housing sector. There’s also a call for city-specific adjustments to what qualifies as “affordable.” For example, in Mumbai, homes priced below ₹45 lakh are classified as affordable, but developers argue that this figure is unrealistic given the city’s current real estate prices. Raising the threshold to ₹85 lakh in cities like Mumbai could attract more buyers and developers alike.
The Future of Affordable Housing:
While listed developers have pivoted towards more profitable segments, the future of affordable housing in India is not entirely bleak. Smaller, local developers continue to seize opportunities in the outskirts of major cities. With growing demand in regions like Gurugram’s Sohna and Jhajjar-Pataudi Road, affordable housing zones could still thrive, provided they have proper connectivity and infrastructure.
The Indian government must take decisive action to keep the dream of homeownership alive for millions of middle-class families. This includes reintroducing fiscal incentives and developing affordable housing zones in suburban areas. Without such interventions, the supply of affordable homes will continue to dwindle, leaving the market dominated by premium and luxury segments.
Conclusion:
India's affordable housing market stands at a crossroads. While demand is ever-present, rising costs and the lack of government support are forcing listed developers to abandon the sector. If the government hopes to keep affordable housing alive, serious reforms are needed, including subsidies, tax breaks, and a realistic revision of price thresholds in key cities. Until then, the middle-class dream of owning a home may become harder to realize.
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