Affordable Housing, where developers are skeptical amid rising costs. At the same time, home loan interest rates have been gradually going up from 7% in 2021 to 8.79% in 2023.
Due to financial challenges and a lack of government incentives, listed developers are avoiding the affordable housing market.
Share of sales in Affordable Housing has Decreased:
Real estate consultant ANAROCK says that the number of sales in the affordable housing segment has gone down from 38% before COVID to 21% in the first half of 2024.
This will drop even more, by at least 5 to 10 percent, in the financial year 2025, according to experts in the field.
Several noted builders, such as Signature Global, Shriram Properties, and Puravankara, have switched their focus to premium or luxury housing because they think that cheap housing is “no longer viable.”
This has occurred when home loan interest rates have steadily grown from 7% in 2021 to 8.79% in 2023, according to Vivek Rathi, head of research at Knight Frank India.
Affordable Housing Sales across the top 7 cities:
In India, a house or flat with a carpet size of up to 90 sq m in non-metropolitan areas and 60 sq m in large cities, valued at up to Rs 45 lakh each, is currently considered affordable housing.
According to developers, the dramatic rise in land costs over the past several years is the primary driver of the shift away from cheap housing and toward premium and luxury homes
As a result, inexpensive housing developments are no longer financially feasible, and the cost of raw materials has risen accordingly.
The developers are interested in affordable housing, but the cost of the project must be financially viable to them.
Lack of policies and government incentives continues to plague developers:
Shriram Properties, Bengaluru-based, suggested last month shifting emphasis from affordable housing to mid-segment housing.
A market source in the financial sector said that their goal for November 2023 was to get 40% of the affordable home market (ticket sizes less than Rs 50 lakh).
For all deliveries in the year 2024. About one million of the 3.5 million square feet planned for FY25 will be used for affordable homes.
However, even though there is a growing need for reasonably priced housing in India, the absence of regulations and incentives offered by the government continues to be a hurdle for the developers.
Puravankara’s affordable housing division, which was once known as Provident Housing, has been gradually rebranding itself.
Today, the company no longer refers to itself as an affordable housing wing; rather, it is a brand that caters to individuals who are purchasing their first home.
City-Wise Affordable Housing Inventory
Inventory drops 50% in Affordable Housing Segment:
From 40% in 2019 to 18% in 2023 the availability of reasonably priced homes dropped. Top seven cities have around 5.78 lakh apartments for sale. About 24% are reasonably priced, falling under Rs 40 lakh.
Information supplied by Knight Frank India shows that sales in the affordable housing market dropped from 63,485 units in the first half of 2022 to 46,178 units in the first half of 2024, a drop of almost 23 percent in just two years.
Bengaluru had 16,569 affordable homes for sale at the end of Q2 2024, down from 19,127 in Q3 2023. From Q3 of 2023 to Q4 of 2024, Kolkata’s homebuyers in the affordable housing segment jumped from 9,887 to 11,960.
In Mumbai, it went down slightly from 80,391 in Q2 2023 to 79,286.
Chairman of the ANAROCK Group Anuj Puri believes that a range of events over the past few years has caused developers to turn their attention from affordable housing to the premium and prestige sectors.
Even before the pandemic, developers didn’t make much money from projects that were made for the affordable housing bracket.
The pressure on developers is immense due to the rising inflationary tendencies of raw materials, such as steel and cement, and inflated labor costs in the post-Covid era. Consequently, they were compelled to disperse.
Developers want tax breaks to offer more in Affordable Housing:
Many of the previously offered interest incentives for developers of reasonably priced homes also expired two years ago.
This significant section must thus be resurrected via high-impact policies including tax credits so that it will concentrate more on the construction of reasonably priced affordable housing.
For example, to increase supply and encourage developers to build more affordable housing, the government should have reinstated the “100% Tax Holiday” advantage they previously received under Section 80-IBA in the Finance Act of 2016.
This clause allowed for significant tax breaks on earnings earned from creating and building affordable housing projects.
As it is, with low buyer demand and growing input and land costs, developers find it unprofitable to produce affordable housing because their profit margins are nearly zero.
Market sources say that developers get back about 30% of what they put into a real estate project. But in the affordable property market, the returns have steadily gone down by at least 10 to 12 percent.
Local developers will fuel middle-class dreams:
Bengaluru, Delhi, and Mumbai real estate developers continue to profit from middle-class home ownership aspirations.
Bengaluru’s brokers note that local developers still sell a lot of reasonably priced homes in ticket sizes smaller than Rs 50 lakh.
The suburbs of Bengaluru’s eastern IT corridor of Whitefield already feature some similar houses.
Given land prices are still reasonable compared to other areas of the city, North Bengaluru has also become a center for such homes.
Local Developers can play a Major Role in Affordable Housing Segment:
Local developers can buy smaller land in areas where they are still reasonably priced in the section with limited margins.
This has maintained the segment’s demand momentum in favorable direction. Affordable housing jumped at least 25 percent during the past few quarters.
Although the market for reasonably priced homes in India still shows great demand, purchasers are now in a wait-and-watch mode.
launches by lesser players than the developers who are listed are offering affordable housing. listed developers concentrate on luxury real estate unless there are more buyers.
Considering local market conditions, experts counsel the central government to closely examine adjusting the price of homes within the affordable housing budget.
The current benchmark specifies suitable unit size depending on the 60 square meter carpet area. Still, most cities cannot afford the unit rates—up to Rs 45 lakh.
For example, a budget of Rs 45 lakh is not profitable in a city such as Mumbai. It would be necessary to raise the amount to a minimum of Rs 85 lakh.
The budget should be enhanced to a minimum of Rs 60-65 lakh in other prominent cities. These pricing changes will make more homes qualify for the affordable housing price tag.
Thereby enabling more buyers to take advantage of government subsidies and lowered GST rates at one percent without ITC(Input Tax Credit).
Subsidized land should be provided by the government to facilitate the execution of affordable housing initiatives.
The segment should be bolstered by the establishment of affordable housing zones in suburban areas that are near major cities and have adequate connectivity.
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