India's affordable housing segment is in a critical condition due to the high land cost, buyers' economic situation and lack of financing options, real estate services provider ANAROCK said in a report. This segment has houses priced under Rs 40 lakh.
ANAROCK said the share of affordable housing units fell by a record 20 per cent in 2022.
What Is The Cause Of The Dip?
Land costs are the major concern of this segment. Developers can recover land costs in bigger cities from mid-range and premium housing units, which poor people cannot afford. However, in cheaper suburbs, where land is readily available, there are severe infrastructure challenges like poor road connectivity and water, electricity shortage, etc.
In addition, a limited number of financing options are available for affordable housing. Most affordable housing developers are smaller companies with little or no collateral for debt borrowing, which is extremely expensive, and private equity players favour big developers. Moreover, investment in affordable housing is considered risky, and the returns are small.
As per ANAROCK research, affordable housing sales declined from 40 per cent of the total units sold in 2019 to 20 per cent in 2022 in the top seven cities. The total number of affordable housing units sold also declined. In the last five years, the supply share of affordable housing declined to its lowest level in 2022.
ANAROCK found that of the total available inventory of more than 6.30 lakh units across the top seven cities as of 2022-end, nearly 27 per cent were in the affordable segment.
It suggests that houses are still in the affordable range despite higher demand for affordable housing. Most target buyers are those most affected by the economic turmoil caused by the Covid-19 pandemic - junior-level software employees and blue-collar workers in manufacturing and services. They are delaying purchase and resorting to rental spaces.
Premium and luxury buyers were less affected by the pandemic. Additionally, since affordable housing developers' profit margins were already thin, the rising inflationary trend of basic input costs (cement, steel, labour, etc.) has made it harder for them to launch budget homes.
Another reason for the low number of takers for affordable housing is that the Central government has already sanctioned as many as 122.69 lakh homes under PMAY (Urban). There have been 72.56 lakh homes completed and 109.23 lakh units started.
How To Revive Affordable Housing?
To boost India's affordable housing sector, ANAROCK suggests that government should unlock the land it holds in urban areas where affordable housing is most needed.
The report also suggests "revising the price bandwidth for homes which qualify for the government's various incentives to affordable housing buyers." "The current INR 45 lakh limit means that buyers cannot look anywhere within the city limits but must turn to the infrastructure-deficient far suburbs," it added.
"The government should also streamline the approval process for affordable housing, extend more tax incentives to private players, and increase funding for affordable housing via Public Private Partnerships," the real estate services company said.
By providing tax breaks and other incentives, the government can encourage the construction of affordable housing in non-metropolitan areas while at the same time ensuring that these areas are first equipped with the requisite support infrastructure.