Wednesday, Jun 29, 2022

Is The Demand For An Affordable Housing Gradually Waning In India?

Experts say homebuyers are waiting for the Covid pain to pass before they start entering affordable housing again. With waning demand and rising inflation, builders are also facing challenges.

The affordable housing segment was in focus last year, but not anymore, at least for the real estate industry. Post the pandemic, the real estate sector is witnessing a rise in demand, but majorly for high-end and luxury housing, hence developers’ attention has diverted to financing those segments.

Currently, developers are launching projects mostly in the mid and premium segments. According to data from real estate consultancy ANAROCK, of the total 1.63 lakh units launched between January and September 2021, 40 per cent was in the mid segment (priced at Rs 40 lakh to Rs 80 lakh), while almost an equal number of launches (25 per cent share each) were seen in the affordable (less than Rs 40 lakh) and premium segments (Rs 80 lakh to Rs 1.5 crore) each.

“Back in the corresponding period in pre-covid year of 2019, the share of affordable housing was the highest—40 per cent of the total 1.85 lakh units launched then,” says Anuj Puri, chairman, ANAROCK Group.

Is Affordable Housing On A Slide?

The past six to seven years saw the government roll out various sops and incentives for private firms to actively participate in the government’s vision of building affordable homes for all. However, the demand has been low post Covid.

Shrinking Demand: “The target audience of the affordable segment (many employed in MSMEs) were severely impacted by the pandemic in contrast to premium and luxury category buyers. Many affordable housing buyers have had to defer their purchase decision. Home loan eligibility for many affordable housing buyers has been impacted by the pandemic due to loss of jobs and many MSMEs being shut down, resulting in significantly lower sales in this category,” says Puri.

Limited Supply: Affordable housing developers’ profit margins are wafer-thin. Amid rising inflationary trends of basic input costs (cement, steel, labour, etc.), it has become difficult for them to launch budget homes since increasing prices in this highly cost-sensitive segment is inadvisable at this time. Also, overall sales volumes have declined in the last one year because of the pandemic.

“The pandemic has thus derailed this affordable growth momentum and as such may impact the housing for all initiative of the government. Meanwhile, it has also led to lower housing sales volumes which was relatively higher in the pre-Covid period. That said, we saw a few state governments offer incentives to the affordable segment. For instance, the Karnataka government cut stamp duty charges for homes priced between Rs 35 lakh to Rs 45 lakh from 5 per cent to 3 per cent,” says Puri.

Agrees, Ravinder Reddy, Partner, Infrastructure, Grant Thornton Bharat, “New launches had been halted; workers migrated back to their hometown; after an economic setback these homebuyers have had to revisit their purchase decisions. There are inherent issues present in this segment such as ‘real’ affordability, location, proximity to workplace and connectivity issues.”

“The challenge to affordable housing is also that many strong or big developers do not have sustained focus on this segment,” says Reddy.

The Road Ahead for Affordable Housing

The demand for affordable homes has not disappeared, and buyers seem to have gone into a wait mode for the time being. Affordable housing demand is expected to gain momentum once the economic impact of the Covid pandemic begins to subside, say experts.

“Frankly, affordable housing is where the maximum demand or need is in India. The country has a massive housing shortage and by building homes in the affordable segment, this issue can be addressed to a large extent,” says Puri.

Moreover, unlike earlier, top developers still want to tap the underlying potential of affordable and mid segments that were long underserved. ANAROCK research confirms this changing trend wherein a few listed developers are increasingly venturing into these segments. The hiccups withstanding, the future of affordable housing looks bright.