Affordability crisis: Affordable housing at risk with dwindling demand and supply

Launched to offer cheaper homes to low- and mid-income families, the affordable housing scheme is facing major headwinds. As homebuyers shy away from the affordable homes segment, its share in the overall residential real estate market is shrinking steadily.

Data shows that the share of affordable homes in the overall residential sales across the top 8 markets in India fell to 40 per cent in 2022 from a high of 51 per cent in 2019. Meanwhile, as homebuyers’ willingness or ability to purchase affordable homes declines and cost of construction surges, developers have taken their eyes off the segment. The fall in new project launches in the segment is even starker. While in 2019 over 50 per cent of new residential units launched in these cities were in the affordable segment, its share reduced to 31 per cent in 2022.

According to Anuj Puri, Chairman of Anarock Group, the affordable housing sector is in dire straits. Despite major disruptions during 2020 and 2021, the residential real estate market bounced back quickly by early 2022, registering high double-digit growth in sales and, consequently, new launches. “However, there seems to be one major ‘fatality’—affordable housing. Once the source of considerable political hype, this segment is not merely just languishing today, it seems to be in the ICU (intensive care unit),” he says.

“With most mid-housing buyers severely affected on many levels by the coronavirus pandemic, the affordable housing sector had gone through a rough-patch post-pandemic,” says Yash Miglani, Managing Director of Migsun Group, a real estate developer that works extensively in the Noida, Greater Noida an Rajnagar Extension micro-markets of Delhi-NCR.

Pradeep Aggarwal, Chairman of Signature Global, started his journey in real estate market with affordable homes at the forefront. Since 2015, the Gurgaon-headquarter company has built and delivered over 8,200 affordable homes. Over the last three years, however, the share of affordable homes in its portfolio has shrunk. While earlier the affordable homes used to form the majority of its portfolio and sales, in the last few years Aggarwal has shifted his focus towards the mid-segment housing segment. “See, in 2022, after the COVID waves started to decline, increasingly developers are looking at the mid-income homes segment than the affordable category. Today, the customers are looking for larger units, having three bedrooms rather than compact two-bedroom, hall, kitchen apartments. As a result, developers who used to launch Rs 30-40 lakh apartments under the affordable category are coming up with new projects in the Rs 50-70 lakh price range,” he told Business Today.

Aggarwal puts the onus on increasing raw material prices, apart from changing consumer preferences post-Covid. Russia’s invasion of Ukraine in February 2022 altered the cost structure of affordable housing projects. “The cost of key raw materials has surged steadily since the war took off. Additionally, as demand of residential homes peaked across the markets, resulting in surge in new launches, land prices have gone up significantly in the past one and half years. These factors are making affordable projects - especially priced below Rs 40 lakh a unit - unviable,” says Aggarwal. But homebuyers’ willingness to purchase homes has hardly been affected, he argues. “That’s the reason why the number of units sold continues to surge and so is the share of pricier units in the overall market. As the size of the mid-income and premium housing swells, developers tend to more towards them as they offer better returns.”