Lingering effects of the pandemic on buyers of affordable homes combined with inflationary pressures on construction have put brakes on the affordable housing segment. What does this mean for the real estate market? Read on
As per the Anarock Consumer Sentiment Survey, the demand for affordable housing has dropped considerably from 40 per cent in the survey’s H2 2020 edition to 27 per cent in H1 2021 and to 25 per cent in H2 2021. Besides, of a total of over 6.38 lakh unsold units in the top seven cities as of 2021-end, the affordable segment had a share of 31 per cent.
“The pandemic has certainly derailed the growth momentum in the affordable housing sector as homebuyers today are more inclined towards improving their quality of life with a higher emphasis on comfort, space, and health. Besides, the increase in homebuyers’ purchasing power because of historically low-interest rates, attractive real estate pricing along with incentives, and stamp duty reduction in key cities also resulted in muted demand for affordable housing,” says Harshvardhan Patodia, president, CREDAI National.
Weakening consumer confidence in the real estate market is one of the key reasons for the decline of demand for affordable housing, believes Mumbai-based developer Ram Raheja. “Home loan eligibility for many affordable housing buyers has been impacted by the pandemic due to loss of jobs and many MSMEs shutting down, resulting in significantly lower sales in this category. Also, 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,” observes Raheja.
Falling out of favour
In the pre-Covid year of 2019, the new affordable housing supply share was the highest — 40 per cent of the total 2,36,560 units launched across the top seven cities. In 2021, we saw the affordable new supply share come down to 26 per cent for nearly the same number of units launched in the top seven cities (approx. 2,36,700 units), states Anarock Research.
“There has been a drop in the urban migrant population, which is the primary driver for EWS and LIG housing segment. Besides, most small families with dual income are today ready to stretch their budget even if it means moving to the peripheries in search of large homes equipped with modern amenities. Also, in most cities, it has become very difficult to develop a spacious product with the current input costs in the prime areas in the less than Rs 50 lakh category. Thus, neither there is much appetite in the market nor there are many incentives for the developer to cater to the below Rs 50 lakh category products,” elaborates Subhankar Mitra, managing director, advisory services, Colliers India.
“High cost of land acquisition, shortage and rising prices of raw materials (steel, cement, aluminium, and copper), and increasing fuel prices have all led to a 15 to 20 per cent hike in the cost of building an affordable home, making low-cost housing projects uneconomical for developers. Though more people are vaccinated now and cases are on the decline, the outlook on employment and income remains weak for LIG and MIG segment buyers,” adds Prashant Thakur, senior director and head of research, Anarock Group.
Quality over price points
Over the past 22 months, consumers have spent relatively more time in their homes due to remote work and online learning. Thus, families are scouting for larger configurations to accommodate more time at home for everyone in the family, full-time resident support staff, and SOHO (small office/home office) options.
“Amenities once considered ‘luxurious’ have become ‘must-haves’ post-pandemic. The unlocking of wealth in the start-up ecosystem is another propelling factor that has pushed demand for premium real estate segment in the IT hubs of the country. It helps start-up employees make better utilisation of the funds with huge tax arbitrage. Also, plotted developments by branded developers are seeing more demand. Minimal capital investment, limited project execution risks, and faster exit opportunities have pushed many credible developers to focus on this segment,” says Maninder Chhabra, CSO and head of sales, marketing, and CRM of a real estate company.
“We are witnessing a change of mindset wherein millennials are refraining from splitting property investment at several locations to opting for a good one-time investment that assures lifetime luxury and settlement. They are also looking for green and environmental-friendly luxury real estate properties and are willing to pay more for properties complying with ESG norms. Hence, developers are moving away from affordable housing and focussing on completing their premium segment homes,” adds Raheja.
Policy measures to reboot affordable housing
Various stakeholders need to collaborate to create a conducive ecosystem for the affordable housing sector to look upwards. “To boost the market, the government should consider differential stamp duty for affordable housing and increase in tax deduction limits for first-time homebuyers. On the other hand, developers should also look at incorporating creative engineering design and innovations into the engineering process to enjoy cost benefits. For instance, using precast technology can be a great tool to minimise the time and cost involved,” mentions Chhabra.
Though demand for mid-segment and luxury housing is increasing, affordable housing is the prime need of the nation, believes Patodia. “Affordable housing projects should be allowed for revision in sanctions without denying the tax benefits under section 80 IBA. We also suggest an increase in the interest deduction for homebuyers’ tax rebates under section 24(B) to boost the overall home buying sentiment,” concludes Patodia.