Affordable Housing in India: Struggling to Survive Amid Luxury Boom

Mumbai and Bengaluru lead supply in the luxury housing segment, while the mid (₹50 lakh - 1 crore) and affordable housing (under ₹50 lakh) segments see a year-on-year decline.

Affordable HousingLuxury HousingReal EstateInterest RatesProperty PricesReal Estate MumbaiOct 06, 2024

Affordable Housing in India: Struggling to Survive Amid Luxury Boom

Real Estate Mumbai:Following the Covid-19 pandemic, India's housing market has shown a significant shift towards the luxury segment. The affordable housing market, which is price-sensitive, has been hit hard due to various factors, including rising interest rates, property price increases, and declining supply.\n\nWill affordable homes hold out amid India's luxury housing boom? This question has become increasingly pertinent as the luxury housing market continues to dominate. Earlier this week, Shishir Baijal, CMD of Knight Frank India, addressed a virtual press conference and highlighted the challenges facing the affordable housing segment. “Sales of homes priced below ₹50 lakh have declined for yet another quarter, highlighting persistent challenges to affordability and availability,” he said.\n\nAccording to Knight Frank's latest report on real estate activity in the third quarter of the ongoing calendar year, 46% of the total home sales across the top eight cities in India were in the luxury housing category, which includes homes priced at ₹1 crore and above. Meanwhile, the mid (₹50 lakh - 1 crore) and affordable housing (under ₹50 lakh) segments recorded a year-on-year decline of 13% and 14%, respectively. Of the total 87,108 homes sold in the quarter ended September 2024, 40,328 units belonged to the ₹1 crore and above category, while the ₹50 lakh - 1 crore bracket and the under ₹50 lakh category accounted for 26,011 and 20,769 units, respectively.\n\nThe affordable housing segment in India has registered a consistent downward trend in sales for 13 straight quarters, except for Q2 2024, as per Knight Frank data. “The problem is that most developers have moved to the better-yielding, low-hanging fruits where returns are higher and sales are better, which is the upper end of the market. This has significantly impacted the supply of affordable housing,” explained Gulam Zia, Senior Executive Director - Research, Advisory, Infrastructure, and Valuation at Knight Frank India.\n\nInterest rates remain the single biggest challenge for the affordable housing market. Additionally, a lack of supply addition is another significant complication. Ashwin Chadha, CEO of India Sotheby's International Realty, elaborated, “Rising property prices and interest rates have led developers to focus on premium and luxury segments as they grapple with cost spikes in land, materials, and construction, which squeeze their margins.”\n\nHowever, with inflation below the Reserve Bank’s tolerance band of 4-6% in August 2024, at 3.65%, industry watchers anticipate a cut in the repo rate in the coming times. This could serve as a catalyst for the revival of the price-sensitive affordable housing segment, which has been hit hard by a 250-basis point hike in the repo rate to 6.50% since the Covid-19 pandemic, compared to the mid and luxury segments.\n\nThe ₹2.30 lakh crore subsidy under the Pradhan Mantri Awas Yojana Urban 2.0 is also expected to boost the segment. “For the supply side issue to be resolved, it will take time. For the last 2-3 years, we haven't seen new launches coming in. So, when the interest rates are brought down, there will be a problem because there won't be enough supply in the market,” pointed out Zia.\n\nAccording to developers, the current definition of affordable housing makes it unviable for them to supply such homes. The government defines affordable housing as residential units that are 60 square metres or smaller and priced at or under ₹45 lakh in metro areas.

Frequently Asked Questions

What is the current trend in India's housing market post-Covid-19?

India's housing market post-Covid-19 has seen a significant shift towards the luxury segment, with a decline in the mid and affordable housing segments.

What factors are affecting the affordable housing market in India?

The affordable housing market is being impacted by rising interest rates, property price increases, and a decline in supply.

What is the percentage of luxury housing sales in the top eight cities of India?

46% of the total home sales in the top eight cities of India are in the luxury housing category, which includes homes priced at ₹1 crore and above.

What measures are being taken to boost the affordable housing segment?

The ₹2.30 lakh crore subsidy under the Pradhan Mantri Awas Yojana Urban 2.0 is expected to provide a fillip to the affordable housing segment. Additionally, a potential cut in the repo rate could help revive this segment.

Why are developers not focusing on affordable housing?

Developers are not focusing on affordable housing due to higher returns in the luxury segment, rising costs, and the current definition of affordable housing making it unviable for them.

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