Affordable Housing Struggles as Big Developers Move Out
Sales of affordable homes have dropped significantly to just 18% of total sales in 2024, down from over 38% in 2019, according to Anarock Property Consultants. National developers are increasingly moving away from this segment due to high costs and low ma
Affordable HousingReal EstateDevelopersProperty MarketHousing CrisisReal Estate NewsJan 20, 2025
This trend has left the field primarily to government-owned enterprises like the National Buildings Construction Corporation (NBCC) and local developers in tier II and tier III cities.
Signature Global, a developer based in Gurugram, started with the aim of focusing on affordable housing but has not launched any such projects in the past two years.
Pradeep Aggarwal, the founder and chairman of Signature Global, explained the challenges.
“Rising land costs and increasing construction expenses have made it difficult for private developers to maintain quality without incurring significant losses,” he stated.
Prestige Estates, which partnered with HDFC Capital to venture into affordable housing, abandoned its plans after the first project due to thin margins of just 10-15%.
This is far less compared to the 20-30% margins that premium projects offer.
For larger brands, the margins are even higher.
Sanjay Dutt, MD and CEO of Tata Realty & Infrastructure (TRIL), highlighted the additional challenges.
“Taxes and delays in securing permits make these projects too costly for developers.
State governments want affordable housing for political gains but expect developers to fund them,” he said.
While Tata Value Homes pioneered the concept of low-cost housing, most of TRIL’s projects now focus on commercial properties.
The limited incentives for private players create significant barriers to scaling up affordable housing projects.
According to Aggarwal, land rates have increased by over 40% in the last few years.
As per Anarock Property Consultants, sales of affordable homes fell to just 18% of total sales in 2024, down from 38% in 2019.
The share of affordable housing in the top seven cities also dropped to 16% of the total supply from nearly 40% in 2019.
According to the official definition, houses priced up to Rs 45 lakh and up to 60 square meters in major cities are considered affordable housing.
However, private developers argue that it is nearly impossible to find a home in Mumbai for less than Rs 1 crore.
Anuranjan Mohnot, founder and MD at Lumos Alternate Investment Advisors, stated, “A home for Rs 45 lakh is out of the question in Mumbai.” He suggested that the cap should be raised to at least Rs 1 crore for cities like Mumbai.
While affordable housing is typically aimed at areas on the outskirts of Mumbai, such as Dombivali, Virar, and Kalyan, rates in Kalyan have reached Rs 10,000 per square foot.
This underscores the need to reassess the current affordability criteria.
Two main categories of state-level developers are still active in this sector those constructing at least 200 to 300 units and those building fewer than 50 to 60 units.
Anuj Puri, chairman of Anarock, believes that bringing back incentives and tax breaks that have lapsed, such as the '100% tax holiday' under Section 80-IBA of the Finance Act, 2016, could help.
Monu Ratra, executive director and CEO at IIFL Home Finance, noted the lack of government subsidies for developers and the preference for larger, more profitable projects.
“Both banks and developers are inclined towards properties with bigger ticket sizes and higher margins,” he said.
In summary, the affordable housing sector faces significant challenges, including high land costs, thin margins, and limited incentives, which are driving major developers away and leaving the market to government and local players.
Frequently Asked Questions
What challenges do private developers face in the affordable housing sector?
Private developers face high land costs, increasing construction expenses, and thin margins, making it difficult to sustain operations without compromising on quality.
Why have major developers moved away from affordable housing?
Major developers have moved away from affordable housing due to high costs, low margins, and limited government incentives. They prefer more profitable premium projects.
What is the current definition of affordable housing in major cities?
Affordable housing is defined as houses priced up to Rs 45 lakh and up to 60 square meters. However, developers argue that this cap is unrealistic in cities like Mumbai.
How have sales and supply of affordable homes changed over the years?
Sales of affordable homes fell to 18% of total sales in 2024, down from 38% in 2019. The share of supply in the top seven cities also dropped to 16% from nearly 40% in 2019.
What incentives were previously available for affordable housing?
Incentives such as a '100% tax holiday' under Section 80-IBA of the Finance Act, 2016, were available but have lapsed. Bringing these back could help revive the sector.
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