Decline in Affordable Housing: Challenges for Developers
The sales of affordable homes have dropped to just 18% of total sales in 2024, down from 38% in 2019, according to Anarock Property Consultants. High land costs and construction expenses are key barriers for private developers.
Affordable HousingReal EstateDevelopersHousing MarketGovernment SubsidiesReal EstateJan 20, 2025
This has left the field mostly to government companies such as NBCC and state-level players in tier II and III cities.
Signature Global, a Gurugram-based developer that started with a focus on affordable housing, has not launched a single such project in the last two years.
Pradeep Aggarwal, the founder and chairman of Signature Global, explained that while the company is keen on affordable housing, high land costs and increasing construction expenses have made it difficult to sustain operations without compromising on quality.
Prestige Estates, which had set up a venture for affordable housing with HDFC Capital, abandoned its plans after the initial project due to thin margins of just 10-15%.
In contrast, premium projects typically fetch margins of 20-30%, and for bigger brands, these margins can be even higher.
Sanjay Dutt, MD and CEO of Tata Realty & Infrastructure (TRIL), highlighted that taxes and delays in securing permissions make affordable housing projects too expensive for developers.
He also noted that state governments face a dilemma they want affordable housing for votes but expect developers to fund them.
While Tata Value Homes pioneered the concept of low-cost housing, most of TRIL's projects are now focused on commercial properties.
Limited incentives for private players create significant barriers to scaling affordable housing projects.
According to industry players, land rates have increased by over 40% in the last few years.
Sales of affordable homes plummeted to just 18% of total sales in 2024, down from 38% in 2019, as per Anarock Property Consultants.
In terms of supply, the share of affordable housing in the top 7 cities fell to 16% of the total supply, down from almost 40% in 2019.
Affordable housing is officially defined as houses priced up to Rs 45 lakh and up to 60 square meters in major cities.
However, private developers are questioning this definition, pointing out that it is nearly impossible to buy a home in Mumbai for less than Rs 1 crore.
Anuranjan Mohnot, founder and MD at Lumos Alternate Investment Advisors, stated that in areas like Kalyan, rates have touched Rs 10,000 per square foot.
He believes the cap should be raised to at least Rs 1 crore in cities like Mumbai.
There are typically two categories of state-level developers still investing in affordable housing projects.
The first type constructs at least 200-300 units, while the second type builds fewer than 50-60 units.
Anuj Puri, chairman of Anarock, believes that the incentives and tax breaks offered earlier to developers and consumers, which have lapsed, should be brought back.
These include the 100% tax holiday benefit under Section 80-IBA of the Finance Act, 2016.
Monu Ratra, executive director and CEO at IIFL Home Finance, mentioned that there are no government subsidies available for developers for affordable housing.
Additionally, both banks and developers prefer properties with larger ticket sizes and higher profitability.
Large developers, in particular, focus on the premium segment, which, while having fewer customers, offers much higher margins.
Frequently Asked Questions
What is the official definition of affordable housing in major cities?
Affordable housing is officially defined as houses priced up to Rs 45 lakh and up to 60 square meters in major cities. However, this definition is often questioned by developers, especially in cities like Mumbai where the cost of living is much higher.
Why are large developers moving out of the affordable housing market?
High land costs, increasing construction expenses, and thin margins are making it difficult for large developers to sustain operations in the affordable housing sector without compromising on quality.
What are the main challenges faced by developers in the affordable housing sector?
The main challenges include high land costs, increasing construction expenses, taxes, delays in securing permissions, and limited incentives from the government.
What changes do industry experts suggest to support affordable housing?
Industry experts suggest bringing back incentives and tax breaks, such as the 100% tax holiday benefit under Section 80-IBA of the Finance Act, 2016, and raising the price cap for affordable housing in high-cost cities like Mumbai.
Which government companies and state-level players are still active in the affordable housing market?
Government companies like NBCC and state-level players in tier II and III cities are still active in the affordable housing market. They typically construct 200-300 units or fewer than 50-60 units per project.
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