Rate Cut Unlikely to Boost Affordable Housing in India
Despite potential rate cuts, affordable housing in India remains unattractive due to poor connectivity, lack of social infrastructure, and thin margins for developers.
Affordable HousingInterest RatesReal EstateConnectivityInfrastructureReal Estate NewsJun 24, 2025
That’s because of poor connectivity and a lack of social infrastructure in the areas where affordable housing projects can be developed. Take Shankar Dube, 54, who works as a driver in Mumbai’s Breach Candy area. He regrets selling his 200 sq ft hutment in Dadar and moving to a one-bedroom apartment of 400 sq ft in Dahanu, near Mumbai, two years ago.
“We have to travel five kilometres to see a doctor and go to the next town to see a dentist,” Dube said. If that is not enough, he has to travel two-and-a-half-to-three hours one way from Dahanu to Breach Candy. “I am thinking of quitting the job and going back to my native place as it is becoming very difficult,” Dube added.
Amit Kumar Sinha, Managing Director and CEO at Mahindra Lifespace Developers, part of the Mahindra Group, highlighted the challenges faced by affordable housing demand. “To make the economics work, developers move to the outskirts of city limits. However, these locations are not well connected,” Sinha said, adding that there is no social infrastructure for families to live and for the primary breadwinner to commute to job centers.
Mahindra Lifespaces recently announced that it would discontinue affordable housing after completing its current projects in FY29 and focus on premium housing. “Affordable housing projects have not done well for us,” Sinha said in a recent investor call. The company currently has affordable housing projects under the Mahindra Happinest brand in Palghar and Kalyan near Mumbai, as well as in Chennai.
Big real estate developers have already made affordable housing a no-entry zone. While Mahindra Lifespaces plans to discontinue affordable housing, others such as Tata Housing, Prestige Estates, and Shapoorji Pallonji have already exited the space due to high costs and lower margins.
Experts say the term affordable housing itself is confusing. For example, what is affordable in Mumbai is considered premium property in a city like Kolkata. Anarock Property Consultants defines the segment as houses priced less than Rs 40 lakh. Their share in overall housing sales in the top seven cities dropped to 19% in 2024 from 38% in 2019. A potential interest rate cut after the Reserve Bank of India’s actions is not going to mean much for buyers in this segment.
Additionally, developers have been losing interest in such projects due to lower margins and rising costs. Margins in affordable housing range from 10 to 15% compared to 30-40% in premium and luxury projects.
Besides connectivity and social infrastructure, land should be provided at a subsidized rate for such projects, said Sriram Mahadevan, Joint CEO of Shapoorji Pallonji Real Estate and MD of Joyville Shapoorji Housing. “Land should be given under a cross-subsidy model where states should say take land and build homes just like slum rehabilitation projects in Mumbai,” Mahadevan said.
Though Joyville, a joint venture between Shapoorji Pallonji, Actis (earlier Standard Chartered Private Equity), and IFC, started with affordable housing, it later changed its positioning to an “aspirational mid-income and premium housing” brand. Joyville launched its first project in Howrah, near Kolkata, in 2016, selling units of 500 sq ft at Rs 20-22 lakh apiece; today, they start at Rs 40 lakh. A 3 BHK apartment now sells for Rs 55-60 lakh, compared to Rs 45 lakh when first conceived.
Irfan Razack, Chairman and Managing Director at Prestige Estates Projects, said high interest rates have increased the burden on customers, which is one of the main reasons for affordable housing sales not picking up. “However, it is not the only reason. There is a lack of supply from quality developers in the affordable housing space due to multiple factors such as the unavailability of low-cost FSI and increased construction costs,” Razack said. FSI refers to the floor space index, which means the permissible construction on a plot of land.
Affordable housing sales can only pick up when there is a right product available at the right price in a habitable location for the desired customer segment, Razack said. Prestige Estates, which had set up a venture for affordable housing with HDFC Capital, abandoned its plans after the initial project, as it felt margins were thin.
Amit Bhagat, Co-founder, MD, and CEO at ASK Property Fund, agrees with Razack. “High land prices, increased prices in the last four years, and the increased focus of a majority of developers on the upper mid-segment/luxury housing are the reasons for the not-so-healthy absorption of affordable housing,” he said.
Public-private participation on government land and making affordable housing mandatory as a percentage of every project will be the best way forward, Bhagat said. Anuj Puri, Chairman of Anarock, said, “Affordable housing is no longer very attractive for end-users and investors. Those who are able to leverage their budgets now tend to look for mid-range homes, which also have better resale potential.”
Frequently Asked Questions
What are the main challenges faced by affordable housing in India?
The main challenges include poor connectivity, lack of social infrastructure, and thin margins for developers.
Why are developers moving away from affordable housing projects?
Developers are moving away due to lower margins, high costs, and the lack of demand in areas with poor connectivity and infrastructure.
What is the definition of affordable housing according to Anarock Property Consultants?
Anarock Property Consultants defines affordable housing as houses priced less than Rs 40 lakh.
What is the cross-subsidy model for affordable housing?
The cross-subsidy model involves providing land at a subsidized rate for affordable housing projects, similar to slum rehabilitation projects.
What is the role of public-private participation in promoting affordable housing?
Public-private participation on government land and making affordable housing mandatory as a percentage of every project can help promote affordable housing.
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