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Affordable housing has become unaffordable to build, say realty developersCompanies focus on premium; demand supply mismatch inspite of PMAY-U
Anushree Pratap
Last Updated IST
<div class="paragraphs"><p>Afront door entrance to a grand house. The wood panelled front door and frame are painted white whilst either side, also in white frames are two wooden doors for two separate cloakrooms. </p></div>

Afront door entrance to a grand house. The wood panelled front door and frame are painted white whilst either side, also in white frames are two wooden doors for two separate cloakrooms.

Bengaluru: No other sector seems to have pivoted to ‘premiumisation’ quite like real estate.

As the premium and luxury realty residential segments take off in India’s top cities, developers are sidelining the affordable housing segment, despite agreeing that there is a shortage of supply compared to the ever-present mass demand.

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This comes even as the  government has made a clear push towards affordable housing, as shown by their allocation of Rs 30,170 crore to Pradhan Mantri Awas Yojana - Urban (PMAY-U) in this year’s Union Budget, up 20.19% from last year.

Those constructing low-cost housing are now mostly urban development authorities owned by the central and state governments. That also means it no longer interests private-sector developers like it used to.

The share of budget homes (less than Rs 40 lakh) of the total housing supply in India’s top seven cities fell from over 40% in 2019 to 18% in H1 (January to June) 2024, according to Prashant Thakur, Regional Director and Head of Research at property consultant ANAROCK Group. The number of affordable housing supply has gone down from 94,620 units in 2019 to 41,860 in H1 2024.

The increase in land costs over the same duration has emerged as the biggest reason for developers shifting away from this segment.

“Affordable housing can be a big segment for us if there is any positive step from the government’s side. Developers like MHADA (Maharashtra Housing and Area Development Authority) and DDA (Delhi Development Authority) make houses and supply them at Rs 25-30 lakh because they have cheap lands available. But they are government agencies, and private developers do not have the same opportunity, because they have to buy land from the open market,” said Pradeep Aggarwal, Founder and Chairman, Signature Global, which pivoted from affordable housing to mid-segment and premium housing.

“Subsidised land is probably best-suited for contractors, not developers per se – it is more like a contract given to the execution team,” said Amar Mysore, President, Confederation of Real Estate Developers’ Association of India (CREDAI) Bengaluru and Executive Director, Brigade Group.

Raw materials and construction costs have also posed troubles for affordable housing.

At the Housing and Infrastructure Summit 2024 on Friday, Maharashtra Housing Minister Atul Save announced that the state will provide almost 30 lakh affordable homes by 2030 targeting lower income groups as studies have shown a deficit of nearly 11 lakh houses.

This also indicates the prominent demand-supply gap that still exists.

Beyond supply, sales in affordable housing have seen a decline since the pandemic, from over a 38% share in 2019 to approximately 21% in H1 2024, as per ANAROCK Research.

As costs become more expensive, a problem faced by developers has been sticking to the government’s cap of Rs 45 lakh on affordable housing, especially in big cities.

“As Brigade, we were into affordable housing. In Bagalur (an area in Bengaluru), we got registered and the building plan was done in 2019. But the transition came soon after. For six towers, we've continued to do affordable housing because we were already in it. The second phase, we said we will do the remaining six towers as mid-segment,” Mysore said.

Analyst Ravi Shankar Singh, Managing Director, Residential Transaction Services, Colliers India, offered an alternative way to continue development in this segment.

“Just acquiring small land parcels and categorising it as affordable housing and developing a product, I don't think is the right way to do it. The government should acquire larger land parcels, rope in private players to develop that project, and the entire social infrastructure around these projects should be developed,” Singh said.

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(Published 08 September 2024, 22:41 IST)