Affordable housing in doldrums due to non-availability of land and lack of financial options : ANROCK report

Hyderabad, Mar 16 (FN Agency) The affordable housing in the country is in doldrums due to non-availability of land and lack of financing options for affordable housing among others, according to a consumer sentiment survey report released by ANAROCK, one of the leading real estate services company in India.Despite Covid-19, Russia-Ukraine War and mass layoffs at some of the world’s wealthiest companies and market realignments in the past three years, India’s housing market remained remarkably resilient and even thrived. However, there seems to have been one major ‘fatality’ – affordable housing, the report stated. Once the source of considerable political hype, this segment is not merely just languishing today – it seems to be in the ICU, it said. The reasons for affordable housing are in doldrums today — one obviously, is land. While developers can easily recoup their land costs with mid-range and premium housing, affordable housing is another matter. Though it is aimed at the lower end of the economic pyramid, it still requires land. It’s not there is no land available – but in our bigger cities, it costs so much that only costlier housing makes financial sense to developers, the report revealed. Where land is available – namely the cheaper far suburbs – there are invariably severe infrastructure challenges. When an affordable housing project is in an area with very poor infrastructure, such as public transportation, well-made roads, and basic amenities like water and electricity, there will be very few buyers.” Another pain point is lack of financing options for affordable housing as many developers of affordable housing are smaller players with little or no collateral for debt borrowing, which is in any case exorbitantly expensive even as private equity players predominantly favour bigger developers, it stated.Affordable housing is still considered very risky, and the returns on investment too small to be enticing, said Mr Puri. Anuj , Chairman – ANAROCK Group. The affordable housing segment (units priced < INR 40 lakh) saw its overall sales share dip between 2019 and 2022.

According to report, data indicated that back in 2019, out of the total sales of nearly 2,61,400 units across the top seven cities nearly 38 percent sales were in the affordable segment but in 2022, out of the total 3,64,880 units sold across the top 7 cities altogether, about 26 percent were in the affordable category. There has been a dip in overall sales share as well. The notional demand for affordable housing is high, but actual affordability is limited. The target audience has been severely impacted by the pandemic in contrast to premium and luxury category buyers and many are now deferring purchase decisions in favour of renting, the report said. Moreover, affordable housing developers’ profit margins were already wafer-thin. And amid rising inflationary trends of basic input costs (cement, steel, labour, etc.), it has become even more difficult for them to launch budget homes since increasing prices in this highly cost-sensitive segment defeats the purpose. If we are to see the current demand, then it is mostly skewed towards mid and premium segments priced between INR 40 lakhs and INR 1.5 Cr. These two segments have done significantly well post the pandemic and millennials are the key demand drivers. With demand shrinking over the last few years for affordable housing, developers have also changed gears to match demand and launched more projects in the mid and premium segments. The supply share of affordable housing has been on a decline in the last five years and has reached the lowest in 2022,it revealed. As per ANAROCK Research, out of total 3.58 lakh units launched in the top 7 cities in 2022, affordable housing share was as low as 20 percent against maximum affordable housing share of 40 per cent in 2018.

As per ANAROCK Research, out of the total available inventory of more than 6.30 lakh units across the top 7 cities as of 2022-end, nearly 27 percent are within the affordable segment priced < INR 40 lakh. No doubt, PMAY (Urban) has shown progress since its implementation in mid-2015.As per Ministry of Housing and Urban Affairs (MoHUA), as many as 122.69 lakh homes had already been sanctioned by the government as of March 2023. Around 72.56 lakh homes have been completed while work on around 109.23 lakh units has been started. In terms of the financials, nearly INR 2.03 lakh crore of central assistance has already been committed, it said. The government should unlock government-held land for affordable housing development. A lot of such land is in urban areas where the need for affordable housing is the highest – and most of it is doing absolutely nothing ‘constructive’ as of now.The government should also streamline the approval process for affordable housing, extend more tax incentives to private players, and increase funding for affordable housing via Public Private Partnerships, said Mr. Puri.By providing tax breaks and other incentives, the government should encourage the construction of affordable housing in non-metropolitan areas while at the same time ensuring that these areas are first equipped with the requisite support infrastructure, he said. Policy tweaks should ensure that financial institutions offer developers of affordable housing better financing options, such as equity financing, long-term debt financing, and concessional loans.Finally, developers should use novel building methods that lower construction costs and improve the financial viability of affordable housing, he added.