Affordable hsg demand dips, mid-premium remains preferred zone for buyers

Rising input costs, global uncertainties have made it more difficult for developers to launch budget homes in a cost-sensitive market

The affordable housing segment, once the buyer’s top priority, is facing the brunt of pandemic and rising inflationary pressures, with both demand and supply shrinking to their lowest levels as home buyers seem to defer their purchase decisions.

Realty experts feel developers were already reeling under thin profit margins in the affordable segment. With rising input costs and global uncertainties, it has become even more difficult for them to launch budget homes. This is because increasing prices in this highly cost-sensitive market will make their offering unaffordable.

According to realty consultant Anarock, out of total 358,000 units launched in the top 7 cities in 2022, affordable housing accounted for just 20 per cent. However, in 2018, this segment had a 40 per cent share. Since then, consumers’ sentiments have remained low for this segment.

Despite the government's push for affordable housing through its various schemes including affordable rental housing complex (ARHC), the segment has not mobilised major interest from the industry given that input costs have headed north significantly post pandemic, say experts.

Citing low yields as a major deterrent in attracting private participation for developing ARHCs, Anarock chairman Anuj Puri said, “even while funding for such projects is given at concessional rates, it still makes it non-viable for most developers who have bought land at steep prices in the cities earlier on. Thus, scarcity of land in most of the major cities and its high cost are major obstacles for the development of such projects."

According to ministry of housing and urban development data for ARHCs, of the available 83,534 houses earmarked for ARHCs, only 5,648 were converted into affordable rental housing complexes.

“The government must be mindful of the set price for affordable housing at least in metro areas, considering the dynamics of the price of raw materials and land,” said Yashank Wason, MD, Royal Green Realty.

Citing ways to boost demand in the affordable housing segment, Wason said one method to encourage buyers is to improve the economy even in tier-2 and 3 cities. He added that assistance for startups and MSMEs will foster a climate that calls for affordable housing.

Mid-premium housing demand up

According to experts, current demand is skewed towards mid and premium segments as millennials remain the key demand drivers and developers are consciously launching projects based on consumer demand. This has caused the supply share of affordable housing to decline steadily and reach its lowest level in 2022.

The Anarock report sees a trend reversal in supply for mid and premium segment, as in 2022, new supply jumped to 63 per cent from 49 per cent in 2019. The affordable segment's share in new supply dipped to 20 per cent.

Mid and premium segments priced between Rs 40 lakh and Rs 1.5 crores have gained major traction especially post pandemic and new-age tech savvy professionals are driving the demand, Puri said.

Vivek Rathi, director research, Knight Frank India also feels that the traction is relatively stronger in the mid and premium segment.

“Relatively resilient income levels of these consumers during the pandemic, positive wealth effect, amenable house purchase affordability, and the desire to own bigger and better homes led to such strong sales performance across these categories,” he said.

Hopes from budget 2023

Developers pin their hopes on the upcoming budget 2023-2024 for the revival of the affordable housing segment.

“Finalising the state rental housing policy will be a game changer to spur rental housing in achieving the target of Housing for All. Hence, industry recommends extending the project time limit to five years as an incentive to the developer’s fraternity,” said Niranjan Hirandani, national vice president, Naredco.

Aryaman Vir, Founder & CEO, MYRE Capital, said the government should also consider increasing the percentage of House Rent Allowance (HRA) as it would help to offset the higher cost of living in metro cities and make it more affordable for people to rent a home, he added.

"Budget can also push the government's affordable rental housing scheme that was launched post the pandemic. Covid-19 put serious constraints on the lower income groups, to add momentum to its Housing for All vision, the government can use the Budget to incentivize ARHCs which can fill the gap until home buying capacity in the lower income groups improves, Puri said.