Crisis brewing? BS BFSI experts raise alarm on affordable housing supply

At the BFSI Insight Summit, industry leaders discuss challenges facing affordable housing, citing high demand but developers' reluctance due to costs, approvals, and low profits

At the Business Standard BFSI Insight Summit, industry leaders painted a challenging picture for India’s affordable housing sector. Despite robust demand, especially among the economically weaker sections, developers are increasingly hesitant to take on affordable housing projects due to high costs and market pressures.

 

Persistent demand, strained supply 

In an engaging discussion with Business Standard Consulting Editor Tamal Bandyopadhyay, T Adhikari, managing director and chief executive of LIC Housing Finance, highlighted a persistent demand for affordable housing in India. However, he raised concerns over the reluctance of developers to enter the affordable housing market, citing significant hurdles on the supply side.

   

“One of the main challenges is the high cost of land, which makes projects less viable,” said Adhikari. The lengthy timelines for land acquisition and regulatory approvals also add to the costs and delays, further dissuading developers. “The time taken for approvals is quite long, adding to costs and pushing project launch timelines,” he added.

 

Shift to high-revenue projects 

Adding to the discourse, Gulam Zia, senior executive director at Knight Frank, emphasised that despite the vast demand, developers prefer high-revenue projects over affordable housing, owing to better financial viability. “If one project delivers nearly double an organisation’s annual revenue target, why would a developer pursue multiple affordable projects?” he asked, signalling a trend toward premium housing.

 

Zia also mentioned that current high-interest rates exert a dual effect, impacting both demand and supply. While initiatives like Pradhan Mantri Awas Yojana (PMAY) 2.0 are set to stimulate demand, supply constraints remain a concern. “As PMAY 2.0 offers incentives for the lower end, demand is expected to rise, but the supply will likely fall short, potentially leading to a rise in affordable housing prices,” Zia said.

 

Growing demand from economically weaker sections 

Deo Shankar Tripathi, executive vice-chairman of Aadhar Housing Finance, highlighted the strong demand for affordable housing from India’s economically weaker sections. “Today, 95 per cent of housing demand comes from this segment,” he stated, stressing the necessity of aligning housing initiatives to this demographic. According to Tripathi, 64 per cent of home loan seekers apply for loans under Rs 25 lakh, reflecting widespread need.

 

Tripathi remains optimistic about the future of affordable housing, projecting that demand will stay robust for decades. “Affordable housing will dominate the market for the next 25 years,” he confidently said.

 

Supply constraints hinder market potential 

Girish Kousgi, MD and CEO of PNB Housing, brought attention to the mismatch between demand and supply in affordable housing, despite substantial market potential. “The total affordable housing portfolio is just over a trillion rupees out of a Rs 34 trillion market, representing only a fraction of the segment's potential,” Kousgi said, noting that developer participation remains sparse. 

Kousgi further outlined key challenges that make affordable housing financially unfeasible for developers:

 

- High land costs: Elevated land prices create financial barriers for affordable projects. 

- Lengthy approval timelines: Regulatory processes from land acquisition to project launch remain lengthy and complex. 

- Viability issues: Low profitability discourages developer participation in affordable projects.

 

“Developers are hesitant to enter this space due to financial viability concerns, even though demand remains enormous,” PNB Housing’s Kousgi said, calling for structural reforms to bridge the demand-supply gap.