Rising costs hit affordable housing supply, demand in H12023

July 23, 2023

Demand and supply for affordable housing have seen a decline in the first half of 2023, as high prices and high interest rates have dented affordability and real estate developers are focusing more on the higher-income segments in their new launches.

The share of affordable housing as a percentage of total sales fell in the first half to 20 per cent from 31 per cent a year ago, according to data by property consultant ANAROCK. Of the total 2.3 lakh units sold in the top seven cities across India, only 46,650 units were affordable. In the year-ago period, the comparable figures were 1.8 lakh total units and 57,060 affordable units.

ANAROCK chairman Anuj Puri said, “Launching affordable housing projects has become singularly unattractive, especially since the monetisation potential of low-budget homes has also reduced due to shrinking demand for them.” Some of the factors responsible were soaring land prices, while other input costs have also risen. “It is becoming increasingly unviable for developers to buy land at higher prices to build low-margin mass housing.”

This has had a direct impact on the supply of affordable homes, with its share in new launches slipping to 18 per cent in the first half of 2023 compared to 23 per cent a year ago.

Low Demand

Those in the low-income segment have been postponing their purchase decision as they cannot afford to shell out a large amount of money to buy houses. While real estate developers are hiking prices, loans have also become costlier. Interest rates in the economy have risen 250 basis points since May 2022 and though the Reserve Bank of India has held rates steady at two successive meetings, borrowing rates are still at an elevated level.

Outside the main cities, “lack of sound support infrastructure in the distant suburbs and the conspicuous absence of contemporary low-cost construction techniques are additional challenges for this segment,” Puri said.

The Mumbai Metropolitan Region (MMR) and Pune saw the maximum affordable housing sales with 37 per cent and 21 per cent share in the total. The National Capital Region was close behind with a 19 per cent share of all affordable homes sold in the top 7 cities.

At 720 units, Hyderabad saw the least number of affordable homes sold in H1 of 2023.

Shrinking Supply

Developers have turned their focus to mid-range, premium, and luxury projects which are in significantly higher demand, leading to a lower supply of affordable homes.

Of the total 2.1 lakh new units launched in H1 of 2023, affordable units were 39,220 units, though this was slightly higher than the 38,820 units launched in H1 of 2022.

Again, MMR and Pune saw the most launches in the affordable segment, accounting for 87 per cent of the total. In MMR, affordable supply rose 78 per cent on the year while in Pune it dropped 34 per cent. NCR, which accounted for around 12 per cent of total supply, also saw launches dip by 40 per cent in the affordable segment.

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