There is no denying that demand for affordable housing does remain high

Anuj Puri

Chairman, ANAROCK Group

What are the prevailing market trends in the affordable housing market in India?

Current trends indicate a drop in the overall supply share of affordable units pre and post pandemic. As per ANAROCK Research, in the pre-Covid year of 2019, new affordable housing supply share was the highest - 40% of the total 2,36,560 units launched across the top 7 cities. Post pandemic in first nine months of 2022, we saw the affordable new supply share come down to 21% for nearly 2.65 lakh units launched in the top 7 cities during this period. Developers have reduced their supply because of various factors including the rising inflationary trends of construction raw materials and: 

• There is no denying that demand for affordable housing does remain high, but there is ample supply still available in the market across cities. As per ANAROCK data, of the total of over 6.30 lakh available units across the top 7 cities as of Q3 2022-end, the affordable segment has a share of 27%.
• Secondly, the target audience of the affordable segment (many employed in MSMEs) were severely impacted by the pandemic in contrast to premium and luxury category buyers. Many affordable housing buyers thus deferred their purchase decisions.

Which are the key demand drivers and what are the major demand trends?

Previously, affordable and mid segments were the most in-demand categories. However, given that the pandemic affected affordable buyer-class the most economically, sales in the category went down from its earlier peak. Further, there is growing demand for extra space in homes, with many people still work from home (WFH) in a hybrid model. Due to this people continue to look for bigger homes which mostly fall in the mid or the premium category. Developers also are launching more projects with bigger size units - particularly in the city peripheries. And these are priced within the premium category (Rs 80 lakh to Rs 1.5 crore).

How are the government policies like Housing for All and PMAY driving the demand for affordable housing segment in India? 

PMAY (Urban) has made steady progress since its implementation in mid-2015. As per Ministry of Housing and Urban Affairs (MoHUA), as many as 122.69 lakh homes have been already sanctioned by the government till date. If we deep-dive, nearly 64.6 lakh homes have been completed while nearly 106.01 lakh homes have been grounded. In terms of the financials, nearly Rs 2.03 lakh crore of central assistance has already been committed. 

Moreover, there is also an urgent need for the government to expedite its affordable rental housing complex (ARHC) scheme under PMAY launched during the pandemic. Under the ARHC scheme, government housing complexes lying vacant are to be converted into rental housing under PPP model and rented to urban migrants at concessional rates. This will also aid the government in their Housing for All initiative. Given that this buyer-class (EWS, LIG etc.) was most impacted by the pandemic, many would have now deferred their home purchase decision. So, the best way to address their concerns would be if the government shifted gears of their Housing for All initiative and promote affordable rental housing under it.

The backlog in affordable houses has put challenges on the developers. What is the way forward to iron out these challenges and put the projects on fast track?

While new affordable supply share has certainly gone down in the last two and half years since the pandemic, but to say that sales have entirely shrunk is also not entirely true. We have seen considerable decline in the affordable unsold stock in the last two years as well. As per ANAROCK Research, as of Q3-2022-end as many as 1,68,600 units are available for sale in the affordable segment across the top 7 cities. Back in Q3-2019-end, the number of units available for sale in the affordable category stood at 2,10,450 units across the top 7 cities. Hence, we have seen a 20% decline in the available affordable stock. This is by far the highest decline among all segments in the period. Restricted new supply by developers is largely responsible for this decline.

What are the latest construction methods and technologies that can make building construction fast and affordable?

ConTech or construction technology is all about finding innovative ways to build more with less. Construction firms still continue to under invest in technology, yet with few advanced technologies like automation in construction, innovative designs, sustainability, use of prefabricated material and online marketing, developers can value-engineer their product.

For instance, 3D printing (large-scale printing of homes) may change the way real estate is built over the next decade. Though still very nascent, 3D printing can potentially replace a substantial amount of construction across major segments, including residential, commercial or even retail. Besides reducing waste, cost and labour requirements, it will help builders penetrate the hitherto inaccessible areas of dense urban centres, where it is impossible to set up heavy machinery for construction.

How is the growing input cost impacting the affordable housing segment?

The rising cost of raw materials has indeed impacted supply in this segment. Even previously, the profit margins in building these homes were wafer-thin for developers than those in the luxury segment. And now amid rising inflationary trends of basic input costs (cement, steel, labour, etc.), it has become even more difficult for developers. Thus, this is one of the other major factors for reducing affordable new supply.

The four successive rate hikes (of total 190 bps) by the RBI this year has ended the lowest-best interest rate regime and no denying it will go on to impact buyers in the affordable segment the most. Residential sales in this segment thus may get impacted in the short term.

What is your outlook on the affordable housing market?

While because of the economic impact of the pandemic, several buyers have deferred their purchase decisions in this segment but once the impact subsides (which is subsiding gradually) they will once again come back into the market. Moreover, there is an unrelenting demand for homeownership and affordable housing is certainly one of the key segments with high demand.

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