PremiumThe share of affordable housing in overall new launches reduced to 20% in Q2CY21 and 26% in HICY21, as per Anarock Property Consultants. In 2020, this number stood at 30%; however, even that was a drop from 40% in 2019
Affordable housing is not affordable anymore, neither for consumers nor real estate developers. The share of affordable housing in overall new launches reduced to 20% in Q2CY21 and 26% in HICY21, as per Anarock Property Consultants. In 2020, this number stood at 30%; however, even that was a drop from 40% in 2019.
Once a darling of real estate firms, affordable housing has run out of favour. Analysts point to a number of factors responsible for this consistent decline.
First and foremost, the coronavirus pandemic has dealt a severe blow to the purchasing power of target customers. Analysts said stamp-duty concessions and record-low home loan rates drove some traction for this segment in 2020. Now, even though the pace of vaccination has picked up, the outlook on employment and sustainability of incomes remains bleak.
“The boom period of affordable housing began immediately after the ‘Housing for All’ scheme was announced in 2015. Every other developer, big or small, wanted a piece of this segment, which was in a sweet spot. Also, the government was giving incentives to developers for building low-cost homes. That kept the supply of affordable housing elevated. But with covid, things have taken a turn for the worse, and cash-strapped developers are struggling to offload this inventory. Second, the cost of building homes has shot up. It is not feasible to build budget homes with the thin margins," said an analyst with a domestic brokerage house, requesting anonymity.
Anarock data shows that of the total 654,000 unsold units across the top seven cities in Q2CY21, the affordable segment has the highest share at 33%.
According to Ambit Capital Pvt. Ltd analysts, developers who had entered the segment aggressively failed to generate significant profit and consequently cash flow to survive. “This led to sharp 2-6x increase in net debt for a few developers (Kolte Patil, Provident Housing, Tata Value Ventures)," said the Ambit report dated 1 July.
Apart from a demand-supply mismatch, there are some other challenges that developers are facing, including lack of availability of affordable land, proper infrastructure and basic amenities to support an upcoming project and a tedious clearance process. Sector experts said a developer is required to get 25-30 approvals for a housing project and this can take up to one year, increasing the project cost by 15-20%.
To address this, developers have now started venturing into mid-to-luxury segment, which enjoys better margins. Among listed firms, Godrej Properties, Brigade Enterprise and Prestige Estates are among a few having exposure to affordable housing, but have recently sharpened focus on high-end residential and annuity segments. Experts suggest measures such as ease in statutory clearances and allocation of designated land parcels to aid the affordable housing space.
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