The share of affordable homes in the overall housing units sold in 2022 fell to 20 per cent from 40 per cent in 2018, reflecting shrinking demand for affordable housing over the last few years, according to ANAROCK Research.
A total of 3.58 lakh housing units were sold in 2022 compared with 1.95 lakh in 2018, the report said, adding that the supply of affordable housing has been declining for the last 5 years, falling to its lowest in 2022.
Of the total sales in the top 7 cities, affordable housing sales comprised 26 per cent of the 3.6 lakh units sold, lower than 38 per cent of the 2.6 lakh units in 2019.
“With demand for affordable housing shrinking over the last few years, developers have also changed gears to match demand and launched more projects in the mid and premium segments,” said Anuj Puri, Chairman of ANAROCK Group.
High land cost
The report cited high land costs with low financing options as the major roadblock for this segment’s languising demand.
Due to the higher cost of land in bigger cities, costlier housing makes financial sense to developers as they can easily recoup land costs with mid-range and premium housing. On the other hand, in farther suburbs where land is cheaper, there are severe logistical challenges and poor infrastructure resulting in fewer buyers.
Further, many developers of affordable housing are smaller players with little or no collateral for debt borrowing, which is expensive as private equity players predominantly favour bigger developers. Given the riskier nature of affordable housing and lower returns on investment makes this sector low on the financing priority.
“The notional demand for affordable housing is high, but actual affordability is limited. The target audience has been severely impacted by the pandemic in contrast to premium and luxury category buyers and many are now deferring purchase decisions in favour of renting,” the report said.
It added that a large proportion of the population earns a low income making it hard to pay for even the most basic housing. Thus, while there is a huge affordable housing deficit, the actual buyer base are the people in the lower ring of white collar jobs most affected by the economic turmoil.
Currently, demand is skewed towards mid and premium segments houses priced between ₹40 lakh and ₹1.5 crore, with millennials being the key demand drivers.