Covid crimps budget housing market as consumers cut down on expenses

Data shows the share of affordable homes in the overall new launches in the top seven metros fell sharply since the Covid-19 pandemic upended lives in India

Amid widespread economic distress and sinking income levels, the country’s real estate sector is undergoing a massive overhaul. This comes at a time when a broad swathe of consumers is cutting down on expenses, further crimping the affordable housing market.

The data from market analyst firm Anarock Property Research shows the share of affordable homes (priced below Rs 40 lakh) in the overall new launches in the top seven metros fell sharply since the Covid-19 pandemic upended lives in India. From 40 per cent in early 2020, its share is now down to 20 per cent (April-June 2021).

Meanwhile, the demand for new launches in the luxury segment (priced between Rs 80 lakh and Rs 1.5 crore) has shot up. Till end 2019, while it had 15 per cent share of the newly launched projects, it grew to 20 per cent by the end of 2020 and to 36 per cent in the June 2021 quarter. The share of mid-segment homes (Rs 40-80 lakh) stood at 32 per cent in June, after growing to 40 per cent in the calendar year 2020.

Once the key driver of volumes in the residential real estate market, the steady fall of the affordable segment is rooted in the ongoing crisis. According to industry experts and realtors, multiple factors have led to the recent slowdown, with both demand and supply getting hit.

According to Manoj Gaur, chairman and managing director of Gaurs Group, and vice-president of the northern region for Credai National, the precipitous rise in input costs and delays due to repeated lockdowns have made affordable housing projects unviable. 

“Input costs have gone up by over 20 per cent in the last one year. Further, this year’s lockdown has delayed projects and added to costs. There is no extension of the Real Estate (Regulation and Development) Act deadlines yet. Given the slim margins most affordable housing developers work with, starting a new project is no more a feasible proposition,” said Gaur.

A major player in the Noida region, Gaurs Group is not planning to launch any affordable housing project. It will instead focus on commercial and mid-segment housing for the time being.

Signature Global, a predominantly affordable housing developer that focuses on Gurugram and adjoining regions in Haryana, is gradually moving towards plot development and mid-segment housing projects. To tap into the demand for larger apartments and floors, the realtor is banking on the state’s new housing policy that incentivises projects with unit sizes up to 170 square (sq.) yards — much larger than the affordable housing scheme’s 90-sq. yard cap, said Pradeep Aggarwal, chairman of Signature Global and Assocham National Council on Real Estate.

According to Mani Rangarajan, group chief operating officer, PropTiger, the current crisis has impaired a section of consumers of the affordable housing segment.

“Over the past year, a section of the middle class has slipped into the lower economic stratum. People in the upper middle class bracket or those with deep pockets can still afford to purchase homes,” said Rangarajan.

A steep rise in raw material costs is pushing developers away from the affordable segment since raising prices according to market dynamics is not possible, he added.

Home loan disbursements validate these trends.

According to Deepak Parekh, chairman of HDFC, despite weaker credit growth, the average size of home loans for the leading private lender surged by Rs 2.5 lakh to Rs 2.95 lakh during the pandemic.

The data from rating agency ICRA shows the portfolio of housing finance companies (HFCs), which only caters to the affordable housing segment, grew by about 11 per cent to Rs 60,000 crore in 2020-21. However, the growth rate fell from over 20 per cent in the previous years.

According to bank executives Business Standard spoke to, the collections of existing loans have suffered of late since loans in the affordable housing are contact-intensive and banks, as well as HFC staff, faced constraints in reaching out to customers, impacting collections.

Further, a heavy inventory overhang in the segment is impacting the developers’ flow of capital. 

According to Anarock, of the total 654,000 unsold units in the top seven cities end-June, the affordable segment comprises 33 per cent — the highest in comparison to any other price segment.

According to Aggarwal, it is due to this factor that most large-scale developers are intent on clearing inventory.

WITH INPUTS FROM SANJAY KUMAR SINGH & ABHIJIT LELE