Affordable housing supply in India's top 6 cities slows to a trickle

Costs for such projects unviable, says real estate companies that see better gains in luxury properties

This report has been updated

The supply of affordable housing -- units costing less than Rs 40 lakh -- in India's top six cities declined from one-fourth of total in 2022 to around 13 per cent this year, said real estate companies that find such projects unviable due to costs.

In the first quarter of calendar year 2022 (Q1 CY 2022), affordable houses comprised 25.44 per cent of all new launches in Delhi-National Capital Region (NCR), Bengaluru, Pune, Hyderabad, Chennai, and Kolkata. The share declined to 18.03 per cent in Q1 2024 and then to 13.24 per cent in Q3 2024, according to ANAROCK Research. Supply improved in the Mumbai Metropolitan Region (MMR).

On average, 21.06 per cent of all new launches were in the affordable segment in the first nine months of 2022. The share fell to 18.42 per cent in the same period in 2023 and later to 16.70 per cent in 2024.

Pradeep Aggarwal, founder and chairman of Signature Global (India), said as the residential real estate sector grew robustly after the pandemic, demand outpaced supply in many regions. This trend is pronounced in Delhi NCR, especially Gurugram, and led to a significant hike in land prices. Alongside, construction costs have increased sharply. The two factors have made affordable housing financially unviable and one reason for developers to go slow on such projects, he said, adding his company is exploring opportunities in the mid-premium and premium segments.

Affordable housing supply in NCR went from 9,620 units in the first three quarters of CY 2022 to 2,720 the same time in 2024, declining almost 72 per cent.

Anupam Kumar, managing director and chief executive officer of L&T Realty, said: “We are being careful to not get into the affordable housing segment, as our preference is for the premium and affluent housing segment. The idea is to add close to 25-30 million square feet every year and grow, which can give pre-sales of Rs 30,000 crore to Rs 40,000 crore a year. One of our endeavours has been to develop projects close to these transport infrastructure hubs so that customers have a good mobility choice.”

Affordable housing launches in MMR increased from about 21,542 units in the first three quarters of 2022 to 36,100 in the same period this year. Of the total new supply, affordable housing launches increased from about 24 per cent in the first three quarters of 2022 to 33 per cent in 2024.

“The Mumbai market has consolidated. It is expected that the premium and luxury segments will prosper very well going forward. And when we say luxury, it would be something in the range of Rs 6-7 crore in Mumbai,” said Kumar.

In Bengaluru, new launches in the affordable segment are scarce. As many as 7,580 affordable units were launched in Bengaluru in the first three quarters of 2022 and around 120 in the same period in 2024, marking a decline of about 98 per cent in two years.

"Before the pandemic, the (Bengaluru) market remained sluggish between 2013 and 2021, and residential real estate price appreciation remained below the inflation rate. Post-Covid, homebuyers are increasingly opting for larger units, and the price rise we are seeing today is due to changed preferences and the result of a long pending inflationary adjustment," said Mallanna Sasalu, chief executive officer of Provident Housing Limited, a subsidiary of Bengaluru-based realty major Puravankara Limited.
 

Profit motive

“Developers are into profit-making. And there’s not too much money in the affordable segment. So, they don't do affordable housing. Small developers can do it. Large developers don’t do it because affordable housing doesn't give them scale,” said Parikshit Kandpal, senior vice-president, research, at HDFC Securities.

Dhaval Ajmera, director at Ajmera Realty and Infra. Limited, provided a different perspective. He said: “We cannot use the same definition of affordable housing for different cities because land prices and market segmentation vary across regions. We believe that affordable housing should be redefined based on the size of an apartment rather than its price."

“The amount of Rs 45 lakh cannot be considered affordable for the entire country. If we consider an area less than 60 square metres for metro or 90 square metres for non-metro cities as affordable, it could significantly change the overall scenario, and a notable number of projects would fall under the affordable housing category,” he said.

Property prices increase due to costs and taxes. “There has been a margin stress on the real estate sector due to a lack of input duty credit of goods and services tax, property tax, etc. All this is absorbed by a developer and not fully passed on to the customers. Some relaxation on GST and/or stamp duty, in whichever form, would benefit the customer, and prices will cool down to some extent,” said Ajmera.

Kandpal of HDFC Securities said that 30-35 per cent is the tax component in any housing project. If the government reduces taxes, especially for affordable housing, it will help the segment.

“There are a handful of developers who are doing good work in the affordable housing segment. They are good at tying up land parcels, and they're very frugal in cost. But those are smaller developers; for listed developers, it’s difficult as there are investors’ expectations of strong profitability,” he said.

Overall, of the total new supply since Q1 2022, only about 18 per cent of houses in the seven cities were in the affordable segment.