A dwelling is considered “affordable” if it is priced at Rs 45 lakh or less. But is it justified when the interpretation of the same would differ from area to area and even, city to city? Could this be the reason for dwindling affordable housing sales? 

The luxury real estate sector thrived in 2023, experiencing significant success; and evidently so, the affordable housing segment took a hit. Out of the total new supply, 31 per cent was in the mid-range of Rs 40–80 lakh price bracket, 28 per cent in the Rs 80 lakh–Rs 1.5 cr budget, and 23 per cent in the ticket price of > Rs 1.5 cr; affordable housing’s share was the lowest at 18 per cent. This decreased supply and the overall performance of the affordable housing sector have made industry experts demand policy intervention to give this sector a boost. Before we get into the changes required, let’s have a look at what defines affordable housing.

According to Pradhan Mantri Awas Yojana (PMAY), affordable housing is defined as follows. “In metropolitan areas, a dwelling is considered affordable if it is priced at Rs 45 lakh or less and has a carpet area of 60 square meters (646 square feet) or less. In non-metropolitan areas, an affordable dwelling is defined as one that costs Rs 45 lakh or less and has a maximum allowed carpet area of 90 square meters (969 square feet),” explains Pratik Kataria, committee member, NAREDCO Maharashtra.

What are the changes required?

The experts say that the budget of Rs 45 lakh needs to be relooked at. “It’s time to redefine the definition of affordable housing, proposing an increase in the cap from Rs 45 lakh to Rs one crore, particularly in metro cities. This change is expected to significantly boost both affordable and mid-segment housing,” says Sandeep Runwal, president of NAREDCO Maharashtra.

Talking about the same, Gulam Zia, senior executive director of research, advisory, infrastructure, and valuation, Knight Frank India shares, “Cities like Mumbai and Delhi are a mix of several sub-cities (for example, Vasai-Virar, Bhiwandi-Panvel, etc in Mumbai and areas like Ghaziabad, Faridabad, Panipat, etc in Delhi). As the boundaries of such cities are growing, there is a need to define them in various categories depending on the location and property rates. That is why one budget cap for the entire country is not feasible and there should be at least three different brackets for eligibility depending on the location and property prices.”

Further adding to this, Sadhav Mishra, partner, SNG & Partners, Advocates & Solicitors says, “A 60 square metre house in South Bombay as compared to a 60 square metre in suburban areas or outskirts of Mumbai city will attract different rates and cannot be subjugated to a fixed cost.”

This explains why there is an urgent need to find a solution for the same. Zia adds, “The rates for eligibility criteria should be decided according to the ready reckoner rates or circle rates of that area. The subsidies on home loans under PMAY for various categories were decided as per the size of the home loan. A similar logic must be brought in as opposed to a number like Rs 45 lakh all over India. Thus, if the segregation is done based on RR value or circle rate of that specific area, it will help in identifying the lowest category of housing instead of opting for one-size-fits-all approach.”

For example, according to Magicbricks data, a 250 sq ft house in Chennai’s Ashok Nagar will cost you around Rs 32.5 lakh. However, in areas like Worli in Mumbai, the price for a 250 sq ft house is around Rs 1.11 crore. Showcasing a gap of Rs 77.5 lakh. This explains why a Rs 45 lakh bracket is not the best way to go forward for the same carpet area in different localities.

“In order to match the local financial conditions of various cities more effectively, it is advisable to establish distinct affordability standards for metropolitan regions and other cities,” advises Kataria.

Demand supply gap

The supply of affordable housing took a big hit last year and numbers are a proof of just that. “The pandemic derailed the growth momentum of this segment since buyers were severely impacted. Many went into a wait-and-watch mode and resultantly developers also held back the new supply in this category. Given this slowdown in demand, developers had curtailed the new supply in this segment. Thus, the new supply share shrunk considerably. Anarock research data indicates that the total new supply share in the affordable category across the top seven cities has declined from 26 per cent in 2021 to just 18 per cent in 2023,” shares Anuj Puri, chairman, Anarock Group.

Another reason for the low supply is the lack of profit margin for developers and high land costs in affordable housing projects. The year 2023 was a huge hit for luxury real estate as the supply and demand both increased. However, the same cannot be said about the affordable market. Despite demand, profit margins remain uneven considering the varied and increasing land costs in the metros.

What can be done?

To revive this sector and make the homebuying dream a reality for many, experts believe that the government needs to step up. “Developers cannot do much and are heavily dependent on the government to incentivise them to make the affordable policy commercially lucrative for them. Unless the developers can promote affordable housing, the economics of demand and supply won’t be achieved,” opines Mishra.

Further talking about the support needed by the government, Mayank Ruia, founder, and CEO of a real estate company shares, “The real estate market is expecting reinstatement of input tax credit, particularly for residential projects with higher GST. This measure is crucial to control property prices and ensure affordability without compromising on quality. Another key expectation from the government is a reduction in GST rates on construction materials to single digits. This move is intended to help strike a balance and promote affordability in the real estate sector without compromising on the quality of construction materials.”

Pritam Chivukula, vice-president, CREDAI-MCHI concludes, “For the revival of affordable housing and real estate, the market urges the government to introduce tax benefits to first-time homebuyers. An expansion of the SWAMIH Fund is proposed to ensure the timely completion of stressed projects. This will not only assist developers, but also reinforce homebuyer confidence by delivering projects on schedule. The real estate sector is all set for another year of robust housing demand. Developers are hopeful for increased government support, believing that a thriving housing sector will play a crucial role in the overall economic growth and infrastructure development.”