While affordable housing becomes the buzzword in every Union Budget, the space has seen big national developers moving out, leaving the ground to only government companies such as NBCC and state-level players in tier II and III cities.
Signature Global, a Gurugram-based developer, which started on the plank of affordable housing, has not launched a single such project in the last two years. Pradeep Aggarwal, its founder and chairman, told FE that while the company was keen to take up affordable housing, there were challenges. “High land costs and increasing construction expenses have made it difficult for private developers to sustain operations without compromising on quality,” Aggarwal told FE.
Prestige Estates, which had set up a venture for affordable housing with HDFC Capital, abandoned its plans after the initial project, as it felt margins were thin at just 10-15%. This is in contrast to the margins of 20-30% that premium projects fetch. For bigger brands, the margins could be fatter.
Sanjay Dutt, MD and CEO of Tata Realty & Infrastructure (TRIL), said taxes and delays in securing permissions make affordable housing projects too expensive for developers. Dutt said state governments are in a dilemma: “They want affordable housing for votes but want developers to fund them.”
While Tata Value Homes pioneered the concept of low-cost housing, most projects are with TRIL which focuses mainly on commercial properties.
Limited incentives for private players create barriers to scaling affordable projects, Signature’s Aggarwal said. Industry players claim land rates have gone up by over 40% in the last few years.
Sales of affordable homes plummeted to just 18% of total sales in 2024, down from over 38% in 2019, as per Anarock Property Consultants. In terms of supply, the share of affordable housing, in the top 7 cities, fell to 16% of the total supply, down from nearly 40% in 2019.
Houses priced up to Rs 45 lakh and up to 60 square metres, in major cities, are considered affordable housing as per the official definition. Private developers, however, are questioning the definition, pointing out that it is not possible to buy a home in Mumbai for less than Rs 1 crore. “So a home for Rs 45 lakh is out of the question,” Anuranjan Mohnot, founder and MD at Lumos Alternate Investment Advisors, said.
While affordable housing is meant for areas on the outskirts of Mumbai, such as Dombivali, Virar and Kalyan, the rates in Kalyan have touched Rs 10,000 per sq ft, Mohnot said. He believes the cap should be raised to at least Rs 1 crore in cities such as Mumbai.
There are, typically, two categories of state-level developers still investing in affordable housing projects. The first type constructs at least 200-to-300 units while the second type builds less than 50-60 units.
Anuj Puri, chairman of Anarock, believes that the incentives and tax breaks, offered earlier to developers and consumers, and which have lapsed, should be brought back. These include the “100% tax holiday” benefit under Section 80-IBA in the Finance Act, 2016.
Monu Ratra, executive director and CEO at IIFL Home Finance, said there are no government subsidies available to developers for affordable housing. Also, both banks and developers want to work with properties that have bigger ticket sizes and are more profitable. “Similarly, all the large developers want to work in the premium segment, which have fewer customers but much higher margins,” he said.