Chennai: The share of affordable housing in overall residential sales has plunged from over 40 per cent to just 9-10 per cent in recent years, even as India continues to face a housing shortage of nearly two crore units. According to Prashant Thakur, Executive Director and Head of Research and Advisory at Anarock Group, reviving the segment will require restoring PMAY incentives, unlocking unused government land, speeding up project approvals through a single-window system, and offering concessional finance for affordable housing.
How much has the share of affordable housing declined over the past decade?
Post-COVID, India’s residential real estate market has witnessed strong growth, but affordable housing has paid the price. In 2019, affordable housing accounted for nearly 45 per cent of total residential sales. Today, that share has fallen sharply to around 9-10 per cent. At the same time, premium and luxury housing have expanded significantly. This trend is worrying for a country like India, which continues to face a substantial housing deficit. Developers also shifted their focus toward larger homes after the pandemic as consumer preferences changed.
Has the PMAY scheme achieved its objective?
The Pradhan Mantri Awas Yojana (PMAY), through its urban and rural components, played a pivotal role in boosting affordable housing during its initial years. It encouraged buyers through interest subsidy schemes while developers benefited from tax incentives on affordable housing projects. These measures strengthened both demand and supply, helping affordable housing reach nearly 45 per cent of total sales by 2019. However, several incentives have not been renewed over the past two years. Combined with rising construction costs, this has significantly weakened the segment. Without restoring these incentives, reviving affordable housing will remain difficult.
Are rising land prices and construction costs making affordable housing economically unviable?
Affordable housing has very limited ability to absorb cost shocks compared to premium projects. Since the pandemic, developers have acquired more land to cater to growing demand for larger homes. At the same time, geopolitical disruptions have pushed up construction costs considerably. This has made affordable housing projects financially unattractive. On the demand side, buyers in this segment—many of whom work in the informal sector, SMEs or small businesses—are still recovering from the economic impact of the pandemic. As a result, affordable housing faces challenges from both supply and demand.
Are higher margins in luxury housing encouraging developers to move away from affordable homes?
Developers naturally invest where profitability is stronger. The current market is skewed towards larger homes and luxury housing, where margins are significantly better. This does not mean developers are unwilling to build affordable housing. Rather, rising land and construction costs, along with the withdrawal of buyer incentives, have reduced project viability. Slow sales in affordable housing also increase financial pressure, making premium housing a more attractive business proposition.
Has wage growth failed to keep pace with rising home prices?
House prices have grown much faster than incomes over the past few years and have also exceeded inflation. However, price growth now appears to be stabilising. The euphoria seen after the pandemic has faded amid concerns over AI-led job disruptions and geopolitical uncertainties. Buyers are no longer rushing to purchase homes, and annual price appreciation is likely to moderate to around 3-4 per cent. At the same time, affordable housing will require stronger government intervention through public-private partnerships to bridge the housing gap.
Has the RBI’s interest rate policy supported the housing market?
Low home loan rates over the past few years encouraged end-user demand. However, with inflationary pressures persisting, further interest rate cuts appear unlikely. If inflation rises because of prolonged global uncertainties, interest rates could even move higher. Even so, sharp increases in property prices also appear unlikely, which could help bring greater stability to the residential market.
If lower- and middle-income households cannot afford homes, what does that say about India’s consumption story?
The post-pandemic recovery has been marked by premiumisation across sectors, from automobiles to consumer goods and housing. While affluent consumers have upgraded to bigger and more expensive homes, lower-income households have struggled to recover. Global uncertainties have further affected employment and incomes in small and medium enterprises, reducing purchasing power. This underlines the need for stronger policy support for affordable housing. Equally important is building a robust rental housing ecosystem. Home ownership should not be the only solution; affordable rental housing can also help achieve the goal of Housing for All, as demonstrated in many developed economies.
How important is housing to India’s economy?
Real estate currently contributes around 7 per cent to India’s GDP and is the country’s second-largest employer after agriculture. By 2030, the sector’s contribution is expected to rise to nearly 13-14 per cent. Growth is no longer limited to major metropolitan cities; Tier-II cities are also emerging as important real estate markets. This broader expansion is expected to significantly increase the sector’s economic contribution over the coming years.
Will the decline in affordable housing eventually hurt economic growth?
Real estate is a cyclical industry that typically experiences three to five years of strong growth followed by two to three years of stabilisation. Such cycles are healthy because uninterrupted price increases eventually fuel inflation and weaken affordability. While residential housing often receives the most attention, commercial offices, retail developments and data centres are also expanding rapidly. Overall, the sector is expected to increase its contribution to GDP despite periodic slowdowns.
How severe is India’s housing shortage?
India currently faces an estimated housing shortage of nearly two crore units. Annual residential sales in the top seven cities account for only around five lakh units, highlighting the scale of the deficit. Bridging this gap will require stronger public-private partnerships, greater emphasis on affordable housing and a well-developed rental housing ecosystem.
Should PMAY be expanded further?
PMAY remains central to India’s affordable housing strategy. While the scheme itself continues, some of its most effective incentives have been withdrawn. Reintroducing these benefits would strengthen both demand and supply and help restore momentum in the affordable housing segment.
Apart from PMAY, what policy measures are needed to revive affordable housing?
The government should unlock unused land held by public sector enterprises and make it available for affordable housing at reasonable prices. Faster approvals through a dedicated single-window clearance mechanism would significantly reduce project costs, as developers currently wait 18 to 24 months for approvals. In addition, concessional finance for affordable housing projects would improve viability. Together with restored PMAY incentives, these measures could help revive affordable housing and move India closer to achieving its Housing for All objective.
Disclaimer : This story is auto aggregated by a computer programme and has not been created or edited by DOWNTHENEWS. Publisher: deccanchronicle.com
