Why people are not buying affordable flats in India?

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Real estate consultant, Anarock, said, common man is not buying affordable homes in India. Sale of affordable housing segment (priced below Rs 40 lakh) has plummeted 18 per cent year-on-year (YoY) to 46,650 units in H1 CY23 from 57,060 units in year ago period. Anarock, chairman, Anuj Puri, has attributed this to substantial rise in home loan interest rates. Second reason he attributes to low supply of budget homes by developers.

Higher interest rates:

Home loan EMIs have gone up abruptly in last two to three years. Tushar Khanna who is into property valuation with country’s largest private sector lender, HDFC Bank, said, “Currently, home loan interest rates with HDFC Bank start from 9.50%. During Covid-19, home loan interest rates with private banks had dipped to 7%”. That time some public lenders were offering as low as 6.50% on home loan. Overall, home loans have become costlier by 2% in last two to three years.

Current home loan RoI with top lenders

Generally, public banks offer home loan at lower interest rates than their private counterparts. Interest rates on home loan will be highest if customer takes it from an NBFC.

Puri, said, “People have deferred purchase of properties in affordable housing segment because of abrupt rise in home loan interest rates.”

No interest in affordable houses:

Puri says developers are hesitant to launch affordable housing projects. This is because they don’t earn good margin in construction of affordable homes. Land cost has gone up significantly. Input cost has risen abruptly. This has left developers with very little margin on budget homes as compared to premium housing segment.

Puri said, “It is becoming increasingly unviable for developers to buy land at higher prices to build low-margin mass housing. Input costs have also risen inexorably in the last few years. Launching affordable housing projects has become unattractive.”

Pradeep Aggarwal, founder of Signature Global, which is mainly into affordable housing, said state governments must offer incentives to developers. Only then will they expedite launch of such projects.

According to Anarock, share of supply of low budget homes in total supply of real estate units has fallen to 18 per cent in H1 CY23 against 23 per cent in the year-ago period. Overall, 2,28,860 units of households were sold in the country in H1 CY23 against 1,84,000 units in the year-ago period. So, total sale has increased but share of affordable homes has fallen.

Delhi NCR , Chennai and Hyderabad have been affected the most as far as fall in sale of affordable housing is concerned. Sale of low budget homes plummeted more than half by 63% YoY to 8,680 units in H1 CY23 from 14,150 units in the year-ago period in Delhi NCR. While, that in Chennai, sale plunged 74 per cent. While, in Hyderabad, sales plunged massively by 102% during the same period.

Mumbai Metropolitan Region (MMR) saw highest sale of low budget homes in H1 CY23. MMR reported sale of 17,470 units of affordable homes in H1 CY23. Pune reported second highest sale of low budget homes (9,700 units) during the said period. Albeit, affordable housing sale in Delhi NCR took a sharp plunge in H1 CY23. Even then, the region reported third highest sale of affordable homes (8,680 units) during the said period. Next in line was Kolkata followed by Bengaluru, Chennai and Hyderabad.

Fall in sale steepest in Delhi NCR, Chennai and Hyderabad

Source: Anarock