The affordable housing market in India has faced important challenges in recent years. The COVID-19 pandemic has led to a dramatic decline in demand for affordable housing. Developers have shifted their focus towards premium and luxury segments due to shrinking profit margins and rising costs.
Declining Demand for Affordable Housing
The pandemic severely impacted the target audience for affordable housing. Many potential buyers faced financial difficulties. Consequently, demand for budget homes has diminished sharply. Developers are hesitant to launch new projects in this segment.
Rising Costs and Profit Margins
Developers encounter wafer-thin profit margins in affordable housing. Post-pandemic inflation has escalated costs for raw materials like steel and cement. Labour costs have also surged. These factors make affordable housing projects less viable for developers.
Expired Incentives and Government Support
Several incentives previously offered to developers of affordable housing have expired. The lack of tax breaks has discouraged investment in this segment. The government needs to reintroduce benefits such as the 100% tax holiday under section 80-IBA to stimulate growth.
Definition and Pricing Issues
Affordable housing is defined by property size and buyer income. In major cities, the price cap of ₹45 lakh is inadequate. For cities like Mumbai, a budget of ₹85 lakh is more realistic. Adjusting these limits could increase the number of qualifying homes.
Current Market Trends
The affordable housing market is now in a wait-and-watch mode. Many buyers are delaying purchases. Smaller developers are launching more projects than larger, listed companies. Sales of budget homes have dropped since 2019.
Sales Statistics and Future Outlook
Sales of affordable homes have decreased from 99,320 units in 2019 to just 52,610 in H1 2024. The market showed slight recovery in 2021-2022 but has since declined. The percentage share of affordable housing in total housing supply has also fallen sharply.
Available Units and Market Dynamics
Currently, around 5.78 lakh units are available for sale across major cities. Of these, only 24% fall into the affordable category priced below ₹40 lakh. The government must reassess pricing structures to align with market realities.
Questions for UPSC:
- Critically analyse the impact of the COVID-19 pandemic on the Indian housing market.
- What are the factors contributing to the decline in affordable housing sales? Explain.
- Comment on the role of government incentives in promoting affordable housing in urban areas.
- What is the significance of defining affordable housing? How does this definition vary across different Indian cities?
