Demand For Affordable Homes Soars In These Cities

Prime Minister Narendra dreams of providing 'Housing for All by 2022'. Under the scheme, the government plans to build and provide affordable homes in India. This ensures that people at different income levels can consider buying a home. To simplify, affordable homes are homes that cost between Rs 25 lakh-Rs 50 lakh.

What does affordable mean?

The definition of affordable differs across cities. For instance, affordable homes in Bengaluru can mean small, simple and compact homes in Banshankari area or a 2BHK apartment in Whitefield Phase-II, to a home buyer. Hence, price alone can not be considered to describe a home as affordable.

The pricing fluctuates due to mismatch between demand and supply, and geographies, the sales of property varies. The availability of homes in the affordable price range will only go up with the rise of newer areas especially in Noida, Bengaluru, and Chennai. However, in case of established cities such as Mumbai, not many are willing to move beyond the city just to live in an affordable property.

This, coupled with high inflation and even higher interest rates on home loans, is affecting home sales amongst the mid-income buyers, cutting down their share in home sales. In the April-June quarter of 2015, the share of affordable homes to total sales was 52 per cent, down by 6 per cent in the same quarter, two years back.

Purchase power in Rs 25-50 lakh range?

Though sales in the affordable category have gone down, there is no change in demand for affordable range of homes.

But, it has been observed though affordable homes in Mumbai are rare because of high land costs, they are even unable to sell homes in the affordable range. The demand for affordable homes in Thane is the highest among the top 14 real estate markets at 69 per cent. Coming a close second is Noida with a demand of 68 per cent but its upmarket cousin, Gurgaon, has a demand of mere two per cent.

Also, the emerging areas with low land cost such as Sohna and Bhiwadi also have high demand with around 67 per cent and 63 per cent, respectively. The property sales in Hyderabad have been soft, thus, cutting down the property prices for past two years due to the Telangana agitation, hence, affordable homes in Hyderabad constitute to 78 per cent of the total demand due to overall suppression of prices.

(Source: PropTiger.com)

Expanding the affordable category

Over the last few years, real estate developers who have been concentrating exclusively on premium and luxury projects, too are changing tracks to provide more homes in the Rs 50 lakh range.

Many developers are changing their plans to build 2BHK apartments to 1BHK apartments in India, hence, selling cheaper homes at the same square feet area pricing. This is one method of pushing sales in a sluggish market and is also an important indicator that there are more people looking for smaller homes, than they did, earlier.
Home buyers are also looking for simple homes with fewer and more modest amenities, which is likely to bring down the premium charged on the property.

"Developers will need to change their business models and focus on volumes rather than margins. This means more affordable housing projects. Currently, there is a mismatch between supply and demand and hence the market is slow. Too many developers are launching luxury projects creating an over-supply of such products,” said a report by Kotak Institutional equities. This change was seen across many projects in India, especially in Bengaluru, where developers cut down size of homes on offer.

Are developers happy with affordable homes?

The change to build and sell smaller and cheaper homes, however, might be a short-term idea till real estate market and sales pick up. In long-term, those developers who build large homes with interesting amenities will be able to charge good premium. Moreover, the fewer the homes, the lesser the marketing costs. 

“There is a disconnect between central and state governments on affordable housing, as land is a state subject. 34 per cent taxes on land and construction are unlikely to lure private developers to affordable housing,” said the report by Kotak. For this, there needs to be major policy shift from the government's side to provide for higher Floor Area Ratio (FAR)/Floor Space Index (FSI) for projects and making construction of homes for economically weaker sections (EWS) and lower income groups (LIG) compulsory. This might ensure that many more developers take the category of affordable homes seriously and ensure that there is a steady supply for homes for all.