Why demand for affordable housing is shrinking?
Banks have continuously raised home loan interest rates since mid-2021.
According to a joint survey report by real estate consultant, ANAROCK and an industry body FICCI, the demand for affordable homes has continuously fallen since 2020. . Demand for low cost homes (priced below Rs 45 lakh) has fallen from 40 per cent in H2 2020 to 25 per cent in H2 2021 and to 21 per cent in H2 2023.
Why is the demand for affordable homes continuously falling in the country?
There are three reasons why affordable homes demand is on downward trajectory:
1. Rise in EMIs for home loans:
Banks have continuously raised home loan interest rates since mid-2021. The interest rates for home loans up to Rs 30 lakh was 6.7 per cent in mid-2021. Currently, it is around 9 per cent. Rise in interest rates has propelled higher EMI outgo for home loan borrowers. So, buying properties have become even more costlier. This has hit home buying capacity of especially people at the bottom of the pyramid, which are target audience of affordable housing projects.
2. Builders don’t make profit in affordable housing projects:
ANAROCK Group, Chairman, Anuj Puri had in an earlier report released in August 2023 said developers were hesitant to launch affordable housing projects. This was 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. Notably, demand for premium housing segment has continuously risen since Covid-19 pandemic. Puri had also 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.” This has led to lower supply of low cost houses in the country.
3. Change in home buying preference:
Since, Covid-19, real estate developers have noticed remarkable home buying preference change in the country. Due to challenges spurred by Covid-19 pandemic, people realised that owning a house is the most secured investment in their life. This spurred demand for larger homes with more open spaces hitting demand for affordable houses which come with relatively lower space.
The ANAROCK-FICCI joint survey report was conducted by ANAROCK Research between July to December 2023 with approx. 5,510 online respondents from across Indian geographies and age groups. The data was analysed and correlated to the current economic conditions.