The dream of affordable housing comes to an end for builders
Affordable housing is no longer affordable, neither for consumers nor for real estate developers. The share of affordable housing in all new launches was reduced to 20% in T2CY21 and 26% in HICY21, according to Anarock Property Consultants. In 2020, that number rose to 30%; however, even that was down from 40% in 2019.
Once the darling of real estate companies, affordable housing is no longer popular. Analysts point to a number of factors responsible for this steady decline.
Above all, the coronavirus pandemic has dealt a severe blow to the purchasing power of target customers. Analysts said stamp duty concessions and record mortgage rates have led to some traction for this segment in 2020. Today, although the pace of vaccination has picked up, employment prospects and income sustainability remain bleak.
“The affordable housing boom began immediately after the ‘Housing for All’ program was announced in 2015. Every other developer, big or small, wanted a piece of that segment, which was in an ideal area. In addition, the government encouraged developers to build low-cost houses. This has kept the supply of affordable housing at a high level. But with the covid, things have gotten worse and cash-strapped developers are struggling to offload this inventory. Second, the cost of building homes has skyrocketed. You can’t build economy homes with low margins, ”an analyst from a national brokerage said on condition of anonymity.
Anarock data shows that of the total of 654,000 unsold units in the top seven cities of T2CY21, the affordable segment has the highest share with 33%.
According to Ambit Capital Pvt. Analysts from Ltd, developers who had entered the segment aggressively failed to generate large profits and therefore cash flow to survive. “This has led to a sharp 2- to 6-fold increase in net debt for a few developers (Kolte Patil, Provident Housing, Tata Value Ventures),” the Ambit report dated July 1 said.
Besides a mismatch between supply and demand, developers face other challenges, including the lack of availability of affordable land, appropriate infrastructure and basic amenities to support an upcoming project and process. tedious customs clearance. Industry experts have said that a developer needs to get 25-30 approvals for a housing project and that it can take up to a year, increasing the cost of the project by 15-20%.
To remedy this, developers have now started to venture into the mid-luxury segment, which enjoys better margins. Among listed companies, Godrej Properties, Brigade Enterprise and Prestige Estates are among the few with exposure to affordable housing, but have recently focused on high-end residential and annuity segments. Experts suggest measures such as ease of regulatory approvals and allocation of designated plots to help affordable housing space.
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