In recent years, the issue of affordable housing has gained significant attention in India as the demand for quality yet budget-friendly housing continues to outpace supply. This growing challenge stems from a multitude of factors ranging from rapid urbanization and population growth to economic disparities and regulatory hurdles. As India’s cities expand and develop, the need for accessible housing for all segments of society becomes increasingly urgent.

Urbanization and Population Growth

One of the main causes of the issue of affordable housing in India is rapid urbanization. According to the 2011 Census, India’s urban population stood at 377 million and is projected to reach 600 million by 2031. This influx of people into cities puts immense pressure on existing housing infrastructure, leading to overcrowding, informal settlements, and rising property prices. As urban areas expand to accommodate this population surge, the demand for affordable housing escalates, creating a supply-demand gap that is difficult to bridge.

Economic Disparities

Another critical factor contributing to the affordability crisis is the widening income gap and disparities in wealth distribution. While India boasts a burgeoning middle class and a growing number of affluent individuals, a large segment of the population still struggles to access basic amenities, including housing. Low-income families, in particular, find it challenging to secure decent housing within their limited budget, forcing them to live in substandard conditions or on the outskirts of cities where transportation and other essential services are scarce.

Rising Land and Construction Costs

The escalating cost of land and construction materials further exacerbates the affordability issue. Land prices in urban areas, especially in prime locations, have skyrocketed, making it financially unviable for developers to undertake affordable housing projects. Similarly, the cost of building materials like cement, steel, and labour has been on the rise, adding to the overall cost of construction. As a result, developers find it challenging to offer housing units at affordable price points while maintaining quality standards.

Regulatory Hurdles and Policy Constraints

Complex regulatory frameworks and bureaucratic processes also pose significant challenges to the development of affordable housing in India. Obtaining necessary approvals, permits, and clearances from multiple government agencies can be time-consuming and expensive, deterring developers from investing in affordable housing projects. Additionally, ambiguous land acquisition laws and outdated zoning regulations often hinder the development of affordable housing schemes, further limiting the supply of affordable homes.

Lack of Financing Options

In the affordable housing market, having access to reasonable financing solutions is essential for both developers and homeowners. Limited availability of funds at reasonable interest rates constrains developers’ ability to undertake large-scale affordable housing projects. Similarly, prospective homebuyers, especially from low-income groups, face difficulties in securing housing loans due to stringent eligibility criteria set by financial institutions. The absence of innovative financing mechanisms tailored to the needs of affordable housing exacerbates the affordability crisis.

Infrastructure and Service Deficiencies

The lack of adequate infrastructure and basic services in low-income housing areas adds to the challenges of affordable housing in India. Many affordable housing complexes can be found in peri-urban or outer-city settings, where access to basic amenities like transportation, healthcare, education, and water supply is scarce.This compromises the quality of life for residents and reduces the attractiveness of affordable housing options.

Sustainability and Quality Standards

Balancing affordability with sustainability and quality standards remains a persistent challenge in India’s affordable housing sector. While there is a growing emphasis on green building practices and energy-efficient design, implementing these measures without significantly increasing costs is a complex task. Ensuring durability, safety, and livability in affordable housing developments requires innovative approaches and technological interventions that are often underutilized due to budget constraints.

Government Initiatives and Way Forward

In spite of these obstacles, the Indian government has introduced a number of programs to support affordable housing, including the Affordable Rental Housing Complex (ARHC) scheme and the Pradhan Mantri Awas Yojana (PMAY). These schemes aim to incentivise developers, streamline approval processes, and provide financial assistance to eligible beneficiaries. However, sustained efforts are needed to address the systemic issues plaguing the affordable housing sector, including land reforms, policy reforms, and infrastructure investments.

In conclusion, the challenges of affordable housing in India are multifaceted and require a comprehensive approach involving collaboration between government agencies, developers, financial institutions, and civil society. By addressing regulatory barriers, improving access to financing, promoting sustainable practices, and prioritizing inclusive urban planning, India can make significant strides towards ensuring affordable housing for all its citizens. The path ahead is challenging but not impossible, and concerted efforts towards affordable housing will have far-reaching socio-economic benefits for the nation.

About the Author: Manju Yagnik, Vice Chairperson of Nahar Group and Senior Vice President of NAREDCO- Maharashtra

Also Read: Luxury Real Estate Trends 2024: What Buyers and Sellers Need to Know in Today’s Market

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Dr Niranjan Hiranandani, MD, Hiranandani Group
The status quo in repo rate by RBI is governed by a mix of global and domestic factors reflecting better anchoring of inflation and nimble liquidity management. With an outpaced GDP growth and a downward inflation curve trajectory, India’s economic performance is noteworthy despite geo-economic shocks. Development of infrastructure, increased labour employment, enhanced fiscal expenditures, improved governance, and regulations along with structural policy reforms reflect the RBI’s multifaceted approach to strengthening India’s financial stability. RBI indicates emphasises the need to consider macro-economic broad risk factors while keeping customer-centricity in mind while deploying effective monetary policy. Hence, retaining an accommodative stance even under the benign geo-political mood is a step in the right direction. The uptick in new project launches, fresh supply of housing units, soaring sales in luxury housing, record high property registrations, and an average price appreciation of 7% demonstrates the strong real estate market performance index in the backdrop of a conducive market scenario. An increase in government capital expenditures towards building physical infrastructure and fuelling liquidity management will continue to boost construction activities. This will increase employment, growth in GDP, housing demand, and economic stimulation. Industry highly recommends differential policy treatment to combat negative growth in the affordable housing segment. A calibrated approach including fiscal intervention, tax exemption or cross-subsidization is necessary to restore growth in affordable housing.

Anuj Puri, Chairman – ANAROCK Group
With the fundamentals of the Indian economy remaining strong despite all global headwinds and inflation well under control, the RBI once again decided to keep the repo rates unchanged at 6.5%, thus extending the festive bonanza that it gave to the homebuyers in its last two policy announcements. Thus, homebuyers retain their advantage of relatively affordable home loan interest rates.
If we consider the present trends, the housing market has been unstoppable, and unchanged home loan rates will help maintain the overall positive consumer sentiments. Given that housing prices have risen across the top 7 cities in the last one year, this breather by the RBI is a distinct advantage to homebuyers. Going forward, we can expect the momentum in housing sales to continue, significantly aided by the unchanged repo rates which will keep home loan interest rates attractive and also signal ongoing robustness of India’s positive economic outlook.

Ayushi Ashar – Director at Ashar Group & Member of Managing Committee of MCHI-CREDAI
The consistent maintenance of the repo rate at 6.5% for the sixth consecutive time reflects the central bank’s commitment to achieving the 4% Consumer Price Index (CPI) target. This stability in monetary policy is crucial for fostering economic predictability and sustaining investor confidence. An unchanged rate may seem static, signals a strategic approach to balance inflation control with economic growth. As a real estate developer, we acknowledge the importance of a steady interest rate environment, as it influences borrowing costs and subsequently impacts the property market. The resilience in the repo rate provides a conducive atmosphere for sustainable development.

Keval Valambhia COO CREDAI MCHI
Ensuring stability in interest rates holds profound implications for both the residential and commercial real estate domains. Keeping the Repo rates low will foster an environment of financial accessibility through consistently low borrowing costs. Stable interest rates serve as a pivotal catalyst for driving heightened interest and investment in properties across both sectors. This, in effect, generates a ripple effect of increased demand, thereby injecting vitality into the real estate industry and also to economy at large. Amidst the intricacies of economic fluctuations and market uncertainties, the imperative of prioritizing affordable housing cannot be overstated.

Anshul Jain, Managing Director, India & Southeast Asia and Head of APAC Tenant Representation, Cushman & Wakefield
The update is in line with the last policy statement from RBI where the expectation was for the benchmark repo rate to stay unchanged at 6.5% and to have the target inflation rate of 4%, down from the current average of around 5.5%. For the Indian Real estate space, we do not expect the today’s update to have any material impact on the on-going positive sentiment. However, we hope the interest rates start to drop soon as this will also revive sentiments of affordable homebuyers.

Manju Yagnik, Vice Chairperson of Nahar Group and Senior Vice President of NAREDCO- Maharashtra
The RBI has maintained the 6.5% repo rate, as expected. Nonetheless, considering that the macroeconomic conditions are favourable and the rate has been held at 6.5% for the past few quarters, the Indian real estate market and the overall economy would have benefited immensely from a rate reduction. This action will keep consumer housing costs and mortgage rates higher, and we hope it won’t negatively affect the feelings of prospective homeowners.

Dr. Samantak Das, Chief Economist and Head- Research & REIS, India, JLL
India’s economy, driven by accelerating growth indicators and softening inflation has provided comfortable legroom to the RBI to keep repo rate unchanged at 6.5% for the sixth consecutive time. Despite continued global uncertainties, India’s GDP growth has been strong due to robust domestic demand due to structural drivers of infrastructure and digital transformation of the economy. India’s residential markets in 2023 hit a historic peak, buoyed by positive buyer sentiment and still-healthy affordability levels. 2023 sales were in fact 25% higher than the previous highs seen in 2010. At the prevailing interest rates, we expect the residential sales market to clock a 15-18% y-o-y growth in 2024 too keeping the current momentum intact. Given India’s growth projections, we are hopeful that a future repo rate cut would give a massive fillip to affordability in 2024, which will be second only to 2021 peak affordability levels reported in JLL’s Home Purchase Affordability Index. This is likely to push India’s residential sales in value terms to over INR 3 lakh crore over the next year with the potential to double over the next five years, supported by the policy ecosystem and a pragmatic interest rate regime.

Vihang Sarnaik, Director, Vihang Group
We’re pleased with the RBI’s decision to maintain the status quo on REPO, especially given the ongoing inflation above the 4 per cent target. It aligns with market expectations, indicating a sense of stability in the current monetary policy. As a leading developer catering the middle-class housing aspirations, this will keep the housing demand intact. The decision to keep the repo rate intact will help developers like us who catering the middle-class aspiration of owning a home. It will help to continue the current momentum in real estate sales as even a 0.25 BPS increase would have impacted the home-buying sentiments in this segment.

Nikunj Sanghavi, Managing Director – Veena Developers, Treasurer – CREDAI MCHI
The decision to uphold the current repo rate is a welcome move in the face of a challenging economic environment world wide, showcasing a judicious approach to balancing diverse sectoral needs, including real estate. Recognizing the intricate dynamics in transmitting repo rate adjustments to lending rates, this decision provides a glimmer of positivity that holds the potential to invigorate buyer sentiments. Nevertheless, as an industry, we maintain vigilance, considering the cumulative impact of recent rate hikes on demand, especially in the affordable and middle-income segments. Emphasizing the broader economic interest and the housing industry’s well-being, we advocate for a future reduction in the repo rate by the RBI.

Also Read: Housing sales momentum to continue as RBI holds repo rate

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Boman Irani, President of CREDAI National stated, “Homebuyer sentiments have been quite positive in 2023, playing a huge factor in not just the volume of housing registrations, but also indirectly having a cascading impact on increasing housing prices. On the back of a stabilized economy, job security, stable lending environment, we project this sales momentum to continue, with sustainable development and Green housing expected to lead the next growth phase in the industry. Developers have also been at the forefront to ensure that it remains a conducive buying environment, facilitating enhanced transparency and providing financial incentives that added to the overall appeal of purchasing homes.”

Alongside increasing sales, the top housing markets of Bengaluru, Hyderabad, Delhi NCR, and MMR saw a surge in new property launches, with a notable emphasis on the mid and luxury segments. The mid-segment accounted for the largest share of unsold units at 32%, closely trailed by the affordable segment. However, there was a 1% quarterly drop in unsold inventory, led by favorable market dynamics as of end of September 2023. With increased demand for spacious dwellings, developers continued to launch high-end projects, which pushed housing prices for under-construction units northward in markets like Kolkata, Hyderabad, Delhi NCR, and Bengaluru.

“The strong 10% annual increase in housing prices across India’s top eight cities during the third quarter of 2023 signifies a competitive and flourishing housing market. Fueled by strong homebuyer sentiments and positive market fundamentals, Hyderabad and Bengaluru witnessed the highest price rise at 18-19% YoY during the quarter. Tracing the strong streak of sales momentum with industry consensus, sales estimates already reaching closer to 2022 levels, 2023 is expected to close stronger than 2022. Furthermore, developers are increasingly targeting sustainable projects, with homebuyers’ inclination towards eco-friendly living, affirming a green future for the country,” Badal Yagnik, Chief Executive Officer, Colliers, India   

“Last year, the housing market grew by 35%. The sales in the first nine months of the current year grew further by 11% from the previous year. With a 10% increase in the prices, the housing market is at its most productive phase in India; sales, new supply, and prices are witnessing healthy growth”, said Pankaj Kapoor, Managing Director, Liases Foras”. 

Pan India residential prices Q3 2023 (in INR/sq ft) –

Source: Liases Foras, Colliers

All the prices are based on carpet area

^[1] Top eight cities include- Ahmedabad, Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata, MMR, and Pune

Hyderabad witnessed the highest price rise at 19% YoY during Q3 2023

Hyderabad emerged as the frontrunner with a 19% YoY upswing in housing prices, marking the highest surge among the top eight cities in India. Central Hyderabad, being an established sub-market, recently witnessed new property launches at a market premium, resulting in a notable surge in overall property prices. Moreover, the imminent development of Metro Phase 2 and the Airport metro line promises to further elevate the city’s residential landscape, connecting major office hubs to the airport, and is set to catalyze future residential developments.

“In Q3 2023, housing prices in Bengaluru’s residential market surged 18% YoY, largely led by the Periphery and Outer East region where housing prices rose 39% annually, driven by high-end & luxury project launches and completion of KR Puram & Whitefield metro lines. The city is emerging as a new luxury destination and several established developers are actively exploring to tap on this growing segment and cater to diverse preferences & demand dynamics. Whitefield, Sarjapur Road, and HSR Layout are likely to be the preferred localities for such high-end and luxury developments,” said Vimal Nadar, Senior Director and Head of Research, Colliers India.

Strong demand continues to pull unsold inventory down in Delhi NCR

The unsold inventory in Delhi NCR dropped 7% YoY, indicating a steady momentum in sales in this region. Interestingly, the dip in unsold stock has been seen for the third consecutive quarter this year, reflecting improving market fundamentals.

Housing prices in MMR rose marginally in Q3 2023

The average housing prices in MMR recorded a notable 2% surge on a sequential basis during the quarter ended September 2023. Navi Mumbai sub-market stood out, with the highest YoY price rise at an impressive 11% in the region. At the same time, the region saw a substantial surge in new launches, especially in suburban and peripheral sub-markets such as Western and Central Suburbs.

Also Read: IT Hubs see Up to 31% Housing Rental Values Growth among Top 7 Cities in 9M 2023 

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Investment in residential real estate is a very different kettle of fish than end-user homebuying. When the intention is returns on investment, knowing how the housing asset class is performing is of prime importance. From a ROI perspective, there are two buckets to check – capital appreciation and rental yields. Let’s examine this.

Property Prices

As per ANAROCK Research, the current avg. prices in the top 7 cities are collectively approx. INR 6,150 per sq. ft. If we look back, the last five years have seen an increase of over 11% across the top 7 cities (from INR 5,551 per sq. ft. in 2018 to approx. INR 6,150 per sq. ft. in 2022).

If we delve deeper and consider the yearly trends in the last five years, it emerges that 2022 saw the maximum yearly rise (6%) in average property prices (INR 5,826 per sq. ft. in 2021 to INR 6,150 per sq. ft. in 2022). The previous four years, on the other hand, saw either no change or a maximum of 3-4% y-o-y increase in 2021 against 2020. Before the Covid-19 pandemic, property prices across cities remained range-bound due to a prolonged demand slowdown.

Post the pandemic, demand soared across cities – as did developers’ input costs – causing prices to rise, particularly in 2021 and 2022. Another factor driving prices up is the fact that most sales happening now are by branded developers who have not shied away from price hikes on the back of strong demand and rising construction costs.

Among the cities, southern cities of Bengaluru and Hyderabad have seen maximum 5-yearly increase of 10% in average property prices in last five years. Average property prices in Bengaluru stood at INR 4,894 per sq. ft. in 2018 and went up to INR 5,570 per sq. ft. in 2022. As for Hyderabad, average prices in 2018 in the city stood at INR 4,128 per sq. ft. and had risen to INR 4,620 per sq. ft. in 2022.

Rental Yields

Rental yield saw a decline across most cities in 2020 when compared to 2019 – a natural fallout of the pandemic and its work-from-home and e-schooling ethos. 2021 saw some improvement, with rental yields rising across cities and nearing 2019 levels. However, 2022 saw a decent rise in rental yields, which breached pre-Covid levels of 2019 across all the top 7 cities. This was largely due to a sudden spurt in rental demand with offices and schools reopening.

The current rental demand will remain strong in all cities as urban work opportunities rise and more people migrate to cities.

ANAROCK Research indicates that Bengaluru has the highest rental yield of 3.9% among all major cities, followed by Mumbai with 3.8%.

Outlook for 2023

There is little reason to be pessimistic in the current year, though under-researched investments and a short-term profit perspective must be avoided in 2023.

All the factors that drove up capital appreciation and rental yields are firmly in place, and the profitability potential for both investment rationales remainspromising. That said, 2023 will face some headwinds in terms of economic slowdown and inflationary pressure, and this needs to be factored into any investment decision – including for real estate.

The RBI will likely take a pause after a spate of interest rate hikes, so growth momentum will continue. 2023 will continue to be driven by end-user demand, but serious long-term investors will find the market dynamics more than favourable. Property prices are likely to rise by another 5-8% in the larger cities – this bodes well for investors focused on capital appreciation, but also means that rental demand will increase.

Because of the new demand profile, larger-configuration homes will outperform compact affordable housing. Properties by branded large developers will pay better dividends in terms of both rental yields and capital appreciation.

Also Read: MahaRERA Inaugurates the First batch of Real Estate Agents Training

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