The Indian government has ambitious plans to enable housing for all, but affordable housing – which is a necessary component of this plan, is under severe stress.

Why?

Developers say that input costs including materials, labour and even finance charges have been rising. This makes it more expensive for them to build affordable homes. Even top players like the Mahindra Group have had to rethink their prices.

“We would have liked to have launched our affordable housing project ‘Happinest’ at a lower price. We launched it at Rs 2,800-2,900 whereas our target was Rs 2,500. We were obviously not able to achieve that because of rising construction costs and the time it took to get approvals”, says Anita Arjundas, MD & CEO of Mahindra Lifespaces

How does this affect you and me?

Well, the price you pay for these homes will increase and you will have fewer options to choose from. The bulk of the affordable housing market is made up of mid-size developers whose products are cheaper and more numerous than those of the big players. But if input costs keep rising, these players have only two options to make profits – raise the prices of affordable homes or move into building mid and premium housing. Either way, it is the home buyer who loses out.

Is this already happening?

Data from real estate research agency PropEquity, shows that the number of affordable houses priced between Rs 10 and Rs 30 lakhs has already come down by half the number it was in 2013.

Mid-size developers in affordable housing now have no option but to consolidate or shut shop in order to survive

“It is a question of developing expertise in a particular vertical. You cannot jump ship as and when the market changes. Customers are moving towards companies that have actually developed affordable housing projects before. There has been a cannibalization of demand to us favouring people like us and the Tatas, Godrej and the Mahindras. We are seeing a higher market share from what was being transacted earlier” claims Rohit Poddar, managing director at Poddar Developers

Is there a silver lining?

Yes, there is. As home buyers move towards brands, more and more corporate developers are lining up to invest in the segment. Just last week, Shapoorji Pallonji launched their affordable housing division with plans to build 20,000 affordable homes over the next 7 years. Experts say these corporates are the key to affordable housing in India.

“Their ability to access resources, whether it is capital, whether it is their capability to buy in bulk, whether it is the ability to go out and convince buyers buy from them or even their ability to deliver quality construction. It is far greater than other developers. They can show the way for the rest, in terms of building affordable homes successfully through an institutional setup”, claims Anuj Puri, chairman & country Head of JLL India

So all’s well that ends well then?

Not exactly. These corporate players will definitely bring discipline into the affordable housing space. But they cannot build the massive number of homes India needs by themselves and that’s where you will need mid-size developers. The government needs to take steps to support the sector and help them balance out these rising costs. This can be done by giving developers cheap land, reducing the time needed to get permissions and even granting the sector infrastructure status.

If the government is truly serious about providing housing for everybody, then it will have to be a team effort and it will have to start from the base up.

Nikhil Narayan Sivadas, Assistant Editor, NDTV