Why Aren’t There Enough Affordable Homes?

Talk about property or housing to anyone in India and the first thing that comes to mind is affordability. Millions of home buyers across the country want to buy affordable homes, but there is hardly anything out there. When there is such tremendous demand, why is there so little supply?

The reason is simple. Developers are investing in the mid to premium segment with rising material, labour and financing costs make affordable housing segment unaffordable. Data from PropEquity shows that the launches of units priced between 10-30 lakhs have nearly halved from over 131,000 units in 2013 to around 59,000 units this year. Making matters worse is when developers actually build affordable homes, but home buyers shy away from investing in it.

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“If you are getting a house for 5-10 lakh rupees, everybody is concerned if it will start cracking and falling on their heads. And second, there is a credibility problem. Half the people who take the money to build these homes don’t deliver, and this customer base cannot afford for that to happen. And third, this segment has to cater to an aspirational need. You cannot go around telling people that this is a cheap home. You got to say this is a great home, a smart home, you have got to make it aspirational.” says Rajesh Krishnan, founder & CEO of Brick Eagle.


So what can be done to boost interest in developing affordable housing? You have to look at it from the point of view of the two camps that build affordable homes. The first is organized players like Tata Housing and Mahindra Lifespaces – who have brought innovation and an assembly-line approach to the sector. Their demands are simple. 1) Have a single-window clearance to simplify approval processes 2) Digitize land records 3) Build trunk infrastructure to Peri-urban areas , 4) Enable mass-housing zones within the city and 5) simplify taxation on affordable homes.

“The way the cost of home ownership can be brought down is possibly looking at all the indirect taxations which are there. For e.g. the vat, service tax, registration, stamp duties, if these elements are taken care of the by the government, then that itself has a potential of reducing the cost of ownership by 15-20%.” claims Sriram Mahadevan, business head of the Happinest affordable housing vertical at Mahindra Lifespaces


The second method is to go local. Affordable housing is a highly localized segment, and smaller developers who understand the lay of the land are critical to cracking the market. Organizations like Brick Eagle have realized this and are focused on finding ways to help these developers grow.

“The only guys who are doing affordable housing in the country are the hundreds of mom and pop developers spread across the country. Their challenge today is capital. They struggle to attract capital. We are doing a couple of things. One, we are funding affordable housing developers at the land stage. More importantly, we are incubating developers and service providers in the affordable housing value chain, which we think is key.” says Rajesh Krishnan of Brick Eagle

That’s important because banks do not want to lend to developers to buy land parcels and PE companies do not see affordable housing as a worthwhile bet. And with funding, comes credibility and expertise which gives home buyers the confidence to invest in projects developed by these small developers. For affordable housing in India to truly take off, it is essential to bring both corporate and smaller developers together and incentivize them to build affordable homes.

Nikhil Narayan Sivadas, Assistant Editor, NDTV


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