Demand For Low Income Housing To Outstrip Supply By Nearly 100%
High cost of land and operations keep developers away from affordable housing projects.
In a country where ‘Housing For All by 2022’ is one of the government’s pet projects, supply of housing for the low income group could outstrip demand by 98.7 percent by 2020, according to real estate consultancy firm, Cushman and Wakefield India.
It is further estimated that the LIG (below Rs 15 lakh) is the most under-serviced segment. While LIG is likely to generate demand of about 19.8 lakh units by 2020, supply by private developers is seen at barely 25,000 units.Cushman & Wakefield India Report
While the total demand for urban housing in the top eight cities is estimated at 42 lakh units between 2016 and 2020, LIG alone will spur a demand of 19.8 lakh units. Among the three categories – high income, middle income and low income groups – the highest demand (24-26 percent) will be seen in the Delhi-National Capital Region, followed by Mumbai and Bengaluru, according to Cushman & Wakefield India’s report.
At the ground level, despite demand grossly outstripping supply, there is a considerable proportion of unsold inventory in the MIG and HIG categories, which are not absorbed as these properties are unable to demonstrate value for their buyers. Such units fall out of preference either on account of higher-than-expected prices or due to locations. Lack of funds and high land and development costs are the primary reasons for developers not opting for smaller sized units closer to city centres as profitability drastically reduces.Anshul Jain, Managing Director-India, Cushman & Wakefield
In the low income group segment, Bengaluru and Hyderabad will see almost no supply despite high demand in these cities. In cities like Chennai and Mumbai, supply will remain at 1,000 units each by 2020. Delhi-NCR, which is the biggest market in India, will generate a demand for 4.67 lakh units for which the supply will be at 5,000 units, as per Cushman & Wakefield. Units in the low income group category are priced below Rs 15 lakh and are for those households which have an annual income of Rs 2 lakh.
Light At The End Of The Tunnel?
Demonetisation may finally force builders to shift focus to middle income and lower income housing, said Cushman & Wakefield. With old large currency notes ceasing to be legal tender, the demand for high income group and luxury housing could be tempered further, forcing developers to recalibrate their plans to suit demand for affordable housing, the report added.
The middle income group, where each unit is priced between Rs 15 -70 lakh for households earning up to Rs 10 lakh annually, will see greater supply than the low income group. But supply in Mumbai will still fall short by more than 3 lakh units.
The picture’s not very different at the other end of the spectrum, with demand outstripping supply even in the high income group segment. In Mumbai, though, some high value and luxury projects may find no takers. This segment includes any unit which is priced above Rs 70 lakh for households earning more than Rs 10 lakh annually.
Mumbai-based Omkar Realtors and Developers told BloombergQuint that lack of availability and the high prices of land is a major barrier in the construction of low income housing.
In Bombay (Mumbai) because land is in short supply, pricing of land is expensive which drives property prices higher.Gaurav Gupta, Director, Omkar Realtors and Developers
Construction of LIG housing doesn’t seem profitable for developers in India with sky rocketing land prices. Since the acquisition of land parcels is a challenge, state governments must act as facilitators to provide the right social and physical infrastructure, said Samantak Das, chief economist at Knight Frank India.
There is huge lack of synchronisation between what is required to ensure that kind of supply in the market. There is a lot of mismatch in demand and supply, for the simple reason that demand is very high given the growth in population but the construction, mainly supported by government, is not much and private developers will not do much in this segment.Samantak Das, Chief Economist, Knight Frank India.
Private developers won’t venture into these projects until volumes pick up as the profit margin is very thin, he added.