Rising costs make urban affordable houses unviable for builders

The government’s ambitious plan to build 1 crore urban houses under the PM Awas Yojana is likely to falter as higher land acquisition prices, rise in construction costs and the limitations on area and pricing make it altogether an unviable proposition for builders.

Land prices have risen steeply across cities varying from 20 per cent to over 3 times in some places, while raw material costs have gone up 15-20 per cent. “It is no longer affordable,” said Pradeep Aggarwal, Founder and Chairman of Signature Global, a major player in the National Capital Region. It used to make affordable houses till a few years back and has now shifted to mid-income and premium residences.

Builder associations such as NAREDCO, CREDAI are planning to approach the government to make land available, give incentives to builders for building affordable homes as well as raise the cap on pricing.

Aggarwal said he would still like to make affordable houses, but the economics did not permit it. In Haryana, for instance, affordable homes cannot be sold above ₹5,000 per sq ft. “That price is too low,” he said, pointing out that the average rate around Gurugram was ₹12,000-13,000 psf.

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Slum rehabilitation projects

The story is similar in Mumbai and surrounding areas. In Mumbai, the size of an affordable house is around 320 sq ft with a cap of ₹45 lakh. “It is impossible to build an affordable home in Mumbai,” said  Domnic Romell, President, CREDAI-MCHI. There are land costs, construction costs, approvals, and premium costs and on top of that 18 per cent GST, all of which take the price far beyond that capped by the government.

 Romell said it would be difficult to sell such houses because rehabilitated slum dwellers are getting the same area free of cost with 10-years maintenance paid. “In Mumbai, other than rehabilitation of slums, there has been no supply of affordable houses in recent months,” he added.

The number of launches of affordable projects in the NCR region has dwindled over the past several quarters, Aggarwal said. In the years 2018-20, around 8,000-10,000 affordable units were being launched every quarter. Now there are hardly a few projects and those that are coming up are situated far from the urban centres.

According to data from Anarock, in NCR, the share of affordable home sales in the total has dropped to 24 per cent in 2024 from 49 per cent in 2019. Supply has also dropped to 11 per cent from 47 per cent in the same period.

In Mumbai, the share of affordable homes in sales has dropped to 31 per cent from 35 per cent over the last five years, while new supply has fallen to 35 per cent from 43 per cent. Majority of the sales and supply are slum projects.