India's affordable housing sector is facing a severe crisis as construction costs skyrocket, leading to a significant drop in supply. The segment, once a cornerstone of the country's real estate market, has seen its share of overall housing supply plummet from 40% to a mere 12%.

Sharp Rise in Construction Costs

The affordable housing segment has been hit hard by a staggering 40% increase in construction costs over the past five years. More alarmingly, a sharp 27.3% rise was observed over a three-year period, putting immense pressure on developers and buyers alike.

Key Factors Driving Cost Increases

Several factors have contributed to the surge in construction costs:

1. Labor Wages: Labor wages have seen a dramatic 150% increase, with a 25% rise in the past year alone.
2. Material Costs: Over a five-year period, steel and cement prices have risen by 30-57%, while copper prices have jumped by an astounding 91%.

Regional Cost Variations

The impact of these cost increases varies across different cities:

Market Shift and Buyer Impact

The rising costs have forced a significant shift in the real estate market:

• Affordable housing's share of overall supply has dropped from 40% to 12%
• Sales share in the affordable segment has declined from 38% to 18%
• Developers are increasingly focusing on mid-range and luxury projects
• Affordable housing buyers are unable to absorb price hikes of Rs 500-800 per sq ft

Potential Relief on the Horizon

While the situation looks grim, there may be some relief in sight:

• Proposed GST reforms could potentially reduce affordable housing prices by 2-4%
• Suggestions include reinstating input tax credit and reducing cement GST from 28% to 18%

These measures, if implemented, could provide some much-needed support to the struggling affordable housing sector.

As the Indian real estate market continues to evolve, the affordable housing segment faces significant challenges. The coming months will be crucial in determining whether policy interventions can help revive this once-thriving sector and make the dream of homeownership more accessible to India's growing middle class.

The Indian housing market has demonstrated resilience and growth, according to the latest Housing Price Index report by REA India and Indian School of Business. The index, which covers 13 major cities, registered an 8-point increase year-on-year, reaching 132 in March compared to 124 in the same month last year.

Key Highlights

• The Housing Price Index rose from 124 to 132 points year-on-year in March.
• The index covers 13 major cities including Ahmedabad, Bengaluru, Chennai, and Mumbai.
• Short-term stability observed with the index remaining unchanged from February.

Market Consolidation and Stabilization

Praveen Sharma, CEO of REA India, characterized the current market conditions as a phase of "healthy consolidation." This comes after an extended period of price escalation, suggesting a more balanced market environment.

Factors Influencing the Market

Several factors are contributing to the current state of the housing market:

• Improved Affordability: Recent rate cuts have enhanced housing affordability for potential buyers.
• Strong Demand Drivers: Income growth and evolving lifestyle aspirations continue to fuel demand.
• Global Headwinds: Economic uncertainties on the global stage are influencing market dynamics.
• Cautious Buyer Sentiment: Potential homeowners are displaying a more measured approach to purchases.
• Reduced Launches: A decrease in new project launches has been observed in the market.

Cities Covered in the Index

The Housing Price Index encompasses a diverse range of urban centers across India, including:

Short-Term Trends

While the year-on-year growth is significant, short-term trends show stability:

• The index remained unchanged from February to March.
• January saw the index at 131 points, indicating minimal fluctuation in the first quarter.

This stability in the short term, combined with the overall annual growth, suggests a market that is growing steadily while avoiding rapid price fluctuations.

The Indian housing market's current state of consolidation, coupled with improving affordability and strong underlying demand, paints a picture of a sector that is adapting to both domestic and global economic conditions. As the market continues to evolve, potential homebuyers and investors will be watching closely for signs of future trends and opportunities in this crucial sector of the Indian economy.