Various factors in the last few years have prompted developers to shift their focus away from affordable housing and instead lean towards the premium and luxury segments. First, demand in the affordable segment has shrunk rapidly as the concerned target audience was deeply impacted by the pandemic. Thus, with demand shrinking, developers thought best to not launch projects in this category.
Second, the profits for developers in building affordable housing projects were wafer-thin even before the pandemic. Post-COVID-19, rising inflationary trends of the raw materials including steel, cement etc., and inflated labour costs, put immense pressure on the developers.
They had little choice but to drift away. Third, many interest stimulants that were previously extended to developers of affordable housing have expired in the last two years. This important segment thus needs to be revived with high-impact measures like tax breaks — for developers, so that they will focus more on building affordable housing, and for buyers to improve affordability.
For instance, to boost supply and incentivise developers to build more affordable housing, the government should have re-introduced the 100% tax holiday benefit they previously enjoyed under section 80-IBA in the Finance Act, 2016. This section provided for major tax relief on the profits earned from developing and building affordable housing projects. As is, amid low buyer demand and rising input and land costs, developers find it unvia.