Govt subsidy scheme shrinks affordable homes drastically

Tata’s affordable housing scheme near Mumbai

The size of apartments on sale in India are shrinking like never before, mostly due to a new affordable housing subsidy scheme announced by the government in early 2017.

Under this credit subvention scheme, the government will today pay up to Rs 3.5 lakhs to banks on behalf of anyone who takes a home loan to buy an ‘affordable home’. Such homes also attract a goods and services tax of just 1%, instead of 5% for mid-tier homes, translating into another couple of lakhs of savings.

However, to qualify for the tag of ‘affordable home’, the developer has to either price the flat at or below Rs 45 lakhs, or bring down the carpet area to 60 square meters (850 sq ft) or less in metropolitan cities and 90 square meters in other areas.

This means that in places like Mumbai, where the cost of real estate is very high, most developers would opt for the carpet area method of achieving ‘affordable status’, instead of the price-based method.

In markets where prices are not so high, developers could build larger flats and still qualify for affordable housing status by pricing it at Rs 45 lakhs or below. But this would be more difficult in markets like Mumbai, where average flat prices tend to be in the Rs 50-60 lakhs within the BMC zone.


Not surprisingly, therefore, the government’s incentive scheme for affordable housing has resulted in a sharp decline in the kind of flats that have come to the market in recent months.

According to an analysis Anarock Consultants, the average size of an apartment offered for sale in Mumbai Metropolitan Region — which includes areas like Ulhasnagar, Vasai and Alibaug — has fallen by 45% over the last five years.

The average flat sold in MMR is now just 530 square feet in size, compared to 960 sq. ft. in 2014.

This is not even half that of other cities like Bangalore, Chennai, Hyderabad and Delhi.

In Delhi, for example, the average size of an apartment sold in the National Capital Region is 1,390 sq ft, which has hardly changed in the five years (a decline of 2% to be precise).

The biggest flats are to be found in Hyderabad at 1,570 sq ft, while it is at 1,300 sq ft in Bangalore and 1,190 sq ft in Chennai.

In other words, developers in these cities seem to be using the price-based definition of affordable housing, and focusing more on meeting the Rs 45-lakh cut-off instead of the 825 sq ft cut-off.

Still, there has been some decline in flat sizes even in these cities, which may be related to other factors such as shrinking budgets and lower demand.

For example, Hyderabad saw a decline of 12% in the average flat size in the five years, while Bangalore saw a reduction of 9% and Chennai 8%.

Pune, for the record, also seemed to follow the pattern of Mumbai, with developers seemingly focusing on reducing the size of the flat instead of the price, to qualify for the affordable tag.

Average flat sizes in Pune have fallen by a whopping 38% to just 600 sq ft over the same period.


But the situation in Bangalore is somewhat more complicated, as the fall in the size of affordable homes has been masked by the relatively small proportion of affordable homes in the overall mix.

In other words, Bangalore too saw a sharp decline in the size of affordable homes — to 710 sq ft from 1,070 — but this was not enough to swing the overall number much as affordable homes do not form as big a part of the total mix in Bangalore as they do in Mumbai and Pune.

In other words, Bangalore would have shown trends similar to Mumbai and Pune if it wasn’t for the fact that most of the activity in this city is focused on mid-segment properties and not affordable housing units.

The situation is very different in Pune. Of the total 22,830 units sold in Pune in H1 2019, nearly 47% belonged to the affordable category.

This domination of affordable segment can also be seen in the impact that affordable housing has on the overall numbers for the city.

In Pune, an average affordable house has an area of 565 sq ft, while the average apartment sold in the city is hardly bigger at 600 sq ft.

Pune’s affordable houses (565 sq ft), while smaller than those in Bangalore (710 sq ft), are considerably bigger than those of Mumbai region, where it is just 425 sq ft in size — or roughly as big as a decent-sized living room in Delhi or Bangalore.

In Delhi, the average affordable home is 650 sq ft in size (down from 890 five years ago), while in Kolkata, it is 705 sq ft and in Hyderabad, it is 810.

On a national basis — taking into account data for all seven cities — affordable flats have an average size of 540 sq ft. This about half the size of an ‘average flat’ in these cites, including affordable and “non affordable” categories, at 1.020 sq ft.

“Buyers are increasingly looking to avail the government’s credit subsidy benefits for affordable housing,” points out Anuj Puri, chairman of the consulting firm.

“Buyers get reduced costs and added benefits, but lose out on space. Developers get to attract more buyers, but many have had to shed their cherished ‘luxury’ market categorization and stoop to conquer.”


The data also indicates that it’s not just the government scheme that is responsible for the shrinkage, as some impact can also be seen outside the ‘affordable category’.

On an all-India basis, luxury flats — priced in the Rs 1.5 cr to 2.5 cr band — also saw an 18% reduction in average property sizes from 1,640 sq. ft to 1,350 sq. ft.

Ultra-luxury homes, priced above Rs 2.5 cr, saw an 8% decline in average property sizes to 2,200 sq. ft.