Affordable housing: Realty’s new calling
For an industry that’s in the throes of an acute recession, the demand for affordable housing could not have come at a better time. Small wonder then most developers regardless of their size or reputation are now making a dash to provide ‘affordable homes’ in a market where the customer is clearly the king. Rajesh Kulkarni checks out the prices on offer.
The ongoing slump in demand for luxury and premium residential projects has forced developers across the country to return to a segment that was thought to be long forgotten. Affordable housing or homes that cater to the mid-income group, by far the largest category of end users today, are making a huge comeback, and how.
The once buoyant Pune market is witnessing a supply of 1BHK apartments making a comeback, with about 10,000 such ‘compact’ units measuring 500-700 sq ft priced between Rs15 and Rs20 lakhs, expected to come into the market over the next one year. The overriding reason being the unprecedented rise in property prices over the last three years that has put 2 & 3BHK apartments beyond the reach of potential buyers.
The Orissa chapter of the Confederation of Real Estate Developers Association of India (CREDAI) has decided to cut prices of its upcoming housing projects by 5-10% over the next two months following a fall in prices of key raw materials. The move comes in the wake of a call given by CREDAI advising members to cut prices to revive demand.
Following the price cut, residential real estate projects in the city will come down to Rs2,200-Rs2,400 psf as against the prevailing rates of around Rs2,500 psf.
Down South, Bengaluru is facing the brunt of falling demand with an estimated 450 flats on the city’s outskirts finding no takers in spite of frenzied promotional campaigns. The city is now turning its attention to housing projects targetting the middle-class. According to industry sources, several small builders have firmed up plans in this direction, while bigger players are expected to follow suit.
A systemic solution
A clear reflection of this trend was seen at a recent housing expo organised by the Builders Association of Navi Mumbai (BANM) where the spotlight was on affordable housing projects. “People are looking at buying homes at realistic prices,” says Nalin Sharma, president, BANM. The expo had on offer properties priced from Rs10-18 lakhs at upcoming Navi Mumbai suburbs like Ulwe, Roadpali, Kharghar, Kalamboli and Panvel.
Mumbai-based Matheran Realty’s project, Tanaji Malusare City (TMC) at Karjat, the country’s first and largest township dedicated to social housing offering quality homes priced between Rs 3-7 lakhs is already eliciting a positive response. The company witnessed nearly 66,000 aspirants applying for 3,000 apartments to be handed over in mid-2009. “There is no dearth of demand for homes in the under Rs10 lakh category whether it is boom or recession or the huge demand-supply mismatch,” says Pravin Banavalikar, CEO, TMC.
Buoyed by this, the company has announced a rental housing programme in tandem with the Mumbai Metropolitan Region Development Authority (MMRDA) wherein TMC will provide 6,000 homes free-of-cost to MMRDA in exchange for higher FSI and off-site infrastructural support such as municipal, roads, electricity and water infrastructure.
Company sources say beneficiaries of the housing scheme will be given a 160 sq ft residential unit on a leave-and-license basis for a period to be decided by MMRDA who will determine the monthly charges. As part of its promised infrastructural support, MMRDA will create a growth centre at Karjat in addition to building a six-lane road and municipal infrastructure.
With premium projects finding few takers, it comes as no surprise that the country’s top builders are focussing on affordable projects to raise some much-needed funds. Mumbai-based Lodha Group, known for its premium and super premium segments, has launched CASA, its new value sub-brand that targets buyers from the middle-income group.
“This brand will cater to the needs of the mobile, aspirational middle-class while ensuring security, comfort and value for money,” says Abhisheck Lodha, director, Lodha Group. The company has announced CASA-Univis, its inaugural project in this category. Centrally located at Ghodbunder road, Thane, this 55-acre project offers a choice between 2- and 3BHK configurations across 26 towers at an invitation price of Rs2997 psf. For Lodha, this project is an answer to rapidly changing dynamics of the realty market.
He says: “People are looking for value propositions and we intend to give them that, without compromising on the comfort aspects. According to our estimates about 70% of the property market will be driven by the affordable project segment soon.” In line with this, the company plans to invest about Rs500-700 crore in the development of Casa brand over the next 12 months.
Pune-based Avinash Bhosale group (ABIL) is also considering similar projects. “We have identified pockets in and around the city that offer easy accessibility to public transport facilities and industrial work areas where we are in the process of planning low-cost housing schemes,” says Sudhanshu Purohit, the company’s CEO.
Buoyed by an encouraging response, DLF too has announced to invest Rs15,000 crore over the next three years in the development of residential projects priced between Rs15 and Rs40 lakh. According to A Harikesh, vice president, DLF Home Developers, the wholly-owned subsidiary of DLF, the company will develop about 40,000 units measuring between 1,000 and 1,800 sq ft. “Mid-income homes will be a strong focus area for us and will see strong growth.” DLF has witnessed tremendous response for its mid-income projects at Bangalore, Gurgaon, Hyderabad, Indore, Kochi, Kolkata and Pune, which have sold over 7,000 units thus far. The company is in the process of launching more projects in Chandigarh, Jalandhar, Ambala, Goa and Lucknow within six months.
DLF Homes plans to launch such projects in all 31 cities where the company will have a presence by 2009-10. “Prices would vary depending on the city and land costs but a majority of the flats would fall in the price range of Rs 2,000-3,000 psf,” adds Harikesh.
Another Delhi developer, Unitech Ltd too has plans to invest Rs2,500 crore in developing 10,000 residential units in the price range of Rs30-50 lakhs by 2010. Ramesh Chandra, the company’s chairman, said the projects would be based in cities like Gurgaon, Noida, Greater Noida, Kolkata and Chennai where Unitech owns land banks.
Stressing that it is possible for developers to offer affordable homes by reducing the size of the units, working on lesser margins and focusing on value engineering Chandra says, “Scaling down the size of an apartment from 1,600 sq ft to 1,000 sq ft brings down the cost price by about 35-40%.” The decrease in prices of key raw materials in recent months would also play a vital role in bringing down overall cost of construction, he adds.
Also in the fray is South-based developer Puravankara Projects Limited which plans to target middle-income buyers by launching its 100% owned subsidiary, Provident Housing Infrastructure Limited. The company plans to construct 64,500 homes with a built up area of 59.80 million sq ft over the next five years in the first phase of its plans.
While Phase I will cover cities like Chennai, Mysore, Hyderabad and Bangalore, Phase II will witness similar projects at other locations such as Delhi, Kolkata, Nagpur, Kochi, Jaipur and Pune. Provident will offer buyers a choice between 1-, 2- & 3BHK apartments, priced around Rs10-20 lakhs. Apart from homes, it will also develop large plotted development townships for affordable housing supported by facilities.
Viable option in lean times
From a developer perspective, the intent shown by both buyers and investors has come as a boon. Understandably, players are leaving no stone unturned to ensure they leverage this opportunity.
The Lodha group, for example, has conducted an extensive survey to gauge the business potential. “Our research shows that Mumbai and its surrounding areas have an average residential demand for approximately 17 crore sq ft each year for the next ten years,” says Lodha. “Of this about 12 crore sq ft is in the bracket of Rs10-56 lakh of home value, equivalent to an income of between Rs2-10lakhs per annum. Clearly there is a dearth of quality projects that match the aspirations of this segment.”
Others like ABIL’s Purohit say that their interest in this segment has been dictated purely by the existing market scenario at Pune which has witnessed a demand slump to the tune of 25-30% in certain pockets. “Reduced interest rates and lower input costs of raw materials like cement and steel are seeing the volumes offered by this segment comparatively better, both in terms of costs of building and the market,” says Purohit. “This is however a transitory phase till the economy improves.”
For Mumbai-based Marathon Group, one of the early starters in this category with its 49-acre project Marathon Nagari at Badlapur, about 40 kms from Mumbai, it’s the perfect solution to ensure those crucial volumes in lean times.
“Affordability is important if a builder wants to do voluminous business,” says Mayur Shah, the company’s MD. “When this factor is breached, the product will not sell. So I think the question is how efficiently can the developer acquire reasonably-priced land and develop a quality product with a reasonable margin and sell it.”
Shah also offers a word of caution. “If every developer tries to market his project as a luxury product by just adding a few features, it’s not going to work,” he says. “India has many growth sectors and many professionals earning more money than before. As a result they want to upgrade their lifestyle and purchase luxury properties.
This will be a continuing phenomenon, but the volume of business in this category will be small. At the end of the day, the majority of the population requires affordable housing projects.”
Taking the lead
Adding to the optimism of the real estate industry is a series of measures announced recently by the government which are aimed at stimulating demand in the retail housing sector. These include allowing realty firms to borrow from overseas to develop integrated townships and reducing interest rates on home loans up to Rs20 lakhs.
While the industry has largely welcomed the government’s intervention, efforts are underway to increase the benefits for home loans up to Rs40 lakhs. “The amount has to be increased for the benefit of middle class buyers residing in metro cities like Mumbai since there are hardly any flats available for up to Rs20 lakh,” says Pankaj Awasthi, a real estate consultant.
Recognising the acute shortage of affordable housing options in Mumbai, the state’s urban development department has now proposed to increase the Floor Space Index (FSI) to 2.5 for all housing projects across the city provided private developers consent to hand over a portion of their constructed flats to the Maharashtra Housing and Area Development Authority (MHADA).
If approved six storeys in a 20-storeyed building will be reserved for affordable housing, while in bigger projects builders will have the option of building a separate building and handing it over to MHADA whose flats are priced considerably lower than market rates.
In its recommendations to the government the CII has also pointed to the cost and availability of land as a major bottleneck in making housing affordable. Land is limited in cities and the cost of land is growing exponentially, it noted. There is therefore an urgent need to increase the supply of land at an affordable price.
With the shortage of housing units expected to increase from 24.7 million units in 2007 to about 26.5 million by 2012, as per Planning Commission estimates, industry experts are buoyant about the future of affordable housing. In the words of Marathon’s Shah, “This will be the segment that will generate the maximum business volumes in the future.”