The future of mass housing
Buoyed by government incentives and an assured demand even in a depressed market, developers across the country are now scrambling to launch an array of integrated township projects that offer affordable homes with all modern conveniences. Rajesh Kulkarni analyses this growing trend against the backdrop of an acute need for a sustainable solution to resolve the country’s housing woes.
I magine a scenario where your office is within walking distance from your home, or your children cavorting their way to school, just a couple of blocks away. A life without the rigours of a tiring daily commute to office, minus the pollution, traffic jams and the cacophony of blaring horns. Welcome to life at integrated townships or gated communities, a category of mass housing that in most cases incorporates all the necessities of daily life within the same complex.
It’s a concept that is increasingly gaining ground in context with India’s acute housing shortage and as a viable business option for developers battling the ongoing market slump. “The integrated housing model is the residential model of Indian real estate’s future, and the scope is tremendous,” says Gagan Singh, CEO – projects and development services, Jones Lang LaSalle Meghraj (JLLM), the global real estate advisory.
“Generally speaking, the residential sector conditions in many of our metros are on the decline,” she explains.
“There is a general shortage of infrastructure, increased air, water and noise pollution and a rash of illegal and unorganised structures cropping up. Citizens are increasingly facing problems in reaching emergency services, finding adequate parking and traversing pothole-raddled roads. Given this depressing scenario, it has now been established that townships are the most suitable residential solution.”
“Given the acute shortage of approximately 2.7 million homes in the 11th Plan, large townships could play a vital role in reducing the shortage to a great extent,” adds JK Bhosale, COO of the Pune-based City Corporation Limited which is developing Amanora Park town, an integrated township project that will offer about 12000 homes spread across 400 acres on completion.
Bhosale however admits that the ongoing recession has cast a pall of gloom over a majority of realty projects including integrated townships. “But this slowdown is temporary,” he asserts. “Once the psychological barriers like job insecurities and overall business sentiments are corrected, townships which target buyers looking for affordable homes should do well.”
With premium homes finding few takers, large township projects that offer quality homes while simultaneously ensuring those crucial volumes are very much on the agenda of realty majors like Sahara Prime City Limited (SPCL).
As part of its ambitious Sahara City Homes project, the company has launched a chain of 217 townships to be developed across Tier I, II and III cities with each township spread over an area of 100-300 acres.
With 102 towns pencilled in as part of its first phase, onsite construction has began in cities like Lucknow (200 acres), Nagpur (106 acres) Coimbatore (113 acre), Indore (88 acres), Ahmedabad (104.19 acres) and Gwalior (106 acres), while development work is in progress at other locations like Jaipur, Aurangabad, Solapur and Jodhpur.
“Integrated townships are a holistic solution for sustainable urban development,” says Suryavir Singh, head (strategic planning), Sahara Real Estate Business.
“Today people living in metros are faced with a slew of inconveniences for which townships offer the best possible solution. The concept also serves a dual purpose in terms of being a practical solution to the acute housing shortage while also posing as a viable business option for developers.”
“For example, while the infra development expenses get divided among the sheer volume of residential units, townships also generate recurring revenue through their amenities like shopping malls, multiplexes, hospitals and schools located within their complex.”
Down South, Chennai-based MARG Limited has also announced the launch of the first ever integrated township project at Tirupati (AP). Strategically located on the Tiruchanoor Bypass road at Kotramangalam, about 7kms from Tirupati town, Vishwashakti will come up across 17 acres offering 513 Vaastu compliant homes and serviced apartments in addition to other amenities.
“The project is scheduled to be completed in 4 phases,” explains GRK Reddy, CMD, MARG Group. “Phase 1 will be ready by September 2010 and Phase 4 will be ready with all amenities by January 2012. The project offers 2 bedroom and 3 bedroom apartments ranging from 1165 square feet to 1462 square feet.”
Reddy further adds that the project includes several modern amenities like a school, convention centre, department stores, crèche, library and landscaped gardens to woo buyers in the temple city that is fast emerging as a hub for IT, BPO and healthcare sectors with a population of approximately 10 lakh.
Pune-based Sahil Group is also taking the integrated township route with its upcoming project, Sunfields at Balewadi in close proximity to software parks and the arterial Mumbai-Pune expressway. “The project is positioned as an exclusive residential paradise for young IT professionals and NRIs,” reveals Vinay Phadnis, CMD, Sahil group. “It will feature approximately 280 luxury apartments, 24 bungalows, 30 row houses and about 56 studio apartments.”
Voicing his optimism on the future of such projects despite the negative market scenario Phadnis says, “Even in the current situation integrated townships are a viable option in Tier II cities. The reason being customers are ensured better amenities and features at an affordable cost. Even though the realty market may seem dull currently, I predict that in the coming years the demand for integrated townships is likely to escalate given the increasing number of middle class families in the country.”
FDI, ECB impact
While land procurement and inordinate delays in securing the required multiple clearances still pose a major hurdle in the development of such projects, government initiatives like the opening up of FDI and ECB windows for local developers are expected to provide a much-needed boost for township development projects.
“In context where the rupee-dollar parity is favourable, the government’s decision to open up external commercial borrowings for integrated township developers will counter some of the ill effects of the credit crunch and facilitate access to funds for the housing sector in general,” says Gagan Singh.
“In that respect, it will definitely benefit the integrated township segment and the housing sector in smaller cities significantly.”
“Changes in the FDI policy for township development have already attracted foreign players like Indonesia’s Salim Group, Singapore’s Keppel Land Group and UAE’s Emaar group to invest in public-private partnerships with state governments and joint ventures with domestic developers,” she adds.
“The move to relax ECB norms for integrated townships, in principal, will help in improving sentiments, accessing cheaper funding for township projects, easing the liquidity scenario to some extent and assist in the decongestion of cities because township development requires substantial land which is available in the periphery only,” feels Suryavir Singh.
“But the real impact is likely to be felt only when the market conditions ease up and sentiments improve,” he adds.
Scope for improvement
Others like Phadnis feel that there is still scope for improvement in terms of government sops to drive growth in this segment. He says, “On the FDI front, the government should realise that it’s not easy to secure the mandatory 25 acres of land in Tier II cities, so there is a definite need to relax this clause to upto 10 acres. Also the exit route for foreign partners needs to be made more flexible and there is a need to give an added focus to Tier II and III category (sectoral) cities.”
“While the stimulus package and relaxation of ECB norms announced by the government is a welcome gesture, I don’t think the industry’s liquidity problems are going to be resolved by such measures alone,” stresses Phadnis. “Given the current situation there is scope for further corrective steps with regard to other key concerns like the interest rates, raw material costs and overall tax obligations.”
While the impact of such initiatives is likely to be felt only in the long term, the industry continues to grapple with a severe liquidity crunch with most banks, PE funds and FIs adopting a cautious approach when it comes to lending to cash-starved realty players. “Financial institutions have become wary of lending to the realty sector in stark contrast to their aggressive lending when the sector was booming,” concurs Suryavir Singh.
“Inspite of the government efforts to infuse liquidity into the system it continues to be very difficult for developers to raise the required funds from external sources,” he adds. “This situation is likely to continue till market sentiments improve and the impact of recent policy initiatives is felt in the system.”
Need for infra support
For the moment though it is the unavailability of adequate infrastructure facilities to support integrated township project development especially in fringe areas that continues to be a major bone of contention with both developers and authorities passing the buck.
“It is true that infrastructure is an issue more so if the project is situated on the outskirts,” concurs Gagan Singh. “While such townships should ideally add to their entire location’s overall infrastructure, one must also consider that most minor developers will get into this segment with the intention of profiting from the demand volumes at minimal cost.”
“One can therefore not bank on all integrated townships to deliver the necessary infrastructure if cost cutting is a primary objective – conceivably, some of them may even strain it further,” she adds. “The government will assist in making certain projects approachable, but the developer will have to do his bit as well. In lesser-developed Tier II and III cities, such integrated townships can take place closer to city centers and therefore have an overall beneficial effect in terms of infrastructure.”
Sharing his perspective on the issue, Suryavir Singh admits it’s a cause for concern but adds that some state governments have been progressive on this front. He says,“There is a need on part of the developer’s community to impress upon the local authorities the advantages of townships in terms of sustainable urban development, employment generation potential locally and contribution to the exchequer.”
“Apart from this, the planning and designing has to be done in such a manner so as to make the township self sufficient as much as possible,” says Singh. “Features like continuous power and water supply with adequate back up may be incorporated in the designing stage itself to reduce dependency on the civic authorities.”
According to industry experts the real estate market clearly is headed for rationalisation and sustainable growth and the days of spectacular price rises are all but over. While developers in the residential segment have been forced to take a serious look at the needs of the common man, the sudden drop in the fortunes of leading corporates has put the brakes on the indiscriminate launch of commercial projects and exorbitant rentals for projects in prime locations.
The residential segment still constitutes about 80% of the overall demand for the country’s real estate which is now almost entirely user-driven. As Gagan Singh puts it succinctly, “whatever happens henceforth will happen around the real needs of real people with business plans and aspirations.”
With current market trends indicating a distinct customer preference for affordable homes that also fulfill their aspirations for a better lifestyle, integrated township projects offer the perfect solution to both the customer’s requirement as well as the builder’s need for assured demand.