Mahindra enters affordable housing business
Mumbai: M ahindra Lifespace Developers Ltd said on Monday that it will enter the affordable housing business by offering houses in the range of Rs.10 lakh to Rs.20 lakh, aimed at families with a combined income of Rs.20,000 to Rs.40,000 per month.
In the initial phase, the developer will launch projects in Boisar on the outskirts of Mumbai and Avadi in Chennai in July and August, respectively.
“It’s a $150 billion opportunity for private firms. We are not doing it for corporate social responsibility. We hope the government creates an enabling environment for such projects,” Anand Mahindra, chairman of Mahindra group, told reporters.
Mahindra did not disclose investment details, but the company said that all investment needs would be met through internal accruals.
“The immediate plan is to launch pilots in Mumbai and Chennai. Choosing Tamil Nadu and Maharashtra was not accidental for us, as both of these states are highly industrialized and there is a lot of demand. Success in these two projects will define our expansion plans,” said Anita Arjundas, managing director and chief executive officer, Mahindra Lifespace.
According to Arjundas, one of the major hurdles customers face is in financing of homes. Mahindra Lifespace will partner with Mahindra Finance and Muthooth Finance to ensure the customers meet finance requirements.
According to a report by property consultant Jones Lang LaSalle India, the loan market for the Rs.3-10 lakh low-income housing segment is worth nearly Rs.11 trillion. Despite this, the majority of loans disbursed by home finance companies go to middle- and high-income groups in a loan bracket above Rs.10 lakh. The key factor that stops the disbursement of housing loans in the Rs.3-10 lakh bracket, the report said, is the perceived high risk of borrowers—fears of uneven repayments and loans turning into non-performing assets.
While a number of large corporates have entered the affordable housing business, analysts say that most affordable housing projects remain government sponsored.
“Progress is very slow. The likes of Tata Group, Sriram Group, Value and Budget Housing Corp and Pune-based Vastushodh Projects have a handful of projects among themselves, while most of the low income housing is happening through state agencies like Maharashtra Housing & Area Development Authority (MHADA) and Gujarat Housing Board (GHB),” said Subhankar Mitra, head, strategic consulting (west), Jones Lang LaSalle India.
One of the main reasons for the slow progress, said Mitra, is low margins in the business. “To be able to get better margins, these companies will have to drive volume and have multiple projects at a pan-India level, like what Big Bazaar and all do—they provide products at an affordable price and do not look for margins on a per store-basis, but at a pan-India level,” said Mitra.
In 2009, Tata Housing Development Pvt. Ltd first announced a project in Boisar, about 75km from central Mumbai. Since then, other firms including Usha Breco Realty Ltd have launched similar projects in the locality. More recently, Pune-based Vastushodh Projects announced the launch of its AnandGram affordable housing project at Ketkawale on Pune-Satara Highway in March this year.
In 2012, the Reserve Bank of India allowed real estate developers and housing finance companies to raise up to $1 billion through external commercial borrowings to promote affordable housing projects. However, according to Arjundas, this has helped financing companies more than developers. The company plans to tie up with impact investors like the Acumen Fund and Aavishkaar. “For the pilots it did not make sense as we wanted to put in our own money, but going forward if we have to tie up we would prefer an impact investor in this space,” added Arjundas. “It’s critical that projects of this nature turn around quickly to ensure there are no cost overruns,” said Aashiesh Agarwaal analyst at Edelweiss Securities. “I believe Mahindra is conscious of the risk such projects entail, and have learnt from the experience of others who have forayed into this segment earlier. More than the demand, the bigger challenge when executing such projects is to keep the time, quality and costs parameters in check,” added Agarwaal.
Shares of Mahindra Lifespace rose 3.19% to close at Rs.574.80 apiece on BSE on Monday, while the benchmark Sensex fell 0.15% to 25,190.48 points.