The future of affordable housing

There is significant demand for affordable homes but supply is limited, say analysts, even as developers ready business models
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First Published: Fri, May 31 2013. 01 08 AM IST
Value Budget Housing Corp.’s budget homes in Bangalore. The company, which launched its first project near Mumbai in February, said it has sold 250 out of 350 apartments, priced at `11.6-17 lakh. Photo: Aniruddha Chowdhury/Mint
Value Budget Housing Corp.’s budget homes in Bangalore. The company, which launched its first project near Mumbai in February, said it has sold 250 out of 350 apartments, priced at Rs.11.6-17 lakh. Photo: Aniruddha Chowdhury/Mint
Bangalore: In 2009, when Tata Housing Development Co. Ltd launched its first so-called value housing project under the Shubh Griha brand in Boisar, about 70km from the centre of Mumbai, the 283-465 sq. ft homes were priced at Rs.3.9-6.7 lakh.
That pricing, rock-bottom compared with elsewhere in Mumbai, drew a great deal of attention from potential buyers and rivals.
Until then, Boisar had no presence on India’s real estate map. Once the Tata Housing project was announced, the industrial suburb suddenly became the talk of the town with a number of other companies following suit. It also opened up the potential of exploring a massive buyer base in and around large cities such as Mumbai.
Property prices are high in markets such as Delhi and Gurgaon in the National Capital Region (NCR), besides Mumbai and Bangalore.
There is significant demand for affordable homes in such areas, in the Rs.5-20 lakh segment, yet supply is limited, said analysts. It’s only now that private developers are coming up with business models to fill this gap.
India’s national housing shortage is estimated at 18.78 million homes, according to a recent report released by the central ministry for housing and urban poverty alleviation and reported by Mint earlier this year.
The potential demand for homes priced Rs.5-10 lakh is about 22 million units, management consultancy Monitor Deloitte said in an October 2012 report, estimating the market size at about Rs.11 trillion. In the Rs.10-25 lakh category, the demand is for about 5 million homes, it said. The survey was conducted in seven cities where mortgage finance is available broadly.
“What’s interesting is many developers are now doing their second, third or fourth projects because they are seeing a market in this space and the commercial viability is clear. The challenge is that the number of homes coming in is still small,” said Ashish Karamchandani, executive director and head of Monitor Deloitte’s Inclusive Markets, a unit of consultancy Monitor Group.
Between June 2011 and January 2013, a span of 19 months, around 30,000 affordable houses were launched; but even that is not enough, Karamchandani said.

Home economics

In February, Value Budget Housing Corp. Ltd (VBHC), promoted by entrepreneurs Jaithirth Rao and P.S. Jayakumar to build budget homes, launched its first project in Palghar near Mumbai, after projects in Bangalore and Chennai. The company has sold 250 out of the 350 apartments, priced at Rs.11.6-17 lakh. Rao said the “buyer response was fantastic”.
Rao said the company will build a few projects in Vadodara, Ludhiana or Chennai, but the focus will be on Bangalore, Mumbai and the National Capital Region (NCR) because of the sheer demand and depth of these markets.
Most real estate firms are struggling to improve home sales in large cities with buyers discouraged by the depressed economy and high interest rates. While budget housing is a low-margin business, it makes up with high sales volumes.
Ajmera Realty and Infrastructure Ltd will kick off a 100-acre project in suburban Mumbai sometime in July that will offer homes at Rs.12-14 lakh.
“We will keep the home sizes small—one room-kitchen, one bedroom-kitchen-hall and with two bedrooms—so that the ticket size (price) remains reasonable,” said director Bandish Ajmera.
Tata Housing is developing four townships through ITS Smart Value Homes Ltd, which sells homes at Rs.4-13 lakh and Rs.14-40 lakh in two categories, in Boisar, Vasind, Ahmedabad and Bangalore.
It helped that in December, the Reserve Bank of India (RBI) allowed real estate developers and housing finance companies (HFC) to raise up to $1 billion through external commercial borrowings (ECBs) to promote affordable housing projects. This will help them access cheap overseas funds and reduce the overall cost.
While there are a number of HFCs willing to lend to this sector, rising prices in cities such as Mumbai have had an impact on areas in its periphery, which are seen as great catchment areas for affordable housing, analysts said.
Micro Housing Finance Corp. Ltd (MHFC), which started five years ago when not many banks or financial institutions lent to the informal sector, now has 150 projects that it has approved and partnered with, said Rajnish Dhall, managing director and chief executive.

Price escalation

MHFC lends at an average rate of 11-13%, with a 2% benefit rate relaxation for women, and a loan ticket size that doesn’t exceed Rs.10 lakh. However, Dhall said most of the supply is coming into smaller towns such as Bhopal and Indore, and Mumbai is still a different market because prices escalate rapidly.
“Mumbai has limited supply in this price bracket, though it was there a few years back. Now, a one-room kitchen (in Boisar) costs Rs.12 lakh upwards, with prices moving up,” said Dhall.
Out of the Rs.100-150 crore of loans sanctioned by Home First Finance Co. India Pvt. Ltd, most are for projects along the industrial corridors near large cities such as Kalyan-Karjat in Mumbai and Delhi-Jaipur, chief executive Manoj Vishwanathan said.
“We look for these large industrial catchments because lots of projects are coming up there. Gradually, smaller cities like Bhopal and Bhubaneswar are coming in and tapping low-cost homes,” he said.
A few mainstream developers are also venturing into affordable housing. Mahindra Lifespace Developers Ltd will launch pilot projects in Boisar and Avadi, north Chennai, in the Rs.5-15 lakh bracket. Puravankara Projects Ltd of Bangalore has already set up Provident Housing Ltd to serve this section of buyers.
Mumbai’s suburban developers, such as Poddar Developers Ltd, have reserved 25% of apartments in a project to families availing loans from non-banking financial companies (NBFCs) such as Gruh Finance Ltd, Mahindra and Mahindra Financial Services Ltd and Muthoot Fincorp Ltd. NBFCs offer rates that are a little higher than commercial banks, but have an easier documentation process and offer benefits which makes it easier for low-income groups to get loans from them.
Poddar tries to ensure the apartments go to those who want to live in them and not to investors.
“We don’t sell more than one flat for a single buyer. We have a 75:25 mix of actual homebuyers and investors,” said Rohit Poddar. Over the last two years, Poddar Developers has sold more than 2,500 residential apartments at Rs.3.5-12 lakh in Badlapur, Thane district, and Karjat, Raigad district, for the economically weaker section (EWS) and low-income group sector. It recently launched a project in Atgaon in Thane.
Rashmi Housing Pvt. Ltd is giving loans to homebuyers without any interest for its projects.
“Thirty per cent of our homebuyers are themselves availing of this loan facility,” said director Yogesh Bosmiya. It has sold 3,000 units in the Mira-Bhayander area since 1999 and is developing another 4,000 units.
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First Published: Fri, May 31 2013. 01 08 AM IST