Bangalore: Real estate developers are learning the virtues of flexibility as they slow down large residential and commercial projects to assess consumer response and make adjustments accordingly, instead of trying to finish the work as quickly as they can, as was the norm during the real estate boom.
This is especially true of the affordable housing projects that have led the real estate revival after the high-end residential property market crashed because of the economic slowdown.
Reducing risk: An artist’s impression of an Indiabulls project in a tier II city. Analysts say that developers are experimenting with the affordable housing model after some projects garnered big sales in recent times.
Tata Housing Development Co. Ltd is a case in point. Its low-cost Shubh Griha brand of homes at Rs3.9-6.7 lakh in Boisar, 60km from central Mumbai, was a sell-out, with only 45 units having no takers out of the 1,500 that were opened to buyers.
Buoyed by the response, four months after the launch in May, the developer is now launching more expensive homes in the 67-acre plot, out of which only 15 acres are devoted to low-cost housing. The new set of bigger Boisar apartments, still in the affordable bracket, is priced at Rs12.73-27 lakh. The developer also plans to throw in row houses, smaller offices and retail space in the area, but only at a later stage, when demand picks up.
Brotin Banerjee, managing director and chief executive of Tata Housing, however, puts it differently. “The idea behind this is to do a mixed-income product, so that we can bring different kinds of buyers. But we will launch only when we think it is the right time for a particular product,” Banerjee said in an interview to Mint earlier this month.
As real estate projects passed through a rough patch in the past few months with declining sales and growing delays, many developers had ended up changing project formats from luxury to affordable homes, or office spaces to homes, even after construction had begun.
Developers, with a clear focus on cash flow and quick sales, now want to build what they can sell and thereby cut risk.
Indiabulls Real Estate Ltd, the country’s third largest developer by market value, is planning to launch similar affordable housing projects in tier II cities such as Indore, Madurai, Hyderabad, Navi Mumbai, Vadodra and Ahmedabad at a price band of Rs2,500-3,500 per sq. ft to begin with. The rest of the project will be finalized in tune with demand. The parcels vary from 7 acres to 36 acres each, and are mostly near a city centre.
“What we build will depend on customer preference and on market cycles. If affordable sells well, we’ll do more of that or something else that will perform, depending on demand,” said Vipul Bansal, chief executive and joint managing director of Indiabulls Real Estate, which has targeted nearly 20 million sq. ft of such large developments, with a focus on budget housing.
Bansal stressed that developers can’t just build on their own, and need to react to the market cycle and changes.
Sanjay Puri, principal architect of Sanjay Puri Architects Pvt. Ltd, who has designed many large townships, said that the aim now is to launch partially, see how it fares, and then proceed with the rest of the project.
“Earlier, developers would typically have a uniform format catering to a certain segment of buyers unless it was a 100-acre township. But now, they are introducing different components to cater to customers with different needs,” said Puri.
Puri cited the example of a large township project on the outskirts of Mumbai where the builder started with the one and two BHK, or bedroom-hall-kitchen, format, at entry price points, and then gradually introduced more expensive homes.
Analysts say that affordable housing is still at a nascent stage in the country and developers are experimenting with the model after some projects garnered big sales in recent times. So, once the developers get a good response for affordable homes, they introduce more expensive homes in the same location.
“Developers are using affordable housing as a litmus test for buyers to come into a new project. Once they attain critical mass in a location, they will introduce other products at higher rates,” said Akshaya Kumar, chief executive of Parklane Property Advisors, a property consultancy.
Kumar elaborated that with commercial and retail business plans on the back burner, developers are banking on residential demand. However, they will slowly introduce the other components as and when the project gains momentum.
North India-focused developers such as Parsvnath Developers Ltd are keeping under-construction projects as flexible as possible. Parsvnath prepares a master plan to obtain at least 10 different approvals, after which it tweaks the project details to suit market demand.
“Builders should be able to introduce a new format or change the old one even if it was not included in the conceptual stage if we feel that it will work in favour of us,“ said Pradeep Jain, chairman of Parsvnath Developers.