Chennai: Value and Budget Housing Corp. Pvt. Ltd (VBHC), a low-cost housing company, is shrinking the size of its budget home projects as higher regulatory costs of taller and larger low-cost housing colony erase benefits derived from economies of scale.
Jaithirth Rao and P.S. Jayakumar, former Citibankers who founded VBHC in 2009 with an aim of building a million entry-level homes across cities in 10 years, told Mint about the company’s plans on the sidelines of a press conference in Chennai.
“We believe that small projects is the way to go,” said Rao. “We intend to do several-dozen small projects instead of half-a-dozen large projects. Sometimes for large projects, even if you get approvals, they change half way. Smaller projects tend to get approvals faster.”
“Also, we plan to have low rises and not high rises,” Rao added. “High rises end up meaning low productivity.”
This revamped business plan marks a change from VBHC’s stance in August 2010 when the company started its maiden construction, Vaibhava, in Attibele near Bangalore. VBHC’s Bangalore project comprises about 1,700 apartments in seven-storey buildings across 30 acres. About 1,100 of those flats have been sold and around half of those have been built.
But its latest budget housing offering at the industrial town of Oragadam—40km outside Chennai—will be a fraction of the Bangalore project’s size. The Rs 25-crore project in Tamil Nadu’s capital will consist of just 200 homes in four-storey structures spread over just five acres. That is going to be the formula for VBHC’s upcoming Rs 30 crore each low-cost housing plans in Gujarat (Vadodara), Tamil Nadu (Coimbatore and Chennai), Karnataka (Bangalore), Maharashtra (Mumbai) and Rajasthan (Bhiwadi).
“The reason this change is taking place is purely economic and even though the builders may not get the economies of scale, they are saving on implementation time as a smaller project takes lesser time to be approved,” said Madhusudhan Menon, chairman of Micro Housing Finance Corp. Ltd (MHFC), a four-year-old mortgage company that offers housing loans to low-income home buyers.
Menon added that delays for approvals for high-storey and large-sized budget housing from departments such as civil aviation and fire, puts not just the builder but also the borrowing customers at risk as costs go up and buyers have to shell out more money for an apartment.
“Moreover, it is good to have smaller projects scattered around different geographies rather than slog to have 2,000 flats sold in one area,” Menon said. “It saves both approval and marketing time as it is easier to attract and sell to a smaller bunch of customers.” Already, one-third of the apartments in the Oragadam project have been sold through word of mouth, VBHC’s Rao said.