Bangalore: Builders who launched low-cost housing projects during the recession of 2008-09 are finding it difficult to deliver the residences on time to customers.
The 100-acre Tanaji Malusare City (TMC) in Karjat, about 60km from Mumbai, is a case in point. A little-known Mumbai-based developer, Matheran Realty Pvt. Ltd, received 66,000 applications from homebuyers for its first 10,000 apartments that cost Rs3-6 lakh each.
Lagging behind: Construction work at the Tanaji Malusare City project. Though government agencies have been building budget homes for a long time, many private developers entered this segment in 2008-09.
Close to two years later, the project missed a March deadline to hand over its first set of apartments.
Though government agencies have been building budget homes for a long time, several private developers entered this sub-Rs10 lakh segment in 2008-09.
Most of them, with no prior experience in this segment, have faced problems related to land acquisition and execution of projects.
“Low-cost housing in India is still at a nascent stage, which is why many developers are facing land consolidation problems, and logistical and execution hazards,” said Samantak Das, national research head, Knight Frank India, a property advisory.
A TMC spokesman said the first batch of homes will now be delivered January onwards. “We estimate deliveries of the first lot of 36 buildings with the full availability of infrastructure services such as water and electricity to commence by early 2011.”
“The success of such low-cost housing project lies in its timely delivery to buyers. Till then, it is only an announcement,” said Sudhin Choksey, managing director, Gruh Finance Ltd, the small-ticket home loan arm of HDFC Ltd, India’s largest mortgage lender. “Projects such as TMC were big announcements that made many promises to customers, but it was too ambitious and couldn’t pull it off.”
There have been about 700 cancellations of bookings so far, the TMC spokesman said, adding that the builder has appointed 100 customer relation executives to deal with buyers.
Value and Budget Housing Corp. (VBHC), founded by Jaithirth Rao and P.S. Jayakumar, plans to build a million homes at Rs5-9 lakh, the first of which will come up in Attibele, an industrial town around 35km from Bangalore.
The project, scheduled to be launched earlier this year, is yet to open for bookings. Though Rao didn’t specify the reason for the delay, he said that it is in the last leg before launch.
“Low-cost housing in India has gone beyond the idea stage but has not reached yet the execution stage,” said Rao. “We need another 12 months to see the actual level of success.”
Rao said there are other challenges facing the sector: “Unclear land titles are an issue and conversion from agricultural land is time-consuming, apart from cost constraint in land buying.”
Knight Frank’s Das said since margins are thin in low-cost projects, the economies of scale are extremely important.
“It’s a good start in the Indian property markets but developers need to do more homework to avoid executional issues because this is time-bound,” he added.
Tata Housing Development Co. Ltd, which is building 1,500 low-cost homes in Boisar near Mumbai and follows a joint development model for its projects, has been negotiating for land with owners for its second project in Bangalore for many months now but is yet to close a deal.
Managing director Brotin Banerjee said that despite the shortage of 24 million housing units and housing-for-all mission, the government hasn’t offered any help.
“We launched the Boisar project without any government subsidy. The situation was graver than we thought,” said Banerjee. “There was huge demand for such homes but availability of bank loans for the informal sector was a challenge.” His reference is to the difficulty people employed by small companies or self-employed individuals such as plumbers and carpenters face while seeking loans.
Selling such projects also poses a challenge to companies.
Ramesh Ramanathan’s Janaadhar Constructions Pvt. Ltd, which launched its maiden project in Attibele in April, has sold around 70 out of the 500 homes at less than Rs5 lakh.
Ramanathan said at the launch that it took his firm three years to get clear land titles and approvals. Construction began on 30 April and company officials have been visiting various industrial units along Hosur Road and Electronic City to create awareness about the project.
“We’re not pushing sales but we were surprised that our target clientele, such as industry workers, don’t even know about the project because we can’t afford to spend too much on publicity,” said Bhuvaneshwari R., chief operating officer, Janaadhar Constructions.
However, both Choksey and Das are hopeful that the sheer demand for such projects will see them through, even if there are delays.