Mumbai: A recent state government lottery for about 4,000 low-cost apartments in Mumbai drew more than 430,000 applications, underlining the need for affordable housing in a country where housing is also a top election issue.
Political parties of all hues have seized on affordable homes as a vote getter in India’s ongoing general election, plugging in to the frustration of millions priced out of a real estate boom fuelled by a robust economy and a six-year bull market.
Developers too, stung by the credit crunch and sagging demand for offices and premium residences, have turned to a middle class segment that may be more immune to the economic slowdown.
“For the government it makes sense from a vote bank perspective,” said Anuj Puri, managing director of real estate consultancy Jones Lang LaSalle Meghraj.
“For builders, this slump may last two to three years. How do they pay salaries, keep their lenders happy? This is the option.”
Parties have been quick to seize the opportunity in a country where home ownership tops every wishlist, and is part of the trio of basic amenities alongside electricity and roads promised by every politician to mostly rural voters.
The Congress party-led government has recently encouraged states to release land for affordable homes, invited private partnerships and stepped up funding of rural housing.
The Congress government in Maharashtra has declared 2009 as the year of “Housing for the Common Man”, with a plan to build 1 million affordable homes, while the Congress government in Delhi held a lottery for 5,000 flats that got 500,000 applications.
The Bharatiya Janata Party has vowed to build 1 million homes every year in its manifesto.
Affordable Housing Immune to Credit Crunch
But it is not just politicians taking an interest in votes.
Investors stung by a slump in the wealthy real estate sectors are increasingly looking at investment in affordable housing.
This kind of housing is “seriously undersupplied” in India, according to a Goldman Sachs report. More than 30 million units are needed because of growing urbanization.
Mumbai, long a magnet for migrants from poor states, is home to one of the 10 most pricey residential neighbourhoods in the world, yet more than half its 17 million residents are homeless.
Demand has also stayed robust because these buyers do not depend on bonuses or stock-market gains said Puri, who defines an “affordable” home as costing no more than five times the buyer’s cumulative salary, or Rs2.2-Rs3.5 ($44,000-$70,000) for an average middle-class family in India.
This segment of buyers appears relatively insulated from the credit crunch, as is evident from robust motorbike sales and the record number of new mobile phone users being added every month.
“Ironically, the sector which was one of the principal causes of the financial market meltdown in the US may just offer downside protection in India -- the fortune at the bottom of the pyramid,” said the Goldman Sachs report.
Since India eased rules on property investment in early 2005, foreign investors such as Citigroup and Morgan Stanley have piled in, causing land prices to double in major cities.
But as the credit crisis spread, it put the brakes on several big projects; affordable housing on the other hand, is relatively insulated as there is little foreign funding.
Top developers such as DLF, Unitech, Omaxe and Parsvnath are targeting the segment now, with about two dozen projects in Mumbai’s suburbs alone, even as high-ticket commercial and residential projects have stalled.
The Mumbai draw was more keenly awaited than the election.
“I didn’t want to regret later that I didn’t even make an attempt at getting an apartment 30-40% cheaper,” said Jitendra Patil, 29, an advertising executive.