Mumbai/Ahmedabad: Most Mumbaikars probably haven’t heard of Ambivali. Stretched beyond far-flung suburbs like Kalyan, on the Central Railway line, 60 km north-east of Mumbai, it is, quite literally, an outback.

Yet, on a recent, overcast Sunday, every train halting at the Ambivali station dropped off visitors who walked out of the slush-ridden platform to head towards the booking office of Neptune Group, a construction firm selling flats for as low as Rs6 lakh—unheard of in Mumbai and its suburbs.

Also ReadBudget home builders hit by babudom

Click here to view a slideshow on low-income housing.

For 33-year-old Jitendra Tukaram Kadam, who booked a one-bedroom unit with an initial payment of nearly Rs55,000, this will be the biggest expense of his life so far.

“I’ve taken such a risk for the first time," says Kadam, a data entry operator with the Indian unit of US finance company JPMorgan Chase and Co., who earns Rs12,500 a month.

Shifting focus: Over the last year, nearly 25 affordable housing projects have sprung up across India, with Ahmedabad and Mumbai being the hotspots, according to a US consultancy. Ramesh Dave/Mint

“There’s no option for us," says Kadam, who wishes he had booked six months earlier when rates were 10% lower. “I cannot afford a Rs35 lakh flat, I have no black money stored up, and so I have to be content with moving further away from the city, even if it means waking up an hour earlier to get to work."

Luxury home builders turned to the less cyclical low-income housing after demand for high-priced houses and apartments nosedived during the economic downturn. Over the last year, nearly 25 affordable housing projects have sprung up across India, with Ahmedabad and Mumbai being the hotspots, according to The Monitor Group, a US-based consultancy.

In a July report, Monitor estimated that nearly 21 million low-income urban households can afford homes priced between Rs3 lakh and Rs10 lakh, making this a Rs11 trillion market.

But Mint’s research shows that these target households, earning Rs7,000-15,000 a month, are often trailing in the race for these apartments—first as they struggle to scrape together their deposit for this big-ticket purchase, then as builders stamp higher price tags on their projects every six months amid spiking demand from other cash-rich buyers and cost overruns from unexpected regulatory delays (see box).

Investor rush

“In a place like Mumbai, we’re quite nervous about rising prices," says Rajnish Dhall of Micro Housing Finance Corp. Ltd (MHFC), a two-year-old mortgage company. MHFC focuses on workers who operate largely cash-based businesses but don’t necessarily have salary paperwork—autorickshaw drivers and vegetable vendors, for instance.

As MHFC’s 12-14% interest loans cannot exceed Rs5 lakh, rising property prices mean low-income buyers have to shell out more money out of their pockets, often ruining their dreams of a home.“Clearly incomes are not going up as fast," Dhall says. “So we are not able to sanction as many loans."

One reason for the price surge is the investor rush in the budget home space.

A low-income township coming up a dozen kilometres south of Ahmedabad has been completely sold out, partly because businessmen such as A.K. Patel, who lives in a six-room bungalow in Gujarat’s main city, see it as a lucrative investment.

Over the last few months, Patel bought two apartments at Santosh Associates’ 418-flat project that is coming up in Vatwa, an area dominated by textile mills and farmland outside Ahmedabad.

Thanks to the demand from people such as Patel, within a year Santosh Associates bumped up the price of a 300 sq. ft one-bedroom flat by 35%, to Rs6.2 lakh.

While investors could be a bane as they push up price tags, analysts say they might be a boon for a business that depends on periodic payments to complete construction and is also being hit by higher costs due to government mandates such as car parking.

Maintaining cash flow

“If a developer doesn’t get enough end users to buy the flats, then construction will not proceed," says Gulam Zia, national director of Knight Frank India Pvt. Ltd, a property consultancy. “Investors help a developer maintain his cash flow, and that is still important."

Still, some builders are holding off speculators. In 2008, the non-profit Michael and Susan Dell Foundation (MSDF) funded a $2 million (Rs9.3 crore) 12-acre plot, 25km from central Bangalore, for Janaadhar Constructions Pvt. Ltd.

But only 15% of the 528 Janaadhar Shubha units, which are likely to be ready by March-April, have been booked thus far—largely because Janaadhar discouraged companies wanting to buy apartments in bulk for their employees as well as software executives looking to buy homes for their parents.

“The idea was to give access to the people who are currently priced out," says Janaadhar’s promoter Ramesh Ramanathan (a former Mint columnist), who has turned down several affluent buyers.

“But at some point, if we have to complete our projects and move on, we’ve got to sell to people who want to buy it," he says.