New Delhi/Bangalore: While builders find it hard to sell houses amid sluggish economic growth, those that cost less than ₹ 10 lakh have emerged as a thriving segment, said a report by Monitor Deloitte.
Although project sizes have shrunk to 500 units each or so from 3,000-5,000 in 2010, their number has risen four times, and they are being built in twice as many cities than they were five years ago, said the report by the management consultancy released on Wednesday.
The supply of cheap housing has steadily risen, with 30,500 units built between June 2011 and January, said the report based on 132 such projects in 22 cities that include Mumbai, Jaipur, Indore, Chennai, Ahmedabad, Nagpur, Kolkata and the national capital region.
The development is more pronounced in Maharashtra, Gujarat and Madhya Pradesh than in northern India, it said.
Viewed differently, for families that earn between ₹ 10,000 and ₹ 25,000 a month, there is an estimated need of 15 million residences, which Monitor Deloitte said translates into an opportunity of ₹ 9 trillion for builders and ₹ 7 trillion for mortgage lenders.
The budget housing segment needs some encouragement for this opportunity to materialize, experts say.
“There is a growing business interest in low-cost housing projects from financial institutions as well as developers. However, there is a need of scaling up such projects for which certain incentives for developers are required from both financial and regulatory sides," said R.V. Verma, chairman and managing director, National Housing Bank. “Fast-track approval process for affordable housing projects as well as land availability are required to boost the sector for which all the stakeholders will have to come together."
The Reserve Bank of India earlier this year declared that affordable housing will be placed in a category that will attract lower interest on loans to both builders and buyers.
“Since 2007, the number of LIH (low-income housing) projects has trebled. Developers see it as a profitable venture. Even though margins are lower, the turnaround time is faster. It is a game of volumes," said Vikram Jain, head, low income housing practice, Monitor Inclusive Markets, Deloitte India. “From the financial lending side, it is a good proposition for banks and other financial institutions since NPAs (non-performing assets or bad loans) are nearly zero in the segment."
Jain, along with Aditya Agarwal and Ashish Karamchandani, said in the report that small developers may help in boosting supply of cheap housing but different cities have reacted in different ways.
A quick scan in Indore revealed 30 small developers building affordable homes, and at a faster pace than mid-sized builders.
In Ahmedabad and Jaipur, most small developers are building large format projects in other categories.
Even smaller homes with just a room and a kitchen are becoming popular in Mumbai as there are many interested buyers, the report said.
Jain said the three main challenges in the sector include approvals for projects, which typically take about 18-24 months, rising land prices and increasing construction and labour costs. This is likely to shrink the number of
takers for such houses, Jain said.
The primary concern for developers in the low-cost housing segment is the time taken for necessary approvals, according to P.S. Jayakumar, co-founder of Value and Budget Housing Corp. Pvt. Ltd.
“Timely execution is key for such projects to keep costs in control, and if approvals take two years to come in, then it increases the cost of any project," he said.
Jayakumar said while some states such as Rajasthan, Madhya Pradesh and Orissa are making rapid progress in this regard, many other states where demand is high are still laggards.