Developers Target Affordable Housing

In Mumbai, India’s commercial and entertainment capital, real estate is notoriously expensive. In the past decade, India’s galloping economic growth gave birth to a housing boom, built around the emerging middle class - a 300-million-strong, high-earning, high-spending urban population. The construction industry minted profits by building high-end condos and skyscrapers for this burgeoning section of Indian society. Housing prices soared, rising 16 per cent a year for the past four years.
But the economic downturn had knocked down the industry back on its heels. Real estate companies have seen a steep decline in sales and many are reeling under a severe cash crunch. Now, they see low-cost housing as an economic saviour. They are keen to tap into the budding consumer base at the bottom of India’s economic pyramid. At least 23 million urban Indian families in the middle and lower-middle income groups (with annual earnings of 60,000 to 130,000 rupees, about $1,400 to $3,000), do not own their homes, but strongly aspire to, according to Monitor India, a Mumbai-based research firm. When rural households are included, the number swells to 180 million families.
After launching the world’s cheapest car this year - the bubble-shaped Nano - Tata’s housing division announced plans in May to build so-called Nano Homes to cater to this underserved segment. It plans to build 1,300 small apartments outside Mumbai, with prices starting at about 380,000 rupees (about $8,600). The company also plans to launch low-cost housing projects outside other major Indian cities. Matheran Realty, another real estate giant, plans to build 15,000 flats in the next three years in Matheran, outside Mumbai, available for about 220,000 rupees. India’s Godrej group, meanwhile, plans to build a low-cost township outside the western city of Ahmedabad, with apartments ranging from 500,000 rupees to two million rupees. According to RNCOS, a New Delhi-based market research company, affordable housing will be the main driver of growth of India’s construction industry in the next decade.
“Property developers have recognized that the real demand no longer lies in the premium segment and are opting to build smaller, no-frills apartments,” Deepak Parekh, chairman of Housing Development Finance Corp. (HDFC), wrote in a letter to shareholders last month. The affordable housing market is expected to be worth about $110-billion by 2013, accounting for 80 per cent of India’s total housing demand. In a country of 1.2 billion people, the housing shortage is acute. India’s cities need at least 25 million more homes to meet current demand, according to report from consulting firm McKinsey & Co. and the Federation of Indian Chambers of Commerce. India’s Planning Commission estimates that some 80 million to 90 million new units will be needed over the next decade to meet the demand among the lower middle income groups.
While affordable housing could be the answer for both consumers and developers, many observers are concerned about the quality of construction. Apartments are equipped with basic fittings, such as faucets and toilets, and the units are extremely small. Tata’s Nano Homes, for example, come in three sizes, with the smallest measuring less than 220 square feet. It’s a single room: a living room by day and bedroom by night, with a sink in one corner and a toilet behind a partition. These sorts of spartan apartments are being built on the outskirts of big cities, where land is considerably cheaper, meaning residents would have to commute long distances to their city jobs.

“Affordable housing is not about box-sized, budget homes in far-flung places where there is no connectivity to workplaces and little surrounding infrastructure,” Mr. Parekh said in the same letter to HDFC’s shareholders. “Affordable housing has to be able to cut across all income segments and has to make economic sense in terms of proximity to the workplace.” Despite the shortcomings, there is a heavy demand for the new housing. Nano Homes, for example, is massively oversubscribed and is using a lottery system to choose buyers. Until recently, arranging financing was the biggest consumer hurdle to buying a house. Now, in a major drive to boost the flailing housing sector, the Indian government is offering tax breaks to buyers.
“The demand for affordable housing is picking up and the [tax breaks] will make it easier for people to buy homes,” said Pradeep Jain, chairman of Parsvnath Developers, a leading real estate developer. Housing activists hope the new push to low-cost housing will give millions of poor Indians a place to call home. “India’s housing crisis lies in the fact that the poor in the cities are priced out of the market,” noted Sundar Burra, an adviser to the Society for the Promotion of Area Resource Centre, a Mumbai-based housing rights organization. “State supply of housing for the poor is woefully inadequate in relation to the need. Slums proliferate as a solution to this state of affairs.”
Ref:http://www.indianrealtynews.com/real-estate-developers/developers-target-affordable-housing.html