LURE OF LOW COST HOMES
While luxury homes take a hit from the economic downturn, affordable homes are thriving THE SEGMENT IS SEEING A SURGE NEAR COMMERCIAL HUBS, INDUSTRIAL TOWNS OR IT PARKS, WHERE BUYERS OFTEN LOOK FOR A HOME CLOSER TO WORK.
Anita Mukherjee, 63, a retired central government employee, recently decided to move into a new home in Rajarhat, Greater Kolkata. The 1,000 sq ft, two-bedroom flat came with better security and recreational facilities such as a club house, compared to her older home in Jodhpur Park. “In Jodhpur Park, a new flat would be small for our family of four, and would have cost me at least twice as much,” she says.
At a time when India’s real estate sector is passing through a tough phase marked by slowing demand and excess supply in the luxury segments, one segment is thriving—affordable housing— benefiting people like Mukherjee. According to a study published by Assocham in December 2013, the real estate sector suffered last year due to global and domestic economic slowdown, liquidity crunch, unstable cur- rency, high input costs, labour shortage, high interest rates and growing inflation. Investments in India’s real estate sector were six per cent lower in September 2013 at Rs 14.51 lakh crore, against the same month in 2012. But the affordable segment, where average prices range between Rs 2,500 and Rs 3,500 per sq ft, is seeing a surge, specially in areas near commercial hubs, industrial towns or IT parks, where a potential buyer can get a home closer to work. The segment has been growing at around 15 per cent, and is forecast to grow 1.5 times, from around 25 million households in 2010 to 38 million in 2030.
Driving this demand are affordable home projects across the country—be it in Greater Noida, Noida Extension or Greater Noida (West), Faridabad and Ghaziabad in the National Capital Region ( NCR), Rajarhat, Madhyamgram, Behala and Barasat in Kolkata or Sriperumbudur, Oragadam, Chembarambakkam and Siruseri in Chennai. Several builders have tapped into this opportunity. Some of them, like Southfocused developer Puravankara, offer what they call “premium affordable” housing, through a range of extra lifestyle benefits such as swimming pools, gardens, electronic security, ample parking space and play areas. “With a shortage of around 24.7 million units, 70 per cent of it in the affordable housing segment, we see it growing at healthy rates in the next three to five years,” says Brotin Banerjee, CEO and MD of Tata Housing, which plans to launch 3-4 more projects in 2013-14 and expand across Bhubaneswar, NCR, Chennai, Himachal Pradesh, Maharashtra and Kolkata.
According to a report by RICS (Royal Institution of Chartered Surveyors, UK) on ‘Making Urban Housing Work in India’, affordability in urban housing means provisions of ‘adequate shelter’ on a sustained basis. KPMG defines affordable housing on three parameters —income level, size of dwelling unit
and affordability. Although prices of affordable homes will vary vastly across the country, the common factor is that they are located within reasonable distances from workplaces and connected adequately by public transport.
“Today’s economic uncertainty is hitting the high-net-worth individuals ( HNIS) more, as jobs in this segment have not grown,” says Gulam M. Zia, executive director of real estate consultancy firm Knight Frank. In the last two years, several luxury projects came up, creating a glut, while in comparison, affordable housing is always an undersupplied market, he adds.
The segment has turned attractive for financial investors too. In 2011, private equity ( PE) firm Carlyle Group invested $26 million in Bangalore-based IT professional-turned-real estate promoter Jerry Rao’s Value & Budget Housing Corporation. An appreciation in property prices with the affordability tag makes good investment sense too.
Some global experiments in afford- able housing have been successful too. “It has worked well in the London market,” says Lord Andrew Hay, who heads the global residential division at Knight Frank. However, getting the concept and pricing right are the key challenges, he adds.
But the sector is not without its economic, regulatory and urban challenges. Scarcity of land, rising costs and regulatory issues such as lengthy approval processes and archaic laws like the Rent Control Act are supply-side constraints. “The Government is not providing a level playing field. It is actively against affordable housing,” says Rao. “Its laws and regulations are designed against affordable housing and encourage luxury housing.” One instance is that developers have to provide for free car parking space in most states, a cost that gets added up to the overall project cost. Another is the delay in getting land clearances to set up affordable housing projects. “What happens, therefore, is that you end up building 3,000 houses while the potential is for 100 million,” he adds.
On the demand side, access to home finance and rising interest costs on home loans are drawbacks. However, for buyers, affordable housing still remains a silver lining in an otherwise gloomy market.