A HOUSE FOR EVERY IN­DIAN

Af­ford­able hous­ing is pick­ing up pace, thanks to proac­tive poli­cies and savvy in­vestors/ de­vel­op­ers. But sus­tain­ing the mo­men­tum is a tall or­der.

Business Today - - REAL ESTATE SPECIAL AFFORDABLE HOUSING - By K.T.P. Rad­hika Il­lus­tra­tion by Ajay Thakuri

SOLAPUR, IN SOUTH-WEST Ma­ha­rash­tra, is dot­ted with sugar fac­to­ries and beedi/ tex­tile units. This small town, where thou­sands of labour­ers live in slums and makeshift shel­ters, hit head­lines last year when the cen­tral gov­ern­ment ap­proved a mas­sive af­ford­able hous­ing project for beedi/ tex­tile work­ers and other un­or­gan­ised labour­ers. The ini­tia­tive, for build­ing 30,000 houses un­der the Prad­han Mantri Awas Yo­jana (Ur­ban), is ar­guably the first such project on pri­vate land. Be­ing un­der­taken by Ray­na­gar Co­op­er­a­tive Hous­ing Fed­er­a­tion along with Pandhe In­fra­con, a lo­cal re­al­tor, it is likely to cost over ` 1,800 crore, and has been elic­it­ing over­whelm­ing re­sponse from buy­ers. “We have got around 38,000 ap­pli­ca­tions so far,” says Ankur Pandhe, Man­ag­ing Di­rec­tor, Pandhe In­fra­con. A typ­i­cal house here mea­sures about 375 sq. ft and is priced at ` 5 lakh. The project has open spa­ces as well as land ear­marked for com­mu­nity ser­vices, schools, hos­pi­tals and other so­cial in­fra­struc­ture. Both state gov­ern­ment and mu­nic­i­pal cor­po­ra­tion are work­ing over­time to pro­vide ameni­ties such as elec­tric­ity and wa­ter.

This is one of the few suc­cess sto­ries of what has been a mostly gov­ern­ment-led drive – but also in­volv­ing pri­vate real es­tate com­pa­nies – to build all-in­clu­sive af­ford­able hous­ing for eco­nom­i­cally weaker sec­tions. The trig­ger is the short­age of 10 mil­lion hous­ing units that the gov­ern­ment projects, of which more than 90 per cent is in Eco­nom­i­cally Weaker Sec­tion (EWS) and Low In­come Group (LIG) cat­e­gories. “A huge bulk of hous­ing short­age is in EWS and LIG cat­e­gories where house­hold in­come is less than ` 3 lakh per an­num. So, the de­mand is for units less than ` 10 lakh,” says Sau­rabh Mehro­tra, Na­tional Di­rec­tor, Ad­vi­sory, Knight Frank In­dia, a real es­tate con­sul­tant firm.

No won­der, it is the only pocket of the realty sec­tor that is boom­ing. Con­sider this – the gov­ern­ment claims that more than 3,30,866 houses had been built un­der the flag­ship Prad­han Mantri Awas Yo­jana, or PMAY, as on March 5 this year; more than 50 per cent new launches in the past one year have been in the af­ford­able hous­ing cat­e­gory (` 10-50 lakh de­pend­ing on the lo­ca­tion); and lenders such as HDFC and DHFL are re­port­ing stel­lar growth in loans for af­ford­able hous­ing. It is the only bright spot in a sec­tor fac­ing a mul­ti­year slow­down.

It was not al­ways like this. The seg­ment, in fact, has gained se­ri­ous trac­tion only af­ter the Cen­tre gave it in­fra­struc­ture sta­tus in last year’s Bud­get (this will en­sure loans to builders at low rates) and also of­fered in­ter­est sub­si­dies un­der the PMAY. Also, it re­cently in­creased the size of houses eli­gi­ble for sub­sidy un­der the PMAY Credit Linked Sub­sidy Scheme. For a mid­dle in­come fam­ily un­der MIG-I with an­nual in­come above ` 6 lakh and up to ` 12 lakh, the car­pet area cap has been in­creased from 120 sq. me­tres to 160 sq. me­tres. For fam­i­lies with in­come above ` 12 lakh and up to ` 18 lakh, the car­pet area cap has been in­creased from 150 sq. me­tres to 200 sq. me­tres. For MIG-I, the in­ter­est sub­sidy is 4 per cent, eli­gi­ble hous­ing loan amount is ` 9 lakh and to­tal sub­sidy is ` 2.35 lakh. For MIGII, the in­ter­est sub­sidy is 3 per cent, eli­gi­ble loan amount is ` 12 lakh and to­tal sub­sidy is ` 2.30 lakh.

“WE HAVE GOT AROUND 38,000 AP­PLI­CA­TIONS SO FAR ( FOR THE SOLAPUR AF­FORD­ABLE HOUS­ING PROJECT)” ANKUR PANDHE MD, Pandhe In­fra­con

Huge De­mand

Ow­ing to high de­mand and en­cour­ag­ing steps from cen­tral and state gov­ern­ments, semi-ur­ban, Tier-II and Tier-III mar­kets are see­ing a big push to­wards low- cost hous­ing. “In the past one year, more than 50 per cent new launches have hap­pened in this seg­ment,” says Pankaj Ba­jaj, Pres­i­dent, CREDAI-NCR, a real es­tate de­vel­op­ers’ col­lec­tive.

A re­cent re­port by real es­tate ser­vices com­pany Jones Lang LaSalle, or JLL, says af­ford­able hous­ing sales grew 27 per cent be­tween Jan­uary and Septem­ber 2017 ( y-o-y) while over­all res­i­den­tial hous­ing con­tracted 33 per cent.

Anuj Puri, Chair­man, Anarock Prop­erty con­sul­tants, says there has been a whop­ping 50 per cent jump in new launches in the sec­ond quar­ter of 2018 com­pared with the first quar­ter, with the high­est sup­ply com­ing in the af­ford­able seg­ment ( less than ` 40 lakh per unit). “In­ter­est­ingly, af­for­dunits able hous­ing sup­ply rose 100 per cent dur­ing this pe­riod, and has led the over­all growth,” he says.

The gov­ern­ment push is chang­ing the mar­ket com­po­si­tion too. “Af­ter the PMAY launch, there has been a dis­tinct shift in the seg­ment. For ex­am­ple, in the top eight cities, in 2015, with size less than 500 sq. ft ac­counted for about 15 per cent sup­ply. In 2017, that num­ber was close to 22 per cent. Units with size less than 700 sq. ft have grown from 36 per cent to 42 per cent,” says Mehro­tra of Knight Frank.

One rea­son is in­creased eco­nomic ac­tiv­ity and in­fra­struc­ture de­vel­op­ment in Tier-II cities and out­skirts of met­ros. “With more and more busi­nesses set­ting up shop in these cities, the de­mand for res­i­den­tial real es­tate has in­creased sig­nif­i­cantly. We have wit­nessed rise in de­mand from cities such as Ahmed­abad, Pune, Nag­pur and Kochi,” says San­jay Dutt, MD & CEO, Tata Hous­ing De­vel­op­ment Com­pany. The com­pany of­fers af­ford­able houses start­ing from ` 14 lakh a unit.

How­ever, there is a catch here. Even though the sup­ply is ris­ing, it is not en­tirely ad­dress­ing the de­mand gap. In­dus­try ex­perts say while the big­gest de­mand is in the EWS cat­e­gory, most of the ac­tion is hap­pen­ing in mid­dle in­come group hous­ing. One rea­son is lack of pri­vate sec­tor par­tic­i­pa­tion in EWS and LIG seg­ments. “Most play­ers in the real es­tate in­dus­try are cur­rently meet­ing only 10-15 per cent need in this seg­ment and that too above the ` 10 lakh bracket,” says Mehro­tra. Also, large builders cater to only the top 15-20 cities, which ac­count for a small share of the coun­try’s pop­u­la­tion.

Low Mar­gin

One rea­son for this de­mand-sup­ply gap is that af­ford­able hous­ing is a low­mar­gin busi­ness. Mid­dle in­come and high in­come seg­ments prom­ise higher re­turns. “Most main­stream builders are caught in mass premium and lux­ury cat­e­gories. How­ever, of late, we have seen some up­ward trend in the af­ford­able seg­ment too,” says Ashish R. Puravankara, Man­ag­ing Di­rec­tor of Puravankara, a Ben­galuru-based re­al­tor which re­cently en­tered the premium af­ford­able cat­e­gory (`45-70 lakh) in the city. Ba­jaj of Credai is also

con­cerned about the low mar­gins in af­ford­able hous­ing. “In NCR, af­ford­able houses are be­ing sold for ` 3,000 per sq. ft and the mar­gin will be around 5 per cent. In the premium/ lux­ury seg­ment, it is al­most 15 per cent,” he says.

An­other hin­drance is the high cost of land — which de­pends on fac­tors such as con­nec­tiv­ity, de­mand and in­fra­struc­ture — in met­ros and big­ger towns. “This makes it dif­fi­cult to pro­cure land in met­ros,” says Dutt of Tata Hous­ing. On the sup­ply side, this has a bear­ing on the cost of hous­ing units. “The in­creas­ing cost of raw ma­te­ri­als adds to the stress of the devel­oper,” he says. That is why af­ford­able hous­ing projects are not re­ally tak­ing off in metro cities and their sub­urbs. “For the past many years, in cities such as Mumbai, sup­ply of smaller/af­ford­able houses was miss­ing,” says Renu Sud Kar­nad, Man­ag­ing Di­rec­tor, HDFC Ltd. HDFC has been re­port­ing good growth in af­ford­able hous­ing loans from Tier-II and Tier-III towns where most such projects are com­ing up.

There is a prob­lem in the way we have planned hous­ing in our cities, says Mehro­tra of Knight Frank.

“While plan­ning a city, there should be land al­lo­ca­tion for all so­cial strata. In­ter­na­tion­ally, it is the norm. Un­for­tu­nately, in In­dian met­ros, by al­low­ing land in free float, only af­flu­ent peo­ple can af­ford houses in­side cities, forc­ing the lower in­come group peo­ple to live in ur­ban vil­lages or slums,” he says.

Un­sold In­ven­tory

One of the big­gest wor­ries in af­ford­able hous­ing is un­sold in­ven­tory. Data from Anarock Con­sul­tants shows that about 2,37,000 units in the af­ford­able hous­ing seg­ment ( less than ` 40 lakh) de­vel­oped by or­gan­ised pri­vate play­ers are un­sold across the top seven cities. “This does not in­clude gov­ern­ment hous­ing schemes,” says Puri of Anarock.

One of the ma­jor rea­sons for this is lack of al­lied in­fra­struc­ture. “Most bar­ren projects were launched with­out fea­si­bil­ity stud­ies and builders went ahead in an area just be­cause land was cheap or lo­cal de­vel­op­ment reg­u­la­tions were lax. When houses come up in ar­eas that are too far from the city’s work­place hubs and lack the nec­es­sary sup­port in­fra­struc­ture, there will hardly be any tak­ers,” he says.

Af­ford­able hous­ing should be sus­tain­able. “If you build af­ford­able hous­ing com­plexes in a town­ship which has ba­sic fa­cil­i­ties, the project will be sus­tain­able. With­out proper ameni­ties, small group hous­ing won't be sus­tain­able,” says Gau­rav Mit­tal, Man­ag­ing Di­rec­tor, CHD De­vel­op­ers, a New Del­hibased builder that has in­vested in af­ford­able hous­ing.

“For ex­am­ple, many projects un­der Haryana’s group hous­ing pol­icy have a large num­ber of in­di­vid­ual houses in small land parcels with­out much ameni­ties and, there­fore, face sus­tain­abil­ity is­sues,” he says. In­fe­rior con­struc­tion, flaws in de­sign and le­gal is­sues add to the woes.

Fi­nance on High

In­dia Rat­ings had, in 2017, es­ti­mated as­sets of ` 1.5 lakh crore un­der af­ford­able hous­ing. This is ex­pected to rise four times to ` 6 lakh crore by 2022. “We are see­ing good de­mand across the coun­try. The de­mand for the ` 10-15 lakh ticket size is high in Tier-II and Tier-III cities,” says Kar­nad of HDFC, adding that for HDFC, loans to EWS and LIG seg­ments grew 32 per cent and 41 per cent, re­spec­tively, in 2017/18, over the pre­vi­ous year. “Also, 38 per cent home loan ap­provals in vol­ume terms and 19 per cent in value terms have been to cus­tomers from EWS and LIG seg­ments,” she says. On a monthly ba­sis, HDFC has been on av­er­age ap­prov­ing 8,200 loans to EWS and LIG seg­ments with ap­prox­i­mate value of ` 1,312 crore.

DHFL, an­other ma­jor fi­nancer in af­ford­able hous­ing, says busi­ness is ac­cel­er­at­ing. Harshil Mehta, JMD and CEO, says that his com­pany “has re­ceived sub­sidy un­der the PMAY for more than 7,000 cases amount­ing to ` 155.9 crore. Of this, 3,207 cases fall un­der EWS and LIG groups and amount to

` 75.1 crore and the re­main­ing 3,897 cases fall un­der MIG 1 & 2 groups and amount to ` 80.8 crore,” he says. About 80 per cent of DHFL’s home loan dis­burse­ments are in the af­ford­able hous­ing cat­e­gory, with most ap­pli­cants be­ing first-time home buy­ers. The com­pany’s av­er­age loan size is ` 15.2 lakh.

Fast grow­ing econ­omy, ris­ing af­ford­abil­ity, fast-paced ur­ban­i­sa­tion and in­crease in work­force are greatly con­tribut­ing to the growth of the af­ford­able hous­ing fi­nance in­dus­try. The reg­u­la­tory en­vi­ron­ment has greatly im­proved, fi­nan­cial in­sti­tu­tions are of­fer­ing unique prod­ucts at com­pet­i­tive prices and the fo­cus re­mains on en­sur­ing that cus­tomer ex­pe­ri­ence is the key dif­fer­en­tia­tor be­tween lenders.

“All these years our mem­bers were liv­ing in slums and chawls. The very idea of af­ford­able hous­ing is a dream come true for us,” says Nalini Kal­burgi, a daily-wage labourer from Solapur who is also the chair­man of Ray­na­gar Co­op­er­a­tive Hous­ing Fed­er­a­tion.

Clearly, af­ford­able hous­ing is where busi­ness meets so­cial.

“WE HAVE RE­CEIVED SUB­SIDY UN­DER THE PMAY FOR MORE THAN 7,000 CASES AMOUNT­ING TO ` 155.9 CRORE” HARSHIL MEHTA JMD and CEO, DHFL

“WITH MORE BUSI­NESSES SET­TING UP SHOP IN TIER- II CITIES, THE DE­MAND FOR RES­I­DEN­TIAL REAL ES­TATE HAS IN­CREASED SIG­NIF­I­CANTLY” SAN­JAY DUTT MD & CEO, Tata Hous­ing De­vel­op­ment Com­pany

PHO­TO­GRAPH BY YASH­WANT SADUL

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