Low mar­gins keep de­vel­op­ers away from low­cost hous­ing projects

De­vel­op­ers are build­ing homes with prices rang­ing be­tween Rs30­80 lakh

HT Estates - - FRONT PAGE - Bidya Sa­pam and Malvika Joshi bidya.s@htlive.com

MUM­BAI As In­dia rides on the af­ford­able hous­ing wave, large de­vel­op­ers are still stay­ing away from build­ing low-cost homes priced be­low Rs25 lakh, stymied by low mar­gins and in­fra­struc­ture chal­lenges.

The gov­ern­ment’s drive for Hous­ing for All by 2022 has pushed sev­eral big real es­tate firms to ven­ture into af­ford­able hous­ing. How­ever, most re­main re­luc­tant to bet on low- cost homes for those who are classed as eco­nom­i­cally weak­er­sec­tions (EWS), the group with the high­est de­mand for hous­ing.

Un­der the af­ford­able hous­ing plat­form, most big de­vel­op­ers are build­ing homes with prices rang­ing be­tween Rs30-80 lakh. These are tech­ni­cally not low­cost hous­ing—homes ca­ter­ing to EWS­forany­where­inRs3-25 lakh range. “We haven’t re­ally gone into the depth where the real de­mand is. The real de­mand comes­frompeo­ple­whosean­nual household in­come is sub-Rs3 lakh. These are the peo­ple who can af­ford homes for Rs7-8 lakh. Ninety- five per­cent of the de­mand is low-in­come group (LIG) and EWS,” said Sau­rabh Mehro­tra, na­tional di­rec­tor, Knight Frank Ltd, a prop­erty con­sul­tant firm.

In­dia’s cur­rent hous­ing short­age in ur­banar­eas is es­ti­mated to be around 10 mil­lion units, said min­is­ter of state for hous­ing and ur­ban Af­fairs Hardeep Singh Puri in Jan­uary this year. Though sub­stan­tially less than the ear­lier es­ti­mate of 18 mil­lions units (as per a 2012 gov­ern­ment study), the sup­ply of homes to low in­come groups (LIG) and EWS is still a trickle. Ac­cord­ing to the study, over 96% of the to­tal short­age falls un­der LIG and EWS cat­e­gory.

Asper­data com­piled byre­alty re­search firm PropE­quity, of the to­tal hous­ing sup­ply that came in last year in the top 15 cities, around 28% were homes cost­ing be­low Rs25 lakh. In the first quar­ter of this year, only 5,313 homes be­low Rs25 lakh were launched as against the to­tal of 19,513 units that came into the mar­ket.

At­p­re­sent, only afew­builders like Tata Hous­ing De­vel­op­ment Co., Mahin­dra Lifes­paces De­vel­op­ers Ltd and Brick Ea­gle Group op­er­ate in the low-cost space. Oth­ers like Shapoorji Pal­lonji Real Es­tate, Pu­ra­vankara Ltd, Hi­ranan­dani Com­mu­ni­ties and Brigade group have launched homes cost­ing up to Rs60 lakh un­der the af­ford­able hous­ing plat­form.

“The big­gest chal­lenge is, there is slim bot­tom line play (in low-cost hous­ing). The for­mat is very dif­fi­cult in met­ros be­cause of high FSI (floor space in­dex) cost apart from den­sity and other is­sues,” said Ge­tam­ber Anand, pro­moter of Noida-based ATSin­fras­truc­ture that re­cently launched an af­ford­able hous­ing plat­form, ‘Home Craft’, to build homes priced be­tween Rs40 lakh and Rs80 lakh.

Venkatesh Gopalkr­ish­nan, CEO, Shapoorji Pal­lonji Real Es­tate, agrees low mar­gins are a chal­lenge even as the firm looks to build homes be­low Rs25 lakh to take ad­van­tage of gov­ern­ment in­cen­tives, par­tic­u­larly a oneyear tax ex­emp­tion to de­vel­op­ers.

“Mar­gins are dif­fi­cult to man­age as we need to buy land also and in­fra­struc­ture costs quite a bit as the parcels are far away from the city,” he said. At present, the firm is de­vel­op­ing two af­ford­able hous­ing projects un­der its Joyville brand.

Mar­gins for low-cost homes range up to 20% while in mid-in­come and lux­ury hous­ing, it can go up to 35%, ac­cord­ing to de­vel­op­ers.

De­spite the gov­ern­ment’s de­ci­sion to raise the car­pet area ap­pli­ca­ble for in­ter­est-linked sub­si­dies un­der the Prad­han Mantri Awas Yo­jana-Ur­ban (PMAY-U), builders are hes­i­tant about build­ing low-cost homes be­cause the buyer base is un­or­ga­nized, cou­pled with fund­ing and in­fra­struc­ture chal­lenges. In­stead, mid-in­come projects, be­tween Rs25- 50 lakh have emerged as the sweet spot.


Lack of fund­ing from bankers and pri­vate eq­uity in­vestors has also led de­vel­op­ers stay­ing away from build­ing LIG and EWS homes. Even as hous­ing fi­nance firms and banks fo­cus on re­tail loans, they have not been at­tracted to fi­nance LIG projects due­toalowrate of re­turn andthe risks in­volved.

“Mar­gins are low and if a project gets stalled, it eats into the en­tire mar­gin. It is riskier. Pure project fi­nance is dif­fi­cult and there is no vi­brant mar­ket there,” said Ash­wini Ku­mar Hooda, deputy man­ag­ing di­rec­tor, In­di­a­b­ulls Hous­ing Fi­nance Ltd.

Ra­jesh Kr­ish­nan, founder and CEO, Brick Ea­gle group, said fund­ing has been a big chal­lenge as banks are tilted to­ward lend­ing to premium homes. “There is enough de­mand for low-cost homes but the chal­lenge lies in ex­e­cut­ing the projects. Not hav­ing the right reg­u­la­tory frame­work, lack of large land parcels and not enough sup­port for lo­cal de­vel­op­ers are a few of them,” he said.


Mar­gins for low­cost homes range up to 20% as against upto 35% in mid­in­come hous­ing

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