Low-cost housing’s slow rise
The Hindu Business Line, June 28, 2009, Page 15
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A high-volume, low-profit proposition, and with land still costly, housing for the weaker sections is not making much headway.
--------------------------------------------------------------------------------
— N. Balaji
At the beginning of the Eleventh Plan, the Government estimated a shortage of about 25 million houses in urban area.
S. Shanker
While the affordable housing segment is in the limelight, generating some demand in an overall sluggish real-estate market, low-cost housing, essentially for the low-income group and economically weaker sections, appears to be making little headway.
The Government estimated a shortage of about 25 million houses in urban area at the beginning of the Eleventh Plan, of which 97 per cent is in the low-income group.
Mumbai has seen a few launches in the last two to three months, one of them being the Tata Housing project at Boisar, about 100 km from the city. The company received such a good response for its initial offer of 1,000 units that it raised the number to 1,300. The apartments, in the 283-465 sq.ft range, cost between Rs 3.9 lakh and Rs 6.7 lakh. Tata Housing has also tied up with Micro Housing Finance Corporation to provide easy finance to its customers.
LAND COST
Mr Brotin Banerjee, Managing Director and Chief Executive Officer, Tata Housing, feels land cost is a major issue and it should be understood that low-cost housing is high volume and lower profits, compared to high-end formats. When it comes to joint ventures, the philosophy of the landowner should be in harmony with that of the company, he says.
FUNDING, key ISSUE
Matheran Realty, among the first to launch low-cost homes in the price bracket of Rs 3-7 lakh in Karjat, which is also 100 km from Mumbai, says its buyers are finding it difficult to get finance. According to Mr Pravin Banavalikar, CEO, though his project has been pre-approved by 10 banks, only about 250 of over 1,800 applicants who sought loans have received sanctions. It has more to do with the eligibility criteria and loan ticket size, besides the high number of applicants, he says.
The Maharashtra Housing and Area Development Authority, which put up 3,863 flats in the affordable segment, received a tremendous response for its offering. But then, the number on sale was miniscule compared to the over four lakh applications it attracted.
Early this month, Housing Development and Infrastructure Ltd signed a joint venture agreement with the Mumbai Metropolitan Region Development Authority (MMRDA) to develop 525 acres in Virar. The company intends to build and hand over 13 million sq.ft to the MMRDA for rental housing and construct 39 million sq.ft for sale. The project would come under the affordable category and is scheduled for completion in six years.
PRO-POOR
In a recent development, DHFL Property Services Ltd, a 100 per cent subsidiary of housing finance company Dewan Housing Finance Corporation Ltd, tied up with developers to market affordable projects for low-wage earners. It will market a 2,400-unit project in Boisar. The apartments are of 380-500 sq.ft and priced at Rs 1,300 a sq.ft.
Mr B.K. Madhur, CEO, DHFL Property Services, says the company has always “focused on enabling access to home ownership for the lower and middle income groups across India through our mortgage finance company DHFL.”
The company intends to launch similar projects in other far-flung Mumbai suburbs such as Virar, Karjat and Badlapur, besides promoting such ventures in Ahmedabad, Chennai and Hyderabad in the coming months.
RISK FREE
Mr Ashutosh Limaye, Associate Director - Strategic Consulting, Jones Lang LaSalle Meghraj, says high land cost is a deterrent for developers to offer affordable homes. Otherwise, low-cost housing, especially in the metros, is virtually a risk-free proposition. Importantly, even in affordable housing, a developer would have certain minimum profit expectations and if the cost of land does not make these expectations feasible, there is no incentive for the developer to venture into the low-budget home segment.
Buyers of affordable housing can avail themselves of bank funding. But then, the affordable housing segment also brings in certain unique limitations with it.
In the case of mid-to-high-end housing, most buyers can readily produce proof of income, whereas only about 50 per cent of buyers in the affordable housing segment would be able to do so.
Nevertheless, due to the high rate of demand, this would not prevent a healthy absorption rate if such projects are launched.
The Hindu Business Line, June 28, 2009, Page 15
--------------------------------------------------------------------------------
A high-volume, low-profit proposition, and with land still costly, housing for the weaker sections is not making much headway.
--------------------------------------------------------------------------------
— N. Balaji
At the beginning of the Eleventh Plan, the Government estimated a shortage of about 25 million houses in urban area.
S. Shanker
While the affordable housing segment is in the limelight, generating some demand in an overall sluggish real-estate market, low-cost housing, essentially for the low-income group and economically weaker sections, appears to be making little headway.
The Government estimated a shortage of about 25 million houses in urban area at the beginning of the Eleventh Plan, of which 97 per cent is in the low-income group.
Mumbai has seen a few launches in the last two to three months, one of them being the Tata Housing project at Boisar, about 100 km from the city. The company received such a good response for its initial offer of 1,000 units that it raised the number to 1,300. The apartments, in the 283-465 sq.ft range, cost between Rs 3.9 lakh and Rs 6.7 lakh. Tata Housing has also tied up with Micro Housing Finance Corporation to provide easy finance to its customers.
LAND COST
Mr Brotin Banerjee, Managing Director and Chief Executive Officer, Tata Housing, feels land cost is a major issue and it should be understood that low-cost housing is high volume and lower profits, compared to high-end formats. When it comes to joint ventures, the philosophy of the landowner should be in harmony with that of the company, he says.
FUNDING, key ISSUE
Matheran Realty, among the first to launch low-cost homes in the price bracket of Rs 3-7 lakh in Karjat, which is also 100 km from Mumbai, says its buyers are finding it difficult to get finance. According to Mr Pravin Banavalikar, CEO, though his project has been pre-approved by 10 banks, only about 250 of over 1,800 applicants who sought loans have received sanctions. It has more to do with the eligibility criteria and loan ticket size, besides the high number of applicants, he says.
The Maharashtra Housing and Area Development Authority, which put up 3,863 flats in the affordable segment, received a tremendous response for its offering. But then, the number on sale was miniscule compared to the over four lakh applications it attracted.
Early this month, Housing Development and Infrastructure Ltd signed a joint venture agreement with the Mumbai Metropolitan Region Development Authority (MMRDA) to develop 525 acres in Virar. The company intends to build and hand over 13 million sq.ft to the MMRDA for rental housing and construct 39 million sq.ft for sale. The project would come under the affordable category and is scheduled for completion in six years.
PRO-POOR
In a recent development, DHFL Property Services Ltd, a 100 per cent subsidiary of housing finance company Dewan Housing Finance Corporation Ltd, tied up with developers to market affordable projects for low-wage earners. It will market a 2,400-unit project in Boisar. The apartments are of 380-500 sq.ft and priced at Rs 1,300 a sq.ft.
Mr B.K. Madhur, CEO, DHFL Property Services, says the company has always “focused on enabling access to home ownership for the lower and middle income groups across India through our mortgage finance company DHFL.”
The company intends to launch similar projects in other far-flung Mumbai suburbs such as Virar, Karjat and Badlapur, besides promoting such ventures in Ahmedabad, Chennai and Hyderabad in the coming months.
RISK FREE
Mr Ashutosh Limaye, Associate Director - Strategic Consulting, Jones Lang LaSalle Meghraj, says high land cost is a deterrent for developers to offer affordable homes. Otherwise, low-cost housing, especially in the metros, is virtually a risk-free proposition. Importantly, even in affordable housing, a developer would have certain minimum profit expectations and if the cost of land does not make these expectations feasible, there is no incentive for the developer to venture into the low-budget home segment.
Buyers of affordable housing can avail themselves of bank funding. But then, the affordable housing segment also brings in certain unique limitations with it.
In the case of mid-to-high-end housing, most buyers can readily produce proof of income, whereas only about 50 per cent of buyers in the affordable housing segment would be able to do so.
Nevertheless, due to the high rate of demand, this would not prevent a healthy absorption rate if such projects are launched.
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