Affordable housing boom... or bust?

Affordable housing boom... or bust?
The Economic Times, January 14, 2010, Page 7

Over The Past Year, Many Developers Have Either Resized Or Called Off Projects On Low Buyer Response

Sobia Khan BANGALORE

IT STARTEDwith a big bang. Affordable housing ventures by popular realty groups promised what the middle-class could not even dream of. Owning a flat in one of the metros, at rates which were within their reach, was a dream too good to be true. But after the initial blitzkrieg, the real picture emerging is far from promising.

Here is a view of the current affordable realty landscape. Bangalore-based Golden Gate Properties, which planned to launch 2,500 affordable apartments under the Commune brand, has called off its project. The firm, which planned to invest Rs 2,000 crore in its affordable ventures in Bangalore and Hyderabad, has done so mainly because of low bookings, states an employee at the company. The fate of its other ventures in Bangalore and Hyderabad also hangs in limbo.

Similarly, Gurgaon-based Omaxe, which had set up a subsidiary—National Affordable Housing and Infrastructure—to build cheap houses, is yet to launch its Bangalore project. The firm had plans to roll out apartments in the Rs 3-18 lakh range around Bangalore during the first phase. An email query to the company remains unanswered.

Omaxe had announced that it would roll out 10 lakh units across India. But only two projects in Faridabad have taken off. Its plans to invest Rs 8,000 crore in affordable housing projects across India seem to remain only on paper.

And for groups like Ozone, floated by the promoters of Reliance Industries and HDFC Venture Fund, the going has been slow. Sources say the company has managed to sell just 30% of its apartments (in the range of Rs 29-30 lakh) since its launch in January 2009. Despite the attractive price range, it has sold only 280 of its 912 units in Ozone Evergreen in Bangalore. S Vasudevan, MD, Ozone Group, however, insists that the off-take has not been that slow.

The Brigade group is also facing a lukewarm response from the market. “The company has received expressions of interest only for 900 apartments. Though the price is affordable, the distance (it’s located in a far-flung location) is making it unviable for buyers,” a source said. However, the company claims to have received 2,000 expressions of interest for its value homes. The firm plans to set up four affordable housing projects totalling 10,000 units across Bangalore in the next 6-12 months.

Similarly, CSC Construction, a recent entrant in the value home market with three housing projects, is also believed to be facing challenges. CSC which launched 2,180 units in mid-2008, is now setting up only 1,000 units. However, PC Sukanand, MD, CSC Constructions clarifies: “The response for all our projects have been good. We resized the projects due to legal issues.”

Over the past one year, developers have either resized or called off projects due to low buyer response. Digging deep into the reasons for this, realty analysts like Amit Bagaria, chairman of real estate consultancy firm Asipac, said, “Affordable housing will only work in locations which are easily commutable and has social infrastructure. Transparent pricing is also another important element.”

According to real estate consultancy firm Knight Frank, good connectivity to work places is the most important factor influencing buyers’ decision in selecting their residence. Pranay Vakil, chairman, Knight Frank, says: “Some projects were launched with the expectation that they can influence connectivity.” The Knight Frank survey also revealed that developers have to pay external and internal development charges to the government which are ultimately passed on to the consumer thus increasing the overall cost of a house. “The EDC and IDC costs coupled with the high transaction cost and stamp duty can go as high as Rs 350-400 per sq ft which is transferred on to the end-user by the developer,” the report stated.

However, there have been a lucky few like the Patel Realty India’s project in Bangalore which sold 800 units out of its 1,000 affordable apartments in its Bangalore projects within 50 days of its launch. Similarly, Puravankara claims to have sold 700 of its 1,120 apartment in the first phase in Bangalore. In Chennai, it claims to have sold out 900 of the total 1,000 apartments. However, industry sources said the firm has so far sold out only 300 units and is struggling to sell the remaining apartments in the market.

HIGH HOPES

Bangalore-based Golden Gate, which planned 2,500 affordable apartments under the Commune brand, has called off its project

Omaxe had announced it would roll out 10 lakh units across the country. But only two projects in Faridabad have taken off

Ozone has managed to sell just 30% of its apartments (in the range of Rs 29-30 lakh) since its launch in January 2009