Innovations in housing are the way out to leverage increase in land costs. Land prices are expected go up by a whopping 70% if the new Land Acquisition Rehabilitation and Resettlement (LARR) Bill 2011, meant to replace the 117-year-old Land Acquisition Bill of 1894, becomes an act. What course of action will then be open to developers? Will they have to switch from affordable housing to expensive high-end residential units or will they manage to launch low-budget accommodation through innovative construction techniques?
Gaursons India Limited is planning to launch 500 units in the mid-segment and upper-mid segment in Noida Extension area once the land acquisition issue in the area is resolved. “These would range from 2000 to 4000 sq ft and cost around R2700 to R3000. This will help us leverage costs to some extent,“ says Manoj Gaur, managing director, Gaursons India Limited.
Ajnara Group will also “definitely“ look at launching products in the mid-segment category once the land row is resolved.
Land costs have a huge bearing on the prices of residential products. For developers, the solution lies in the government increasing the FSI and allowing them to build more on the same piece of land, thereby cushioning costs and not increasing unit prices. “This will help us build more saleable area without the end-user being impacted in any way,“ says Prashant Solomon, joint managing director, Chintels India. The Greater Noida Authority has passed a proposal to increase the floor area ratio (FAR) of group housing plots from 2.75 to 3.50, which was cleared at the authority's board meeting in early September.
Increasing the population density norm and FAR will enable builders to construct more and help them curtail land costs. Once approved, the authority will allow developers to build 3.5 times of the ground area. What this means is that 350 flats can be built on a 1 lakh sq ft plot. This will help builders recover any extra costs that they may have to incur for acquiring land without putting pressure on the buyers. At present, they are allowed 275 apartments of 1,000 sq ft each.
The proposal of giving more FAR is good and will ensure that the costs (at least in Noida Extension) do not go up further than 20%. It will help in averaging the cost of the product and help check any excessive increase in prices, says Gaur.
According to Subhankar Mitra, head strategic consulting (West), Jones Lang LaSalle India, rising land cost is a serious concern as far as stability of supply goes, and the problem is only compounded by the existing steep costs of finished products in the metros. However, though developers can mitigate the cost by launching premium and luxury projects, only a small number of buyers for such products exist. In other words, this route will not prove to be effective for developers. Demand is much higher for the budget homes segment of R25 lakh and below, which has not seen much supply for various reasons.
If a developer targets this segment along with a mix of mid and high-end projects, it will prove to be a winning formula in the present market conditions.
The problem is that real demand exists in the affordable category. Post the 2008 slowdown, one found developers reducing unit sizes to rationalise prices to make houses more affordable.
“They may again decide to come up with smaller configuration,“ says Shveta Jain, director, residential, Cushman & Wakefield. “Demand for the R30 lakh home is the largest and developers cannot survive without catering to that segment. They will need to do some innovation in terms of cost of construction, adopt methodologies by way of which these costs can come down and make the product more affordable and efficient,“ she adds.
And, there are some developers who are planning to do exactly that. “We are planning to go in for green and prefabricated structures.Even if costs go up (as in the case of Noida Extension), they will be in the fringe of affordable due to this,“ adds Anil Sharma, CMD Amrapali Group and vice president of CREDAI-NCR.
