The future of affordable housing depends on its execution and delivery. Shahin, a schoolteacher, bought an 880 sq ft apartment in Ghaziabad in January 2009 for R25 lakh. This was in an area where more than four builders had launched units close to each other. The price of her apartment today is R28 lakh. Her colleague bought a flat around the same time at the same price in a standalone project. With nothing much coming up by way of infrastructure and poor connectivity to the area, the price of the unit still languishes at R25 lakh.
The slowdown saw the emergence of a new affordable housing segment that instilled the much-needed confidence in the realty market. The hugely positive response drove many developers to launch value units because it was in `fashion' and bailed them out of the financial doldrums they found themselves in. Prices were kept low by reducing unit sizes and launching projects in fairly new locations.
Unfortunately' (for them) the economic crisis ended sooner than expected and the euphoria over the affordable segment died away, forcing many developers to put their projects on the backburner and get their cash registers ringing by focusing on the midend and premium segments.
What exactly happened to affordable housing? Are endusers still going to get budget homes and are developers diligently and quietly working towards achieving the deadlines for the affordable homes they had launched?
What are the key challenges they've faced in their journey to accomplish a task that some of them attempted for the first time?
One of the proponents of value housing was SARE. A project this real estate developer launched in Gurgaon in 2009 for R2000 per sq ft today commands a price of R2700 per sq ft, depending on the floor. Outlining the company's success mantra, Sunil Aggarwal, CEO, says “our strategy all along has been to keep costs low. The premise has been that a buyer with a budget of R25 lakh is in no mood to stretch his limit.“
“We entered the Gurgaon market when the property cycle bottomed out. We launched the first phase with 300 units. We were new players and, therefore, had to price ourselves slightly lower than the competition. We made a conscious decision to keep prices low at around R2000. We knew that our margins would not be very high, at least in the first phase. Today, our selling price is around R2700 per sq ft, depending on the floor.
Appreciation has certainly taken place,“ Aggarwal adds.
In Chennai, SARE decided to change the configuration of a row housing project to flats in the range of R20lakh to R30 lakh. The strategy all along has been to tailor the product to suit the market demand. The company launched a 89-acre township near NH24 Ghaziabad at R2150 per sq ft in April 2009, (ground plus three floors with a lift). The going price today is R2400 per sq ft.
“We also have a project in Amritsar. We are closing some deals in Chennai, Bangalore, Mumbai, Pune and NCR and by the year-end we may have seven to eight projects in the value housing category,“ Aggarwal says.
With there being a shortage of 20 lakh homes in the NCR 60% to 70 % of it in the affordable housing segment the demand for value housing will definitely remain
“At the start of the project, prices in an affordable housing project are relatively low as the developer waits for a response from the public. As the project picks up, he increases the price as otherwise he would find it difficult to complete the project. If he launched a project at R1700 in the first phase, he will increase it to R2000 in the second phase, R2300 in the third phase and eventually to R2400 in the fourth phase to sustain and execute the project,“ points out Manoj Gaur, head CREDAI, Delhi NCR.
The challenges The biggest challenge in Gurgaon has been the density.
Only 40 houses are permitted per acre in Gurgaon compared to 131 houses in Noida. A developer, therefore, cannot make units which are less than 1200 sq ft size in Gurgaon.
Delivery could be a challenge for those who got into affordable housing because it was in fashion, points out Aggarwal.
Resale liquidity is also somewhat challenging. When it comes to affordable housing units, an end-user would much rather buy into a new launch/a fresh allotment directly from a developer instead of going in for a unit that is being sold by an investor at a slight premium, says Anckur Srivasttava of GenReal.
In industrial estates at least, some kind of exemption ought to be given for affordable housing for blue collar workers to prevent creation of slums. There needs to be a clause wherein higher density is allowed for construction of affordable housing units in these estates. Government intervention is essential for the success of affordable housing, Srivasttava adds.
According to Brotin Banerjee, MD and CEO of Tata Housing, obtaining large parcels of suitable tracts of land with clear titles is one of the main challenges that developers are facing today.
Rising land price is also an issue, especially when it is for affordable housing. The government should also provide incentives for developers to focus on affordable housing by introducing schemes that would help developers get a decent margin going. The public-private partnership (PPP) model also needs to be encouraged to enable developers to work with governments to create integrated townships. The company is currently evaluating options for value housing in Delhi NCR.
Says Samir Jasuja. Founder and CEO, Propequity, “The key challenge, however, will continue to be the execution of the affordable housing projects. Many such projects were launched and sold at very thin margins; with resurgence of economic growth globally, commodity prices have witnessed a significant increase, thereby dampening the already thin margins in affordable housing projects.
For instance, steel prices alone have gone up by more than 15% over the last two months.“ What should buyers look out for?
If some of the value housing projects have seen an appreciation, it has been largely due to location, improvement in infrastructure and stage of construction of the project.
Appreciation is also dependent on how many actual users the project gets.
Also, if an area has a number of projects (one after the other, in a row) or there is a cluster of new projects, it might get infrastructure quicker, leading to speedy or on-time completion of projects. Prices would appreciate only if the issue of infrastructure deficit is addressed for an investment to bear real fruit.
A prospective buyer should definitely consider the location, development around the area and other projects nearby and future metro connectivity. He should try not to go in for a lone project.
