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Affordable housing a cloak to cut debt?

Does, affordable housing, the new buzzword in the real estate sector, conceal a smart back-end trick from developers who have launched budget homes, some costing less than Rs 10 lakh?

india Updated: Jun 15, 2009 23:34 IST
Lalatendu Mishra

Does, affordable housing, the new buzzword in the real estate sector, conceal a smart back-end trick from developers who have launched budget homes, some costing less than Rs 10 lakh?

Industry analysts watching the game say the proceeds earned through the bookings are being used to pay back debtors as well as lending surplus cash flow at 20 per cent interest in the market.

“Affording housing schemes have brought lot of cash into hands of developers. Many are servicing their debt through this earning,” said Samir Jasuja, managing director, PropEquity.

“They (developers) have got flexibility to utilize the cash for 12 to 18 months even if they make no profit in selling the flats. It is a win-win situation for both developers and buyers,” said Jasuja whose firm tracks 2,500 developers in 35 cities and provides market information to private equity investors.

Some experts say affordable housing is a good way for developers to make up for the excesses of buying land at high prices.

Most developers take 10 per cent (price of flat) at the time of booking, 15 per cent within 45 days, 10 per cent on excavation, 10 per cent on the first slab and 5 per cent towards cost of construction. But actual constrution starts much later.

“The developers have gone where the demand is. At least there is momentum. The high volume of business would keep them going though with lower margins,” said Gautam Mehra, executive director (real estate practice), PriceWaterhouseCoopers.