As rising interest rates and spiralling construction costs price out many aspiring homebuyers, real estate developers are changing strategy to keep their business going. They are increasingly switching either to so-called affordable housing projects or high-end customers, who mostly buy cash down or with limited amount of borrowing.
Large numbers of developers are opting for low-cost housing to play on the volume game — the latest to come on board is Bangalore-based Puravankara Projects that announced plans last week to build 65,500 low-cost flats in five southern cities over the next five years. “We are deploying innovative and modern construction technology for faster and cost-efficient construction,” said Ashish Purvankara, director, Puravankara Projects. “Execution would be the key to success and the flats would be cheaper by more than 50 per cent of the existing prices.”
The announcement came close on the heels of similar forays by Mumbai-based developer Matheran Realty and Delhi-based Omaxe Ltd.
Omaxe is building 1 lakh houses across cities in northern India as part of what the company says would be a multi-phase Rs 80,000-crore rollout of 1 million low-cost houses in the country. The flats would be priced between Rs 1,000 and Rs 1,100 per square foot.
Earlier this month, Matheran Realty invited buyers for 3,000 low cost homes for Rs 999 per square foot at an upcoming township 80 kilometres off Mumbai.
More than 20,000 application forms sold out in the first two days of the offer, said Pravin Banavalikar, CEO of Matheran Realty. The firm plans to build 15,000 such flats in three years.
“Most large developers have now woken up to the fact that affordable housing projects have the fastest absorption rates and are focusing on this,” said Anuj Puri, chairman of realty consultancy company Jones Lang LaSalle Meghraj.
Although the housing stock in the urban area is far from what is needed, demand has slackened largely because the middle class has increasingly got priced out of the market with a sharp spike in interest rates and construction costs over the past year. As a result, developers are now looking to cut down on floor space and use such techniques that will enable them to offer houses that the buyer can afford.
“The demand in terms of units is phenomenal and developers getting into this segment can build for years to come,” Puri said. “The buyers get what they want, and the developers benefit by the sheer economics of scale.”