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Launching affordable housing not as easy as it seems

Cheap land and good location with proper connectivity essential to attract homebuyers likely to be difficult

real estate Updated: Mar 22, 2017 18:06 IST
Cheap land and good location with proper connectivity essential to attract homebuyers likely to be difficult.
Cheap land and good location with proper connectivity essential to attract homebuyers likely to be difficult.(Getty Images/iStockphoto)

Responding to union minister for housing and urban poverty alleviation (HUPA) M Venkaiah Naidu’s call for greater participation of private sector developers in the Centre’s Affordable Housing for All initiative under the Pradhan Mantri Awas Yojna (PMAY), real estate experts say launching such projects is not easy. Builders will have to first ensure the viability of the project and see to it that the land on which it is coming up is not expensive.

While some builders with existing projects are planning to bring in budget housing there, others say such moves require careful thought. If built far away from the city, such units will remain unsold and become virtual ghost towns.

The Prateek Group will launch 60 sq m units as part of its third and fourth phases in its existing Grand City project in Siddharth Vihar in Ghaziabad. “We are planning to launch 1500 units after April. The unsold stock (in the existing project) will also get Pradhan Mantri Awas Yojana interest subvention benefits. Pricing for the new launch is yet to be worked out,” says Prashant Tiwari, chairman of the company.

Deepak Kapoor, director, Gulshan Homz and president Credai Western UP says that his company will analyse the affordable housing scheme. “We are waiting for the final notification. We will evaluate it once the final notification is released,” he says.

Experts also say that with fewer housing launches, many investors, like in the past, could make a beeline for affordable homes and exit after prices appreciate. That could lead to oversupply problems that the market is currently facing.

Taking on a project has become a huge issue for builders at this juncture. First, many do not have the cheap land that’s essential to launch new schemes. Second, starting anything new does not make sense to builders whose existing projects are already delayed. About 11 lakh units currently remain unsold across the country. These are the main reasons why developers are deferring launches in this segment, says Pankaj Kapoor of Liases Foras.

Places where land is cheap are far away from cities and have virtually nil demand. “One can create affordable housing in Panvel (near Mumbai) but if the social fabric is missing. Who will live in those locations? Real estate never has a knee-jerk impact, affordable housing schemes may gain pace subsequently, perhaps in the next three to six months,” he says.

Affordable housing projects may gain pace in the next three to six months. (HT Photo)

Granting infrastructure status to affordable housing is a positive step and will ensure long term funding at cheaper rates. Developers are trying to draw up strategies to tap the market at the bottom of the pyramid. Announcements are expected for this segment both in some existing projects or as new launches, but that will start to happen only in the next two to three quarters, says Rohit Modi, director, Ashiana Group and vice president, Credai national (Confederation of Real Estate Developers Associations of India).

Density norms are also a challenge. Several state affordable housing policies need to be aligned with the definition of the government’s affordable housing policy. Companies could also set up separate verticals to handle affordable projects, he adds.

Sheltrex Developers, which focuses on developing budget units in peripheral areas in large cities, is exploring opportunities in Delhi-NCR. “In Delhi we have already initiated the process. We are waiting for the land pooling policy to come through and are exploring about 100 acres on which we intend to launch around 8,000 to 9,000 units. Subsequently we will set up a full fledged team in Delhi,” says Sandeep Singh Gaur, CEO of the company.

At the national level, the company intends to deliver about 50,000 units by 2021 and about 70,000 units by 2022.

The affordable housing segment is akin to the manufacturing industry as it is a volume-driven business. PMAY is a game changer. Earlier, to be eligible for PMAY, the salary limit was Rs 6 lakh, the biggest challenge that housing financial companies faced was to establish the credit worthiness of customers. Now with the household income of consumers increased to Rs 18 lakh per annum, it will boost demand and help financial institutions to easily establish the creditworthiness of consumers, he says.

There are others who are not optimistic about the success of the scheme. Amit Wadhwani, director of Sai Estate Consultants, channel partners for over 32 developers, says that the scheme may not see huge demand in major cities.

“Initially the segment may see investors wanting to pool in money hoping that there will be appreciation in this segment but as far as the end- users are concerned, I am not very optimistic. The average age of a homebuyer today has decreased and ranges from above 40 to 27 years to 35 years. Their average salary is anything between Rs 1 lakh to Rs 1.5 lakh per month. In a place like Mumbai where a house in the suburbs costs nothing less than Rs 75 lakh, I do not see this profile of homebuyers occupying homes in the periphery. They would prefer to pay Rs 50,000 as rent in the main city and invest additional funds in either equity or debt where the rate of return will be anything in the range of 14% to 15%.

“The biggest challenge will be absorption of these units. Who will buy these houses? Will investors hold it for some time and then exit with negative returns?” he asks.