Affordability at a price

Written by Garima Pant | Updated: Sep 14 2009, 04:19am hrs
Even if Samir Chakraborty got a rupee for every time he encountered the words affordable housing in the last few months, he would have been a rich person by now. Especially since the downturn, developers have bought reams of ad space and radio waves trying to hawk their unsold estates even as the average middle class buyer, like Chakraborty, has waited for the prices to plummet further, thinking there was ample reason to do so.

Given that realty sector was largely blamed for the sub prime crisis in the US, with global repercussions, it is no surprise that the previous year has seen a downward slide in real estate prices across continents. India has been no exception, as projects got delayed, or even shelved due to lack of funds.

That Indian real estate rates have skyrocketed in the last few years is undeniable. The average rise from the beginning of the decade has been 50 to 100%, estimate experts, though islands of rapid growth have seen much more. Despite buying expensive houses, many are increasingly travelling greater distances and spending more on the commutes. By its own admission, the government has spectacularly failed to provide adequate number of houses the shortfall was 24.71 million homes at the end of the 10th Five Year Plan. And by its own estimates the shortfall is likely to rise 26.53 million during 11th Five Year Plan. In its report, a task force headed by HDFC Bank Chairman Deepak Parekh, had mentioned that any delay in addressing the affordable housing problem would affect the countrys economic growth and poverty removal plans.

Profit motive

For the developer community, its simple market dynamics that have been driving the affinity towards affordable sector of late, a segment not even considered in the heydays of penthouses and condominiums.

The change is recent. It is pertinent to note that affordable segment was not talked about during the boom and has now been highlighted during the advent of economic slowdown, says Pradeep Jain, Chairman, Parsvnath Developers. The tune is significantly different now. The real volume of business lies mainly in this segment. The numbers are huge and so is the turnover, says Navin M Raheja, Chairman and Managing Director, Raheja Developers.

The definition of affordability has been modified to suit individual needs.

In tier II and tier III cities, the housing units offered within the price range of Rs 10-20 lakh is considered affordable. However, in the NCR region, the dwelling units offered up to the price tag of up to Rs 40 lakh comes under the affordable category, says Jain. Tata Housing for its Shubh Griha project in Boisar, Maharshtra has targeted the migrant population that settles away from home to earn a living. Our study shows around 48% of the people in the lower segment are currently staying in rented accommodation. And it is targeting this population that we launched this project, says Brotin Banerjee, CEO and MD, Tata Housing Development Company. The houses built under this scheme would fall into the range of Rs 3.9 lakhs to Rs 6.74 lakhs.

Though being termed as pocket friendly, affordable housing projects have not been able to strike a balance between the buyers need and the developer offerings. For Vivek Singh, Relationship Manager at HDFC in Jamshedpur, finding the right accommodation to suit his budget and within a manageable distance has been a tough ask. I have been looking for a centrally-located accommodation, but the offers have been way beyond my budget, which is under Rs 35 lakh. I would prefer a three-bedroom flat, but if nothing works out I am willing to settle for a two-bedroom flat, says Singh. He also adds that the newer property is definitely way beyond his reach. But if I settle for water problems and electricity shortages and constructions that are more than eight years old, I might be able to find something within my budget, adds Singh.

Gulam Zia, spokesperson, Knight Frank puts it, Affordable housing has come up more as a jargon in recent times among the real estate fraternity to make use of their existing land banks. Its just a silver lining for the middle-income group and not the entire cloud. It will still take time for an average middle class family to fulfil their dream of a house.

Unequal growth

And this is just for the upper income levels. For a family barely managing to earn about Rs 2,500 a month, there are hardly any savings. 80% of the income is spent on food and other basic amenities, and the rest on education and other needs of the family. Where is the money to save for a house or pay the hefty EMIs asks Amitabh Kundu, Professor, Centre for the Study of Regional Development, School of Social Sciences, Jawaharlal Nehru University. Kundu has been asked by the housing ministry to head a panel entrusted with the task of working out parameters for any other category that requires affordable housing for the 12th period. Kundu asserts the fact that there is space available for the policy makers to look at the housing needs of the poor. Housing for this segment of the society should fall under the non-affordable category, he adds.

According to the India: Urban Poverty Report, 2009, an estimated 23.7% of the urban population is living in slums. As many as 81 million or 25.7% people (2004-05) subsist in urban areas on incomes that are below the poverty line.

According to the report, despite Mumbai having the highest per capita income in the country (Rs 65,361), over 1.2 million Mumbaikars earn less than Rs 591 per month. More than half of Mumbais population lives in sub-human conditions in shanties, but the land the slums are situated on comprise just 6% of the citys total land area. Industry experts say that 97% population in Mumbai lacks affordable homes.

This skewed investment and resource allocation has been working adversely for the urban poor population of the country, in dire needs of affordable housing solutions. According to the Deepak Parekh Committee Report on affordable housing, for the Economic Weaker Section (EWS) and Low Income Group (LIG) category households, for a house to be considered affordable, the cost of the house should not exceed four times the household gross income, and the monthly mortgage obligation (EMI) should not exceed 30% of the households monthly income. The HDFC considers 5.1 times annual income as the maximum affordability of a household. In other words, for a household earning Rs 3 lakh a year, an affordable house should cost at most Rs 15 lakh. But do these norms have a chance to succeed in India This clearly is in line with the international definition for affordable homes as well. The US Department of Housing and Urban Development (HUD) terms a housing project as affordable if the cost towards the house is not more than 30% of the buyers monthly income.

Narrow demarcation

Experts believe that the current form of affordable housing is targeting just the middle-income group of the society. A sizeable population of the country resides in slums as they cannot afford any kind of housing. The trend has been to make houses for people who can afford them. We cannot make no-cost housing without any help from the government for this segment, says architect AG Krishna Menon. This segment of housing is expected to reach the market size of Rs 3,00,000 crore and touch requirement of over two million units in India by 2011, according to a recent report by research agency Knight Frank. The report also indicated that the largest contributor to this market size is expected to be the group earning Rs 3-6 lakh income annually.

Chintan Patel, Associate Director, Real Estate Practice, Ernst & Young, says here are quite a few projects developed by leading developers, which are offering houses in the range of Rs 3 to Rs 7 lakh. These projects are coming up in the peripheral nodes and future growth vectors of the cities, says Patel. And are the financial dynamics workable for an average middle-class Indian Assuming the current home loan rate in the range of 8-9%, for a Rs 5 lakh loan amount and period of 15 years, the EMI would be approximately

Rs 5,000. For a buyer having an annual income of Rs 3 lakh, the monthly income would be around Rs 25,000. Since mortgage obligation for the loan is less than 30% of the monthly income of the buyer, going by the Deepak Parekh Committee definition of affordability, the housing project can truly be termed as affordable, adds Patel.

However, what remains to be seen is that how many projects in this price range are on offer. Given the talk of reviving real estate market, will affordable housing be the just a short lived realty story Even as the customer falls for the hoardings calling attention to affordable homes beginning at Rs 30 lakh, just 40 minutes by the Noida Expressway, are the regulators ignoring what just might be a sub prime crisis, India-style.

Buyers are from Mars, developers are from Venus

Preeti Parashar & Mona Mehta

Sunil Wadhwa, working with a Chandigarh-based pharmaceutical firm has been searching for a home in Rs 15-20 lakh category for the last two months now. He has finally shortlisted a two-bedroom apartment costing Rs 15.5 lakh in Pentahomes in Zirakpur (7 kms from Chandigarh). While the approach road to the housing estate needs repair, the project has been developed in serene environs. This is what appealed to me the most. Apart from being a decent accommodation at a reasonable cost, its financing is being facilitated by the developer, said Wadhwa. Though its just the basic model, which the developer is offering and we have to churn out extra money for value additions, for our dream house we are ready to stretch our limits, quips Wadhwa.

Many others like Wadhwa are ready to bear the extra burden of home loan as far as they are getting quality housing at reasonable cost, despite long commuting hours. While the demand for affordable housing has piled up in Chandigarh, the supply is not much at present. Majority of the projects in Chandigarh are high end and affordable housing projects are coming up in suburbs such as Zirakpur, Derabassi, Kharar, Mohali, Banur, Baddi etc. Manoj Kashyap from Jones Lang LeSalle Meghraj, Chandigarh, says To match the demand more developers should come forward in the affordable housing category. Today most of the developers are rationalising prices of their existing projects which were introduced in the high- end category. But even the mid-income customers are stretching their limits to find a perfect home in the suburbs.

As of now, affordable housing projects in most other cities will be seen only in fringe areas of large cities. Currently, we do not see such efforts being launched in more central locations. RP Malhotra from Dee Ess Estates Zirakpur says, Buyers are shifting base to the suburbs as average price in Chandigarh is around Rs 2,000 per ft2 of covered area whereas in smaller towns the price range is about Rs 1,200 per ft2. The high-end projects are still not finding buyers whereas the affordable housing projects in the range of Rs 10-20 lakh are witnessing jump in sales.

Quality is priority

But the customer needs to be cautious about the quality of housing offered by the developer under the aegis of affordable housing. Where the developer calls it a utility-driven construction, the customers are not aware of what is being offered to them. Warns Sangeet Sharma, a Chandigarh- based architect, Since most of the projects in affordable segment are coming up in the suburbs of Chandigarh, their quality of construction goes unchecked. Moreover basic infrastructure facilities like roads, sewage system and medical facilities are not developed. Those staying at such places have a persistent sense of insecurity. Sharma also feels that the aware customers will ask for better facilities from the builder and so shall be provided. Even if it means alteration of prices for the builder, he should provide good quality housing to the buyers, says Sharma.

An all India survey conducted by Cityscape India reveals that real estate consumers across India are rooting for projects in the MIH (middle income housing) segment, which the real estate industry needs to introspect closely. Over 53% respondents felt that developers are not catering to the rising emerging middle class in India. Over 79% of the respondents with an income of Rs 6 lakh per annum stated that the ideal affordable home would be in the range of Rs 20 lakh Rs 30 lakh.

Tanaji Malusare City (TMC) in Karjat, Mumbai illustrates how the trend for right-priced housing is picking up beyond suburbs where full-furnished apartments at Rs 3 lakh with lottery system is being offered. However, end-buyers feel that actual shifting from suburban location to Karjat is practically difficult as they will have to spend long hours travelling to their official destination. Meanwhile, there are also between 25-30 affordable housing projects coming up in Mumbais Vasai Virar sub region by developers such as Mayfair Housing, Akruti City, among others.

There are some initiatives by CIDCO and MHADA, where the cost usually hovers around Rs 2,000 per ft2 for 500 ft2 tenements. MHADA was also planning to come up with a lower-middle income housing scheme at Aarey Colony in Goregaon East. Hiranandani Constructions too is coming up with premium residential housing projects in Thane, which cannot be considered affordable.

According to Anshuman Magazine, Country Head, CB Richard Ellis, Property sales are happening in areas where prices have corrected and interest rate on home loans have come down. Moreover, in Mumbai and Bangalore, certain developers are reducing ticket size of apartments and offering unique decor.

Industry sources strongly believe that domestic and international real estate funds have started investing Rs 50,000 crore in new real estate developments in city centric locations of Mumbai, Delhi, Hyderabad, Pune, Bangalore, Chennai. But will these investments will able to provide a solution to affordable housing, still remains a big question. To provide affordable housing solution builders want to pass on the affordable burden to the government and claim that either the government must promote re-development of old buildings or provide world-class infrastructure to distant suburban locations where the population could reside while continuing to work within the city. This is to ease the commute time and allow access to vast land parcels outside the city. This in turn helps in decongesting the city.

In terms of where the highest demand in India exists, there is a great need for a 2BHK format procurable within a budget of Rs 6-12 lakh. The highest demand for such units comes from Delhi, Mumbai, Chennai, Bangalore, Hyderabad and Kolkata among the large cities and from smaller cities like Ludhiana and Nasik among the smaller cities.