Affordable housing is in vogue

Updated: Dec 1 2008, 05:28am hrs
With rapid urbanisation, one of the biggest challenges is to provide affordable housing to city dwellers. Affordable housing has perhaps been the most neglected segment of the real estate sector in the past, but today it is attracting large-scale investments from private developers as well as equity funds. The current situation in the real estate sector has pushed the demand for mid-market housing in a big way. Most of the real estate players have shifted their focus to mid-segment and affordable housing now, making it the need of the hour. Seeing this, it is advisable that real estate companies turn their attention to the mid-segment housing market rather than what was once considered the golden egg or the luxury segment.

With the downturn in the housing market caused by the global economic slowdown, all the key organised players in the real estate space are creating portfolios in the affordable housing market and are looking to grow the largely untapped mid-market segment. Industry experts foresee this segment as having the maximum demand in the near future.

The global economic meltdown has had a ripple effect in the Indian financial and housing market. A sector that once saw demand outstrip supply has now seen a reversal of fortunes. The recent festive season in India, which is normally considered an auspicious time for making large investments, saw the housing market which normally escalates by over 40% then remain relatively flat. In order to spur sales, real estate majors have been offering freebies like gold coins, luxury cars, foreign trips in order to lure buyers for the luxury housing segment. But the same is not the case for affordable housing as the price is not that high and freebies entirely depend on the price at which property is bought.

Indias housing market was worth $12 billion in 2005 and had been forecast to grow to $90 billion by 2015. The crisis has deepened this year with high interest rates on home loans and double-digit inflation reducing property purchases by 20%. The buyers decision is effected mostly by the interest rate and the property prices. Banks have also cut down prime lending rates and with home loans rate linked to prime lending rates, the interest rates are bound to come down which in turn has pushed the demand for mid-segment housing even if the developers have to do away with their respective margins.

Demand in the mid-segment has changed and there is an increase in the number of buyers for a 2BHK with all amenities at the site. Since the cost cannot come down, the area per unit has come down. Many developers are reducing the floor size of the flats from 2,000 sq ft to around 1,200 to 1,500 sq ft. This translates to a fall in the price of a three-bedroom apartment from Rs 60 lakh to around Rs 30 lakh.

There is tremendous potential in the mid-segment housing in India. With the growing economy and increase in disposable income, a majority of the people are looking at buying their own houses. The concept of nuclear families has picked up in India and todays youth want to buy a house to suit his or her own style and comfort.