Our affordable housing segment should break even in a year: Anita Arjundas

Written by Shubhra Tandon | Mumbai | Updated: Jun 17 2014, 06:33am hrs
Mahindra Lifespaces Developers, the real estate arm of the automobile-to-financial services conglomerate Mahindra & Mahindra, is entering the affordable housing segment with two pilot projects, one in Chennai and one in the Mumbai Metropolitan Region (MMR). While it expects to break even in the business in a year, the company says a lot needs to be done by the government on issues such as approvals, time-bound clearances and other policy measures for the segment to succeed in India. The new government at the Centre has also emphasised the need for affordable housing, with housing for all being an integral part of its agenda.

Anita Arjundas, managing director and chief executive of Mahindra Lifespaces, speaks to Shubhra Tandon outlining the role her company can play towards helping achieve the government's vision as well as the challenges facing the segment. Excerpts

What would be Mahindra Lifespaces role in the government's vision of developing affordable housing and smart cities

At least one of these spaces is not new to us. We have created micro-cities, through the two world city projects we executed through the public-private partnership route. I don't think this is something which a private sector company can do alone if it has to be a full-scale city, it needs a minimum of 20,000-40,000 acres as an acceptable threshold size and that is something which will require government's participation for securing the land, trunk infrastructure, and urban planning. I think we will be happy to step in at two levels one, the specific pieces that interest us and, two, we will be happy to contribute as a think tank needed for urban planning.

On affordable housing, we are still taking baby steps, but I think a lot of what we have achieved on these projects can be inputs to the government.

What are the challenges in developing affordable housing in India

The challenges are multi-fold. One is access to low-cost land not too far from the city because transport cost is an important aspect for people in this segment. If one goes too far, then one may get the land cheap, but end up spending an equal amount of money to get utilities like water and power to the site. The other aspect is approvals. This segment entails lower margins for developers and requires a high volume of sales at the earliest to justify return on capital. So it has to be profitable in terms of return on capital deployed, and not necessarily margin. If the necessary approvals to build such cities can be secured within, say, 90 days, it makes a big difference.

The third issue is around development control rules (DCR), on which there is a need for the government to come out with a framework applicable for low-cost housing. This could well be implemented by each state. Such a framework would need to relook at the rules that are not relevant to affordable housing. It would mean cutting out frills for developers like excess parking, without compromising on safety.

What about the availability of finance for customers and developers in the segment

For customers, there are some options that have emerged in the last three-four years. There are companies like Micro Housing Finance (MFHC) and Muthoot Finance, which have entered the space and built an almost R1,000-crore loan book in the last two years.

In terms of developers such as ourselves, funding is not a concern, but if more small developers have to come into this space then greater access to finance will help. So, the government has to make the real estate sector a part of infrastructure and, once they do that, banks will treat lending to real estate the same way as lending to infrastructure, which will reduce the cost of capital and improve access.

How much will you invest in the affordable housing space and when do you expect to break even

The current investments are in two land parcels, and early-stage construction, which will begin now. After that, advances received from customers will take care of the remaining costs. At this point in time, less than 10% of our overall investments so far have gone into these projects. We should achieve breakeven in this business in the next one year.