You can afford it!

Written by Garima Pant | Updated: May 25 2009, 05:07am hrs
The recently concluded general elections saw a common mandate in a number of party manifestos the promise to provide affordable housing. However, when the core thrust of the realty segment for the last decade has been directed towards the higher income group, it still remains a dream for the economically weaker section (EWS) of society to hope for an abode.

Neelima Risbud, professor of Housing at the School of Planning and Architecture says, Cities are growing and urbanisation is transforming these places at an extremely rapid pace. Multiple and sustained strategy to reach the lower income group is the need of the hour. Inclusive cities is the solution to this problem, she says. And for that to happen, affordability and the cost of housing have to match. There is a huge gap between the two, she adds.

Affordability is a flexible concept that takes the shape of the market and its prevalent market dynamics under discussion. Sanjay Dutt, CEO (Business) Jones Lang LaSalle Meghraj says that as a rule of thumb the price of an affordable home equals five years cumulative salary of the buyer. In other words, a family earning Rs 12 lakh a year can afford to buy a house worth Rs 60 lakh, factoring in generalised expenditure and saving patterns. Banks also see this as a safe lending norm. The minute the price crosses this benchmark, affordability is compromised and demand reduces. Again, affordability as a concept changes from city to city in accordance with prevailing salary scales for that city, he adds.

Burgeoning demand

Affordable housing is hugely undersupplied in India, according to a Goldman Sachs report. More than 30 million units are needed because of growing urbanisation. According to a Planning Commission Report, the urban housing shortage as in March 2007 was around 24.71 million and it increase to 26.5 million by 2012. Considering 99% of this shortfall is with regard to EWS and LIG, these segments by their very nature fall in the category of low cost or affordable housing and that is just how big the potential is for a slum free India. Apart from the existing shortfall, the increasing urban population, which is expected to reach 576 million in 2030 from the current figure of 328 million will add to the affordable housing demands, says Sachin Sandhir, Country Head and MD, RICS (Royal Institution of Chartered Surveyors).

Industry experts call affordable housing the primary need of the country. Says Dutt, 80% of the Indian real estate market is represented by the residential segment, and over 70% of the Indian population cannot afford mid-income housing. The Indian residential real estate fraternity has had a hard time accepting that affordable housing is where the highest business potential in a slowdown scenario exists primarily because most developers were still stuck with non-selling mid-to-high income projects when the current dynamics made their presence felt.

Brighter future

Realising its inherent demand and mass appeal, developers are banking on this segment for volume business and relatively easier access to funds. PPP will be a vital tool and the way forward to address affordable housing. And continued focus in the direction coupled with government support in terms of fiscal and monetary measures, favourable policies and incentives, introduction of some form of regulation would in turn improve Indias GDP growth rate, says Sandhir. David Smith, Founder, Affordable Housing Institute based in Boston, says Affordable housing is essential to national competitiveness. It adds labour mobility and family security and family formation. Ample reason to explore the opportunity in the sector.