The government's tax incentives might have failed to coerce large real estate companies to shift gears in favour of affordable housing but mid-sized companies are rushing in.
The government’s tax incentives might have failed to coerce large real estate companies to shift gears in favour of affordable housing but mid-sized companies are rushing in. Among them are Pune based companies Panchshil Realty and Gera Developments, Thane based Raunak Group, Delhi based Raheja Developers and and National Capital Region’s (NCR) ATS Builders, according to people in-the-know.
During the budget session held in early February, the government said that the affordable housing segment will now have infrastructure status, making it a priority sector for lending. Following the previous year’s announcement when it allowed 100% deduction in profits for projects with apartments measuring up to 30 sq meters in the four metro cities and 60 sq meters otherwise, the finance minister also clarified that such areas will now be calculated in terms of carpet area.
Experts said, large companies typically build luxury apartments, sized above 1500 sq ft, with a price tag of a few crores of rupees at the very least; it is tough to re calibrate products and scale down by more than half, both in terms of price and size.
“It is unrealistic for large companies whose DNA has been luxury and ultra luxury products to overhaul their strategies completely to affordable housing,” said Neeraj Sharma, director at Grant Thornton. It is simpler for companies that sell projects with apartments in the bracket of R70 lakhs or R80 lakhs to scale down to the optimum size of affordable housing, Sharma added.
That said, some of the companies that are shifting part of their portfolio to the affordable housing segment said it is not possible to adopt building such apartments on a large scale.
For one, land prices are too high, said Kumar Gera, chairman of Gera Developments. Currently the company sells apartments priced in the range of R70 lakhs to R80 lakhs. The affordable range will be priced at approximately R40 lakhs, Gera confirmed. But even as these companies are batting for the affordable housing benefits announced by the finance minister, Gera said, supply will only escalate in a meaningful manner if land value decreases along with general ease of doing business.
Land typically constitutes 70% of a project cost. In affordable housing, margins are far more compressed compared to luxury products hence it becomes an even more important consideration.