Anuj Puri
There is a lot of housing supply coming in, but the affordable variety is not happening where it is needed the most – in the central regions of cities like Mumbai, where properties are extremely overpriced now. Nevertheless, this is causing newer locations to be developed in the further suburbs, so the residential market is expanding. Far-flung or not, there are still affordable options available; however, a lot of buyers themselves are now back in wait-and-watch mode as they wait for corrections that may or may not happen in the locations of their preference. The upward revision in home loan rates is not helping.
I guess we’re in a sort of transition stage right now, and only the coming year will reveal the true nature of the residential market in our metros.
One of the primary challenges for affordable housing lies in acquiring land at suitably low cost within areas where budget housing is needed the most. Since this is not possible without the Government making special land allocations for affordable housing in central areas, budget home project tend to come up in far-flung suburbs that often lack sufficient infrastructure. At the same time, various Government bodies such as Railways hold land parcels in far more central areas of cities like Mumbai. If land from these parcels would be released exclusively for low-cost housing, we would have some real-time solutions.
Jerry Rao’s business model for building affordable housing projects on the outskirts of Bangalore is credible, and it can be translated into a number of other cities with cost-effective land tracts on their outskirts. Considering the intended selling prices, the formula can be replicated in locations where land is available at very rational rates. Jerry Rao has set a rational ceiling on his expected profits (25%), and this is probably the most decisive aspect of the formula he has adopted. Such projects benefit from higher FSI provisions by the Government and generating a healthy profit even given the lower margins is not a problem. However, infrastructure is a critical element. Such models will only work well if the Government steps in to provide the required road connectivity and public transport to such destinations.
Housing is only affordable in Tier II and III cities because the cost of land is lower. Affordable housing can be a reality in the larger cities, and there are initiatives being taken in this direction. However, there needs to be greater cooperation between developers and the Government.
Developers need to reorient their business objectives from the high-margin/low-volume high-end residential formats to the low-margin/high-volume affordable segment. At the same time, the Government needs to make locked land parcels in the inner cities available exclusively for affordable housing projects.
