Companies & Sectors
The rise, fall and rise of affordable housing

Affordable housing was in great demand during the global recession, but subsequent economic recovery led to change of attitude among developers. However, not all is lost, as some developers are still pursuing affordable housing projects and have some major plans lined up

"Affordable houses for sale" was the cry of most developers when the global recession made business uncertain for them as demand plummeted for premium apartments. In attempt at some damage control, top builders in the country joined hands to unleash a flurry of affordable housing projects catering to the middle-income group, according to VCCircle.com, which provides news, information and data for the investment ecosystem.

Some builders even changed their product profile to suit the need of the hour. Unitech Ltd, a leading builder in the Northern Capital Region, was the first to take the affordable housing plunge. It initially launched 'Grande' a luxury residential project in Noida, but re-launched it with a major portion converted into smaller flats available at discounted rates. Soon other builders and developers followed suit realising that it's best to follow the market demand-supply equation. Even builders specialising in premium properties announced plans to venture into affordable housing.

So far, so good. However, with the global economy limping back to recovery and India humming along at a fast clip, developers soon went back to their usual strategy of maximising gains through premium projects and put all pending affordable housing projects on the backburner.

Anuj Puri, chairman and country head, Jones Lang LaSalle India, said, "When the downturn happened, affordable housing had become the most saleable product rather than luxury or premium segment. Therefore, every developer wanted to focus on affordable housing at that time. However now the demand is coming back in luxury and premium segment, developers who were most comfortable in such projects are making a comeback, as it gives better margins compared with affordable housing."

For example, at the peak of recession in November 2009, DLF had announced ambitious plans to build one lakh affordable houses that would cost less than Rs20 lakh in major cities across the country. However, with the first sign of economic recovery, DLF withdrew from the affordable housing sector citing low margins under the scheme as the reason for the pullout. The company is now planning a high-end housing project in one of the major metros.

More than anything else, it was the low profitability of affordable projects that made developers back out. But why did they even make that initial foray into the affordable housing segment? When jobs were back, there was liquidity in the market; the need of the hour was to cash in on the improved sentiments of buyers.

Pranay Vakil, chairman, Knight Frank (India) Pvt Ltd, told Moneylife, "The margin is much better in luxury apartments. If you want to earn maximum with comparatively lesser efforts, then luxury housing is the way out. Then, there's also herd mentality among the developers. If one person announces, then the second and third person will follow."

Nevertheless, there is still hope for affordable housing and all may not be lost. Some developers such as Tata Housing and Puravankara have stuck to their plans of producing affordable housing. Besides, new and existing developers such as Jerry Rao, focussing exclusively on affordable housing, have shown that by following a few methods, one can profit from these projects too.

Unlike in conventional real-estate development, affordable housing demands assembly-line manufacturing to ensure cost efficiencies, process management and quicker turnarounds. Whoever follows this, will keep his customers and himself happy and not fret about making poor profits.

Mr Vakil said, "There is a very good future to affordable housing provided the government takes it up seriously. There are four components to delivering low-cost affordable housing. Land, construction cost, technology and interest. If you take care of all these four, then you can come up with affordable housing."

Considering the huge demand-supply imbalance coupled with the shortage of around 25 million homes in India, maybe it is time the government provides a tax break for affordable housing projects if it meets certain criteria.

In addition, developers seem to be coming down from the castles that they have built up high in the air. As Moneylife reported recently (http://www.moneylife.in/article/4/10186.html), Mumbai builders are finding it increasingly difficult to hold up these astronomical prices, and are offering a number of discounts. Perhaps sanity will finally return to the real-estate sector.
 

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