Take a good, hard look at ‘affordable’
Given the immense opportunity that lies in the affordable housing segment, it’s time it is given importance by the government and the private sector alike, says Anshuman Magazine
The ongoing economic scenario has compelled real estate developers and stakeholders to look at optimizing their resources and employing befitting strategies to tide over the current times. In line with the fast transforming external conditions, some structural changes are underway in the residential sector as well. The combination of current slowdown in demand in the sector and the oversupply or the concentration of premium category supply has pushed developers to redefine their product portfolios with affordable or mid-end housing becoming the new mantra.
A high demand and volumes game
Temporarily reduced buying power due to high residential prices, rising inflation rates combined with a hike in interest rates, have impacted the demand for high-end residences. As such, venturing into affordable or mid-priced housing seems to be the appropriate recourse and this segment has become the most talked about asset class of the recent times. Developers today realize that this segment offers maximum opportunity and prospects on account of two key factors.
First, according to the 11th five-year Plan (2007-2012), of the total estimated shortage of 26.53 million dwelling units, the maximum shortage is in the mid and low segment for which the demand is relatively in flexible. Second, this segment will entail a volume game rather than value, and will serve to boost the top line in the long run. Hence, even though the margins in this segment may be lower, the inherent demand and higher volumes will make up for fall in margins.
No doubt then that this sector is being much talked about and several leading developers have evinced interest. However, little ground has been covered till date and the actual activity in this segment has been rather limited. Given the apprehensions regarding the low profit margins and the fact that this product offering has not been catered to by most developers until now, several uncertainties need to be cleared in order to pave the way for the success of this new asset class.
The best approach
The right approach would be to focus on cost minimization and by developing a value-chain oriented strategy by virtue of backward integration. More than 80 per cent of the total residential demand in India today is in the affordable and the mid-end housing segment and hence the real estate players will stand to cash from volume-driven profitability and economies of scale. Of course, the other key factors will be identifying the right markets, using alternate materials, low-cost housing techniques and incorporating global best practices in developing similar product.
With the builder fraternity moving in to fill in the existing gap in affordable housing, some constructive steps need to be (or are being) taken by the government to facilitate this movement these would primarily include introducing progressive reforms like repealing the Urban Land Ceiling Regulation Act (ULCRA) and increasing floor space Index (FSI), micro financing, etc. A shot in the arm has been the recent policy move granting ‘priority’ status for housing loans of up to Rs. 2 million and for loans given by banks to Housing Finance Companies (HFCs) for on-lending to individuals for purchase or construction of homes of up to Rs. 2 million. Apart from these, mobilizing funds from various agencies, encouraging private-public partnership, public housing agencies such as the state housing boards, various government welfare housing organist ions, etc. to take lead, subsidization of construction inputs and above all developing land and providing infrastructure facilities in locations feasible for affordable housing projects, will give it the required impetus
Courtesy HT dtd: 18-02-09
