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Affordable housing: A route to dodge the downturn

As buyers defer purchase decisions and with the realty sector witnessing a continued slowdown,demand can be spurred only by reducing prices

Written by Adhil Shetty |
October 22, 2011 12:00:39 am

India’s real estate sector last saw a boom in the five years from 2002 to 2007. The dream run of real estate ended in 2008 and the markets crashed. Since then,the real estate sector has not been able to recover. There have been spurts of growth for a few quarters but sustainable recovery is still elusive. Moreover,inflation and the global downturn played its own part in prolonging the slowdown.

Affordable housing

Out of sheer necessity to reduce prices in order to fuel demand,the idea of affordable housing is being discussed in real estate circles. Affordable housing is not low cost housing though these terms are confused very often. While low cost housing is targeted at economically weaker sections of the society,affordable housing is targeted at all types of buyers.

Affordable housing is a new growth area where builders and property dealers are focusing to spur demand for homes. Given that the slowdown in the real estate sector is here to stay,builders have no other option but to build homes that people can afford.

The numbers differ on what defines affordable housing. The most used numbers for affordable housing is anywhere between 3 to 5 years of net salary of an individual or family depending upon the economic growth and prevailing sentiments. Hence,if a person earns Rs 6 lakh net salary per annum,his or her capacity to buy a home is between Rs 18-30 lakh.

How this works

The purchasing power of all classes is determined and a value assigned on the basis of the location. Builders then try to offer properties within this range. This is called affordable housing.

In the above mentioned example,if a builder wants to price a 1,000 square feet apartment in an area where the average income is Rs 6 lakh per annum,the price can be between Rs 1,800 and Rs 3,000 per square feet.

The challenge is to build an affordable home and yet be able to turn in a profit. The government has also made it clear that they would help builders in land allocation and other administrative issues if builders go for affordable housing. Moreover,affordable homes are typically built in areas far from the city. This reduces the land prices and makes building affordable housing possible.

Tax holiday is another incentive the government provides builders who are take on affordable housing projects.

Current status

Affordable housing is a mature market in developed economies. In India,however,this is yet to take off. Despite efforts by builders and the government growth is very slow. The primary reason has been the lack of infrastructure. With developments taking place farther from the main city,unless there is a functioning transportation network and system,home buyers will not prefer buying.

The second problem is slowdown in the market. Almost all the builders have incurred huge debts and that has compounded problems. There has been a lot of discussion about this in India but not many affordable homes are being constructed.

Builders’ associations have asked the government to provide more incentives,exemptions,and discounted land to promote affordable housing.

Tata Housing Development Company is a serious player in this area and has built three affordable housing societies. In 2010-11,the company intends to develop four more affordable housing projects.

Ansal properties,DLF,Unitech,among others have announced their intention to commence affordable housing projects. If they materialise,the dream of many Indians to own a home might get fulfilled very soon.

Do Remember

As the saying goes,the three most important things in real estate are location,location,and location.

Most of the affordable homes are situated far from the city without the necessities such as schools,markets, hospitals,transportation etc. Home buyers should definitely make a decision based on the location. Never compromise on quality of the building. There may be cases where builders may compromise on quality to reduce the cost. Check the reputation of the builder before deciding.

— The author is CEO,Bankbazaar.com

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