While affordable housing has high demand in India and can contribute significantly towards building sustainable urban spaces, several challenges need to be addressed so that this segment, which accounts for most of the unsold stock, can live up to its potential, says Arvind Subramanian, CEO of Mahindra Happinest.
Q: While it is universally acknowledged that the maximum demand for homes in the Indian real estate market is in the affordable segment, it is also true that affordable housing accounts for almost half of the unsold inventory in the country. Why do you think that is, despite the clear demand for affordable homes?
A: It would be a grave mistake to presume that because an affordable housing buyer has a constrained budget, he is not discerning about his product choices. These customers research their purchase for many months – often longer than a year – before making a decision. They cannot afford to make mistakes and are hence, more cautious about which developers they entrust their life’s savings to. It is, therefore, not a surprise that this segment of the market has both, abundant demand and at the same time a lot of unsold stock. If one were to look deeper, one would find that the better products and reputed developers are doing well.
So, what are these ‘better’ products? Over the past few years, there has been a clear shift away from speculative demand towards end-users. With all the horror stories about stalled projects, affordable home buyers have become more considered and cautious, with a clear preference for projects by developers of repute, or those that are nearing completion. Other factors that they consider include location and its connectivity to the workplace, relevant project features and amenities, maintenance costs and social amenities in the neighbourhood. The demand for well-located, quality homes that are also attractively priced continues to be strong. For example, our project Happinest Kalyan received over 1,200 applications within two weeks of its launch.
Q: How do you think the homes offered under the affordable segment have evolved, over the last few years?
A: Affordable housing in India has come into its own over the past few years, driven by accelerating urbanisation, a supportive policy environment and significant demand-supply gap. To begin with, the Pradhan Mantri Awas Yojana-Urban (PMAY-U), launched as part of the ‘Housing for All’ mission, shone a spotlight on the segment, reflecting an urgency across India’s metropolitan areas to develop quality affordable housing stock. The implementation of the Real Estate (Regulation and Development) Act (RERA) ushered in a new era of transparency and accountability in Indian real estate and bolstered the confidence of first–time home buyers, in particular. The Goods and Services Tax (GST) on under-construction affordable homes has been slashed to 1% and a broader definition of affordable housing for both, metropolitan and non-metro cities, has resulted in more projects being covered under the ambit of the Credit-Linked Subsidy Scheme (CLSS). All of these measures have improved affordability for the first-time home buyer, while widening the range of housing options available to him/her.
While all these announcements paint a positive outlook for the sector, a few challenges must be addressed, to ensure continued growth momentum. These include single-window clearance for affordable housing projects and an assurance of basic utilities like electricity, water, sanitation and piped gas. This will help further accelerate private participation in the segment. Additionally, rationalising registration charges and stamp duties for affordable units, can further strengthen demand by improving affordability.
Q: Do you think it is important for affordable housing projects to be green and sustainable?
A: Buildings in India contribute to 40% of energy use, 30% of raw material use, 20% of water use and 20% of land use, while generating 30% of solid waste and 20% of water effluents. Our cities and towns are facing numerous challenges emanating from both, global and local-level climate change. At the same time, with India aspiring to become a five trillion-dollar economy by 2024, urbanisation is expected to power much of this growth. Immediate environmental planning is, thus, critical for urban and semi-urban India.
The good news is that most of our future built infrastructure (including housing) is yet to be developed. So, we have a sizeable window of opportunity to transform urban India, through the way we conceive of and build our homes and cities. Moreover, with affordable housing slated to form a significant chunk of future housing stock in India, it will be imperative to ensure that these homes are designed to be resource-conscious and ‘green’ throughout their lifecycle. Incorporating sustainability principles in the fast-growing affordable housing segment, can help achieve the following:
- Reduction in energy and water consumption.
- Improved health and hygiene for residents.
- Better sanitation, ventilation and light.
- Fuel savings from shortened commute.
Q: One of the biggest issues facing the affordable housing segment, is the high cost of land. It does not look like the cost of land is coming down any time soon. What are the ways in which developers are working around this problem?
A: Land cost typically comprises one-fourth to one-fifth of the selling price in these projects. Construction cost and financing costs are larger components. So, while cheaper land would be welcome, I do not believe it is the single biggest impediment to the development of affordable housing. Land in the heart of the city typically does not lend itself to affordable housing, unless there are specific development norms to that effect. One potential solution that dovetails with the extensive investment in metro networks in all the large cities, is to provide for transit-oriented affordable residential developments close to metro stations.
Q: There are many unorganised players in this space. How can home buyers ensure that they are investing in the right project and the right developer?
A: Buying a home is possibly one of the biggest decisions in one’s lifetime. The home-buying process involves many critical aspects, each of which must be thoroughly evaluated before making a purchase decision:
Location: Identifying the right location – be it an emerging suburb, an aspirational neighbourhood or a narrower zone around one’s current neighbourhood – is the first order of business. It is important to systematically map transportation networks, convenience retail, quality of schools and colleges, and primary and tertiary healthcare in the neighbourhood, depending on the buyer’s age.
Apartment size, layout and architecture: While carpet area is an accurate measure of space, it is important to note that apartments with similar carpet area might offer different trade-offs to each customer. Home buyers must think deeply about how they will use various spaces within an apartment. Additionally, privacy, natural light and ventilation are design goals and not inadvertent outcomes. Hence, it is advisable to visit a completed project by a builder/architect and talk to the occupants.
Pricing: The most commonly used matrices are rental yield and EMI-to-rent ratio. Often, home buyers fail to consider the full cost of long-term ownership, such as maintenance charges, utilities, property tax and usage costs like annual club fees or paid facilities. They must bear in mind that every rupee of extra monthly cost in perpetuity (on account of maintenance or utilities), is equivalent to over Rs 150 per sq ft of unforeseen capital cost.
A few more basics:
- Is the project RERA-registered? If the project is RERA-registered, all requisite project details will be available on the RERA website, including development timelines.
- Does the developer have adequate financial backing? RERA approval is required only to start the project and hence, checking the financial viability of a developer/project is necessary. Additionally, a home buyer should also check other completed projects by the same builder.
(The writer is editor-in-chief, Housing.com News)