It’s an unusual promise from a builder: Dwellings for as low as Rs.630,000 in Mumbai’s far outskirts. That’s not all. Also thrown in are a helicopter joy ride and a job for one female member of the buyer’s family.
Karrm Infrastructure Pvt., an Indian builder of budget homes, has been promoting these offers in newspapers and on local radio for its project in Shahapur, located about 90 kilometers northwest of Mumbai. The commercials seek 90 monthly payments of Rs.7,000 each with no hidden costs and say the project conforms to “Vastu,” a local version of Chinese Feng Shui.
The closely held company is among developers seeking to tap the affordable market that Cushman and Wakefield Inc. estimates is worth $11.8 billion. Demand for low-cost units is rising as Prime Minister Narendra Modi advances his “Housing for All by 2022” programme, while builders of high-end apartments in cities like Mumbai find fewer buyers and struggle with an inventory pile-up.
“Urban affordable housing has long been neglected in India due to various reasons such as high land prices, delays in getting approvals and low margins in the segment,” Sanjay Dutt, executive managing director, South Asia at Cushman and Wakefield said. “Now, with renewed focus from the government, we expect this segment to gather momentum.”
India’s urban population may reach 600 million by 2031, up from 377 million in 2011, according to the government. With a shortage of 18.78 million units in the urban housing segment, the government is focusing more on reducing squalor in cities and towns. It has shortlisted 305 cities and towns across nine states to start building houses for the poor.
About 7,000 affordable units were launched in the quarter through June, an increase of 320% from the previous three months, data from Cushman showed. About 60% of the units were launched in the National Capital Region, comprising Delhi, Gurgaon, Noida and Faridabad, the data showed.
Demand for affordable housing is forecast to climb to 535,400 units across NCR, Mumbai, Bengaluru, Chennai, Hyderabad, Kolkata and Pune, according to a joint study by the Confederation of Real Estate Developers’ Associations of India and Cushman and Wakefield.
The demand is based on a price range of $31,300 to $78,200 in these cities, except Mumbai, where the range is between $78,200 and $109,500, the study showed. Cushman expects strong demand in the top seven cities to drive the private sector to participate in creating affordable housing.
“The task at hand is very huge and cannot be achieved without the participation of the private sector,” said Getamber Anand, president of CREDAI National. With low or negligible margins in this segment, the industry could do with some incentives from the government, he said.
Lower mortgage rates for the poor, cheaper land and streamlining the approval process are some measures the government must look into to help give Modi’s initiative a boost, said Rohit Poddar, managing director at Poddar Developers Ltd, that builds affordable homes on the fringes of Mumbai.
Karrm says its low-budget project offers a swimming pool, a hospital, school and a super market. The biggest unit offered is about 202 square feet—all of one room, a kitchenette and a toilet. A full payment upfront fetches a 20% discount.
A sales representative in Karrm’s site office says the units will be ready in three years and the job offer for the female member of the buyer’s family is at a food processing factory coming up in the area.
For Shyamsundar Kamat, a migrant from the northern state of Bihar working as a chauffeur in central Mumbai, the above offers aren’t attractive enough. The reason—the long commute to work and back, which may shave five hours off his day, if he were to buy one of Karrm’s units.
“This doesn’t make sense for me,” he said. “I can use that time to do some extra work and earn more. This is just too far.” That is the reality of land-starved Mumbai, where the premium paid for a home near the work place is too high.
About 550 units are ready and 25,000 more are planned, Karrm’s representative said. Ketan Patel, the project head of Karrm, wasn’t available in his Thane office and didn’t respond to requests seeking comments.
Building homes for the poor might make sense to help boost volumes in a market where Indian real-estate companies are struggling with dwindling sales. Home sales in India’s top eight property markets fell 4% in the quarter through June from a year earlier, while unsold inventory rose by 18%, according to research firm Liases Foras, which estimates it will take at least 45 months to find buyers for unsold homes in Mumbai alone.
Poddar sees opportunity in the affordable space, which he says is more like a manufacturing model that takes time to acquire capability.
Poddar’s profit margins are at about 23% compared to developers for high-end projects that could see margins of as high as 50%, Poddar said. Returns over the long term are the same as developers of high-end homes, he said.
“Right now, a developer making high-end homes is unable to sell, he’s losing money hand over fist,” Poddar said. “In a bull market, he may make 50% margins, while we may make 25%. But in a downturn, we will make money while he is losing money. Over the long term, I don’t think my returns will be any different from his.” Bloomberg