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Now, realtors plan low-cost flats for cash flows

December 05, 2008 09:48 IST

After launching mid-income houses, real estate companies are now targeting low-priced homes in the sub-Rs 10 lakh (Rs 1 million) category to improve cash flows and beat the slump in the property market that has been driven by high borrowing rates.

Unitech, the Delhi-based property major, has applied to the Haryana government to develop houses in the Rs 7 lakh (Rs 700,000) to Rs 15 lakh (Rs 1.5 million) range in Gurgaon. These are high-density, four-storied buildings in the 450 to 800 square feet range.

"Affordable housing is the new mantra for developers now because it is much easier to get loans below Rs 20 lakh (Rs 2 million)," said Raminder Grover, managing director, Homebay Residential, a subsidiary of Jones Lang LaSalle

India's central bank counts loans of Rs 30 lakh (Rs 3 million) and below given by lenders to home borrowers as priority sector lending. The classification means that banks can also access refinancing at concessional rates and fulfil norms of directed lending.

The Union government is also expected to promote low-cost housing in its stimulus package for the economy to be announced Saturday. It is expected to give some relief in interest rates for low-cost housing for loans not exceeding Rs 10 lakh.

"The slump in demand in the real estate can be reversed if we provide affordable housing in the range of Rs 20 lakh to Rs 30 lakh. Unitech's new projects will factor in this and we intend to reduce the ticket size to make the houses more affordable," said Ramesh Chandra, chairman, Unitech.

The country's largest listed realtor DLF, on the other hand, is focusing mainly on mid-income, rather than low-income, housing in the Rs 2,700 to Rs 3,000 per sq ft bracket, a company official said. The company has sold over 2,600 apartments in this segment in the last six months.

"Affordable housing is witnessing a steady increase at an all-India level. This includes major cities like Bangalore, Mumbai, Delhi and Chennai," said J Murugavel, chief executive of Consim Info Pvt Ltd, which manages property portal IndiaProperty.com.

Smaller property companies are not far behind. For instance, Delhi-based property developer Falcon Realty Services has launched apartments priced at Rs 5.5 lakh (Rs 550,000) at its Gulmohar Woods in Global Eco-City near Delhi.

Mumbai-based Matheran Realty launched houses priced between Rs 3 lakh and Rs 7 lakh category in Karjat, nearly 100 km from Mumbai, and is looking to launch similar projects in the central and western suburbs outside Mumbai.

Another Mumbai-based realtor, Sunil Mantri Realty, is launching a housing project in the bracket of Rs 5 lakh (Rs 500,000) to Rs 15 lakh in Gwalior, Madhya Pradesh, in February next year.

The developer is also launching projects in the Rs 10 lakh to Rs 15 lakh segment in Sholapur in Maharashtra, Mumbai and the outskirts of Bangalore next year.

Other property majors such as Omaxe and Puravankara have set up separate companies to launch the affordable housing projects. Omaxe has set up National Affordable Housing & Infrastructure Limited, in which it recently divested a majority stake, and Puravankara has set up Provident Housing.

Matheran Realty saw nearly 66,000 aspiring home-buyers applying for 3,000 apartments to be handed over in mid-2009 in Tanaji Malusare City. The realtor sells houses here at Rs 1,000 to Rs 1,400 per square foot even as it spends Rs 1,200 to Rs 1,300 per sq foot on land and construction.

The developer is looking to sell shops and other commercial properties at Rs 5,000 to Rs 6,000 a sq foot by way of cross-subsidies on the housing project.

Pravin Banavalikar, chief executive officer, Tanaji Malusare City, Matheran Realty's Karjat project, said: "There is no dearth of demand for houses below Rs 10 lakh whether it is boom or recession because there is a huge demand-supply mismatch."

Planning Commission estimates suggest that India has a shortage of 24.7 million homes and economically weaker sections and low income group segments account for 99 per cent of that gap. The shortage is expected to touch 26.5 million houses by 2012.

The investment required to bridge the gap at the beginning of the eleventh five year plan was pegged at Rs 1,47,200 crore (Rs 1,472 billion) and is expected to rise to Rs 2,14,100 crore (Rs 2,141 billion) by 2012.

Though margins in low-priced apartments are lower than in mid- and premium housing, companies are eyeing higher volumes to drive the business. Low-cost houses have a margin of 10 to 15 per cent against margins above 25 per cent for higher-priced housing.

Raghavendra Kamath & Joe C Mathew in Mumbai
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