Realty slump a myth?

India’s realty sector has been labouring under the weight of high prices, falling demand and restricted availability of funds from financiers. As a result of this property prices have fallen and so have rents especially for commercial spaces. Now vacancies in malls are beginning to threaten their viability. Amidst this entire ‘Apocalypse Now’ scenario, real estate developers have found what they believe is the perfect messiah in these troubled times.
Affordable housing is the new mantra that the builder community has learnt to brandish seeking a revival. However the price range for these so called affordable housing schemes still seems out of reach for most middle class Indians. Where the price range is affordable the location is so far out of town so as to make the residence impracticable for a working couple, even when they own their own transportation.
Does that mean the realty boom is over and that all the projections of housing shortage in India are humbug? A look at the queues being formed outside HDFC Bank branches in India’s commercial capital for purchase of application forms, to apply for flats and plots put on sale by the Maharastra Housing & Area Development Authority will quickly disabuse one of such notions. For under 3,900 flats across various areas and categories on sale, almost 1.9 lakh application forms have been sold in just 3 days flat. What’s more queues still show no signs of abating so now MHADA is planning to print more forms for distribution by January 30, 2009.
Similarly houses put on sale by the Delhi Development Authority too attract huge interest. And its not just houses for the lower income groups or economically weaker sections that attract demand. Indeed in the MHADA lottery based allotment system, several so called high-income group flats may attract a huge amount of interest going by what real estate experts say. At around Rs 6,000 per square foot some of these properties are hardly cheap. But families do find them within their grasp as they are priced reasonably as compared to what private developers charge in the same locality.
MHADA officials they manage to make enough profits from selling HIG houses to cross subsidize the LIG and EWS scheme houses. Judging by this statement it would appear that private developers are either highly inefficient or are making supernormal profits. If they too were to drop prices to levels where they make a respectable return on their capital and yet customers can afford to buy homes, they would tap into a huge reservoir of demand, slowdown notwithstanding.
Sadly private developers have so far failed to cash in on this latent demand. Demand for housing provided by the likes of MHADA is buoyant even though the quality of construction is widely considered to be far poorer than that of most private developers. As a result the life of these dwellings tends to be less or often buyers end up spending additional sums to make the homes more livable.
Now with all these advantages you would think that private developers would seize the initiative and make the state owned land development authorities irrelevant. Sadly that has not proven to be the case. Will developers continue to ignore Middle India?