Affordable, not luxurious

Tags: Real Estate

With the government’s overweening emphasis on housing for all, real estate companies have changed their strategy

Affordable, not luxurious
Despite a sluggish demand scenario, real estate developers are gearing up for the forthcoming festival season in anticipation of revival in sales - albeit with a subtle shift of emphasis. On their radars are not luxury residential houses for the well heeled but affordable housing for the masses. The aim is driven by simple economic logic, improving cash flows.

Most developers say that the sentiment index is looking up and with the government’s overweening emphasis on affordable and mid-segment housing, real estate companies have also changed their strategy by tilting their focus on affordable housing rather than high-end projects.

For the last four-five years, developers had zeroed in on luxury projects as it undoubtedly generated better profits, but with the economy slowing down and sales dipping, developers found themselves struggling for cash flow. They reached the inevitable conclusion that it is important to be present across segments for generating healthy cash flow and are therefore changing their strategy, experts point out.

Says Sunil Mantri, chairman, Mantri Realty, “Definitely developers are once again focusing on affordable housing, except that the definition of affordable housing itself has changed. Property pegged at around Rs 50-60 lakh, with an area of 60 sq mt, is now being considered as affordable housing.”

Given the low-end consumers’ virtually inexhaustible housing demands, there is huge rush for affordable housing and developers, naturally, have their eyes on the moolah. While it is true that luxury projects generate higher profits, for daily requirement of working capital, housing promoters are rethinking their strategies and have once again started to focus on affordable housing, he said.

In fact Mantri said that his company plans to launch a couple of affordable housing projects in the peripheral locations of Mumbai.

The sales have also started to show slight improvement month-on-month and are slated to get better with the advent of the festival season, which is a few weeks away.

Navin Raheja, chairman and managing director of Raheja Group, says his company has already launched many affordable projects and would continue to do so in the near future.

For good measure, Raheja adds that around 70 per cent of Indians cannot buy houses due to high property prices. What that means is that focus on affordable housing is essential to cater to their demands, making affordable housing in the country a huge proposition.

Coupled with the economic situation, the government and the Reserve Bank of India have once again attracted the attention of developers and customers in the housing sector with two major announcements.

Finance minister Arun Jaitley announced major initiatives for the affordable housing segment earmarking Rs 4,000 crore, up from Rs 2,000 crore last year, to the National Housing Bank (NHB) for giving credit to housing finance companies for lending requirements of the urban poor.

This was followed by an announcement from the RBI that allowed banks to raise long-term soft funds from the market to finance lending for home buyers for up to Rs 50 lakh for property values reaching Rs 65 lakh in six metropolitan centres - Delhi, Mumbai, Kolkata, Chennai, Bangalore and Hyderabad.

In other cities, the upper limit will be Rs 40 lakh for houses of values up to Rs 50 lakh. The RBI has not stopped there; it has said that it would review periodically the definition of affordable housing taking inflation into account. These steps have started to evoke fresh investor interest easing up funding options for developers.

Further, deduction limit on interest for housing loans, the Urban Renewal Programme and the Housing for All Programme, will help in reviving demand. In terms of relief to the housing sector, the budget has allocated Rs 4,000 crore for low-cost housing schemes. Apart from this, relaxation of FDI norms for the affordable housing sector is likely to be announced soon.

The Union budget has increased the income tax deduction limits under 80C, of which the repayment of principal on housing loans is a component. This limit has been raised from Rs 1 lakh to Rs 1.5 lakh.

Additionally, the budget has also increased the deduction limit on interest payment for housing loans from Rs 1.5 lakh to Rs 2 lakh.

These two factors, on their own steam, are expected to lead to a vastly improved sentiment in the housing markets, obviously pushing up demand.

The real estate sector has been struggling for the last four-five years; investors have shied away because of poor returns, banks have turned cautious to lend at the back of several irregularities and defaults while demand fell drastically triggered by the economic slowdown.

However, most developers said that demand is expected to pick up beginning the festival season with the government’s focus on affordable and mid-segment housing.

Says Niranjan Hiranandani, founder and managing director of Hiranandani Group, “The company expects demand to revive as the festival season kicks in. Already, after the budget announcement the sentiment has changed.” However, most agree it would take at least another six months for a full-fledged revival.

Developers said what is required at the moment is reduction in interest rates on housing loan which would actually give demand a big fillip. With the government’s focus on affordable housing, investors and developers are focusing on the low-end housing spectrum across the country. PE funds, which got very poor returns from their earlier investments in real estate, became cautious about putting money where it mattered. But now, there is change in the air. The realty sector is on the path of revival and both commercial and residential segments are expected to perform well going forward, predict experts.

During the month of July, for instance, housing sales remained muted and new supply saw a decline across leading cities. Nonetheless, a large majority of new projects were launched in the mid-segment, concentrated in micro-markets such as the Old Mahabalipuram Road/Grand Southern Trunk Road, Ambattur and Porur in Chennai; Marathahalli ORR, Old Madras Road, Whitefield, Hebbal, Thanisandra Main Road and Gottigere in Bangalore.

In contrast, residential real estate activity remained relatively subdued in Delhi NCR, Mumbai, Hyderabad and Kolkata during July.

Meanwhile, Pune is likely to attract significant supply addition as part of the proposed township developments by prominent developers in the peripheral locations of the city.

Housing prices remained largely stable during July. Owing to less-than enthusiastic demand levels, premium residential locations—such as Chanakyapuri in Delhi and Golf Course Road in Gurgaon—saw a slight price correction. Conversely, strong demand coupled with limited availability led to a price appreciation in central Chennai, according to a CBRE report. Well, at the bottom position it has been in the last couple of years, the housing sector can only go up.


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