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April 2009 Edition

 

And near Mumbai a developer gives homes for Rs 2.1 lakhs

Civil Society News
New Delhi

FAR from the debris of the downturn, a very different real estate market is taking shape. Developers have begun seeing business sense in building cheaper and affordable homes for people with small incomes.

With the bubble of rising real estate prices having burst, even some of the bigger companies are looking at the small home buyer, realising that this is where opportunity really lies.

The Ansals are putting Rs 400 crores into such housing in the north and others in their league elsewhere in the country are on the same track.

But it is to the innovators in affordable housing that the day really belongs. They have the advantage of being first-movers, cutting costs and providing access to finance to a broad base of buyers desperate to own shelter. For instance, Matheran Realty Pvt Ltd is offering homes beginning from as little as Rs 2.1 lakhs in the hinterland of Mumbai.

Even as this happens, an important task force of the Union government headed by Deepak Parekh, chairman of HDFC, has stressed that affordable housing should be seen as a core economic activity and placed at the centre of public policy.

The task force has put forward suggestions for enhancing developed land and rental housing, upgrading of slums at places where they are located instead of shifting them and making finance available.

The task force observes that a democratic society needs to ensure housing for everyone. "Globally there is a strong correlation between economic development and housing and housing quality," it says.

In India, 42 million people or 15 per cent of the urban population live in slums. About 81 million people or 25.7 per cent of the urban population are below the poverty line. The Eleventh Five Year Plan estimates an urban housing shortage of 24.7 million units.

"Not to deal with this scale of the problem – even if it means doubling of the existing housing stock – or to delay action on this front can seriously affect the country's economic growth and poverty reduction strategies," the task force says.

AVAILABILITY OF LAND: Availability of land is essential if housing is to be made affordable. The task force's suggestions on land are significant. It has called for uniformity in laws and regulation. It has also suggested reforming outdated legislation such as the Land Acquisition Act of 1894.

It has however said that there is an urgent need to simultaneously add to the urban land stock through acquisition and to allocate the land for different purposes, including affordable housing.

At present, acquisition is seen as benefiting only the rich. Compensating farmers with cash has had many downsides, leading to an atmosphere of hostility and mistrust.The process of adding to the urban land stock is painful, slow and inefficient. Distortions in price and availability neither help industry nor the poor.

The task force wants affordable housing to be treated as a public purpose because this “alone will signal to the country that affordable housing is a development priority."

Issues relating to acquisition of farmlands can be dealt with through compensation packages that offer revenue streams that stretch over 10 or 15 years in addition to fixed one-time compensation.

SLUM UPGRADES: The task force has also suggested redevelopment and improvement of slums considering that millions of people live in them in urban India. It has said that an important precondition to this is that the government ensure security of tenure and provide the poor access to market funds. Security of tenure could take the form of regularisation of settlements, community ownership, leases or user rights

Once the poor are protected against eviction and have access to finance, in situ redevelopment can take place. For this the task force suggests the involvement of NGOs and civil society organisations so that it becomes a community effort.

FSI /FAR REVISION: The task force is in favour of an increase in Floor Space Index/Floor Area Ratio. It feels this is necessary considering the intense competition over land use. The task force estimates that 15 -20 per cent of the affordable housing needs in cities could be met through adjustments in FSI/FAR. There would however be a need to match such changes with investments in infrastructure.

FINANCE: The task force has suggested that fundsfor affordable housing under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) be increased 100 per cent and that part of them be used for creating new housing and part for in situ development with the help of NGOs.

It has also proposed that a cess of 0.5 per cent of all central government taxes be credited to a shelter fund managed by the National Housing Bank (NHB) and that budgetary support of an equal amount also be put in the fund so that there is a long-term impact on affordable housing.

The task force has strongly supported a bigger role for microfinance institutions (MFI) in housing particularly with regard to in situ development. It has supported the idea that these institutions be allowed to take deposits in addition to their current role of disbursing loans.

The poor need to save a lump sum amount for down payment. It is also important to assess a borrower's capacity to save. Since MFIs will have to give out for housing larger sums than they usually do, letting them take deposits will be a good idea.

THE OPPORTUNITY: Lone entrepreneurs have for long been sensing the business opportunity and creative challenge in providing affordable housing. Unfortunately, they have mostly had to operate within an unsympathetic policy environment. The real estate sector has been on a rollercoaster of unrealistic values and extravagant branding catering to just a small segment of the market.

Affordable housing requires reorientation of the real estate sector. The key challenges are in getting land at affordable rates, bringing down construction costs and making finance available to people with small incomes.

Matheran Realty has shown that it is possible. It will have 1,200 flats for people with small incomes ready for possession by June 2009 at Tanaji Malusare City (TMC), at Karjat, in the hinterland of Mumbai. These flats are priced at between Rs 2.1 lakhs and Rs 7.35 lakhs.

Such is the demand that there are 66,000 applications for 3,000 flats and that is just in Phase 1. When TMC is complete it will have 15,000 units. By December this year, 5,000 flats would have been handed over.

Instead of offering super luxury and focusing merely on those buyers with big incomes, Matheran Realty has opted for a pioneering effort in affordable housing for low-income groups.

The project is commercially viable and therefore has the potential to be a model for other developers. It shows that there is a huge demand for housing among people with low incomes and it makes great business sense to meet this demand.

TMC is India's largest planned social housing project over 100 acres next to the Karjat Railway Station. It is well connected by road and rail to Mumbai's employment regions. SKM Consulting Australia has done the master plan, which meets the highest standards of sustainable development with playgrounds, schools, hospitals, shopping centres.

Matheran Realty has had the benefit of some handholding from the Monitor Group, a leading advisory and consulting firm which has a strong social spirit. The Monitor Group has been working with builders to make homes cheaper by bringing down construction costs and finding ways to give people with low incomes access to finance.

With TMC flats beginning at Rs 2.1 lakhs a new standard has been set. Till now, the smallest and cheapest apartments being financed and built in urban India were in the Rs 5 lakhs to Rs 6 lakhs range. TMC offers one room and kitchen in two sizes of 200 and 300 square feet. It has one bedroom and kitchen in 400 square feet and two bedrooms in 500 square feet. The prices are Rs 2.1 lakhs, Rs 3.15 lakhs, Rs 5.25 lakhs and Rs 7.35 lakhs respectively.

In affordable housing for people with low incomes, the tough thing to crack is finance. In this Matheran Realty was helped by the Monitor Group. There are now nine banks and financial institutions empanelled to provide loans to Matheran Realty's customers. There have been loan carnivals and educational interactions so that people who had never been exposed to housing finance earlier could get an idea of how it works.

The profile of the TMC buyer as provided by the Monitor Group is very interesting. Of 66,000 applicants 50,000 have been first-time home buyers. Among the applicants for the Rs 3 lakh house, 62.5 per cent earn less than Rs 15,000 a month, 18 per cent between Rs 15,000 and Rs 20,000. The rest earn above Rs 20,000. More than 80 per cent of all applicants, beginning from the one room format unit, asked for finance to make the purchase.

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