Affordable housing – New growth area for developers

In one of the first’s in IT hub of India – Pune, Maple Group, a major real estate player has become the first company to respond to Prime Minister Narendra Modi’s call for affordable housing for all by launching houses at a price for each unit at Rs. 5 Lakhs.  The builder has confirmed that the sizes of the flats will range from 300 to 350 sq ft and the flats will be 1 bhk homes situated at 12 locations around Pune.

The original costs for flats will be as much as 7, 50,000. Eligible buyers can expect to get Rs. 1, 50,000 as subsidy from central government and further Rs. 1, 00,000 as subsidy from the state government. More clarity is sought by CREDAI (Confederation of Real Estate Developers’ Associations of India) on the duties and taxes that needs to be paid to the government when a buyer purchases such affordable houses.

KPMG and CREDAI has defined affordable housing by using three key parameters viz., income level , size of dwelling unit and affordability. In the United States and Canada, a commonly accepted norm for affordable housing is that the cost of housing should not be more than 30 percent of a household’s gross income. Thus the EMI to gross income ratio should be less than 30 for housing to be affordable.

With such aggressive pricing the developers will expect a thin margin of 5 to 8 percent on such projects but will expect volumes to be much higher.When contacted, the representative of Maple group hinted that maximum housing construction happening in Pune is around IT corridors and the flats are built keeping in view the IT professionals and their lifestyle. However Pune city also boost of its manufacturing sector presence and indeed provides lot of employment in the manufacturing sector. Very few builders so far have built houses keeping in view the requirement of “poor segment” of the society who so far have been living on rent and wishes to own a house.

Affordable housing, with the renewed impetus from the current government and an objective scheme launched by Modi, can be the new growth drivers for real estate developers who otherwise are struggling with growth in other segment of market.Increasing urbanisation and rising income levels are the demand drivers for affordable housing and with government support at center and state levels for such initiatives, affordable housing could well be the new growth areas for various real estate developers across India.