The New Realty
Agalaxy of top-notch real estate developers has lately descended with a bang on the affordable housing segment. Most have launched separate brands to differentiate their foray - thus Tata Housing Development Company has Tata Value Homes, Shapoorji Pallonji Group has Joyville, Mahindra Lifespace has started Happinest. Even lesser known ones like Puravankara and Mumbai's Sunteck Realty have taken similar steps, with the former setting a wholly-owned subsidiary, Provident Housing. "There has been a perceptible shift towards affordable housing with organised players increasingly venturing into this space," says A.S. Sivaramakrishnan, Head, Residential Services - India, at real estate services giant CBRE South Asia.
Until now, most of these companies operated in the premium and luxury residential segment, building and selling houses and apartments priced between Rs50 lakh and Rs10 crore, depending on the city where the projects were based. Under their new brands, they will mostly be selling one or two bedroom-hall-kitchen (BHK) flats, costing Rs15 lakh to Rs35 lakh, located largely in Tier-II cities or on the periphery of metros. (Such prices are not viable within metros with even one and two BHK flats in Mumbai, for instance, selling for no less than Rs50-70 lakh.)
Under its Joyville brand, Shapoorji Pallonji will construct 20,000 houses in the next seven years, investing Rs5,500 crore. "There is a sea change in the market," says Venkatesh Gopalkrishnan, CEO, Shapoorji Pallonji Real Estate, who is also in-charge of Joyville. "There is absolute saturation in the niche upper segment, but much opportunity in middle-income housing. To maximise the potential of this market, we decided to set up a separate company with some other investors to take our high value mother brand into the mid-residential space."
His counterpart at Tata Housing, CEO and Managing Director Brotin Banerjee, echoes his view. While the 12th Five-year Plan pegged the country's housing shortage at 12.78 million units, Banerjee maintains it is higher. "Our research showed a much larger opportunity in this area," he says. "We estimated a total housing shortage of 24.7 million units with 70 per cent of it in the affordable housing space." Some Tata Value Homes' apartments are being priced as low as Rs15-20 lakh.
"Affordable housing is a different market, where the nature of customers is different, but we need to have a common brand character," says Sriram Mahadevan, Business Head, Happinest, at Mahindra Lifespaces. "We expect this segment to become 25 per cent of our business in the next five years, given the current pace of urbanisation and the rise of disposable incomes." Happinest apartments cost Rs17.84 lakh and upwards for a single BHK and Rs22.80 lakh or higher for a double one.
Shapoorji Pallonji's Joyville has raised $200 million (Rs1,250 crore) so far, roping in marquee investors such as the World Bank's investment arm IFC, Standard Chartered Private Equity and Asian Development Bank. Tata Value Homes has got $25 million from IFC and an equal amount from the UK government's development finance arm CDC. "We've also got funds from US-based Portman Holdings for our New Haven project in Bangalore," says Banerjee.
Budget Incentives
With India's urban population growing at an estimated 2.1 per cent per year and expected to reach 600 million by 2031, it has been obvious for years that affordable housing was a huge market. If the big players still hesitated to enter it, it was because of a number of bottlenecks that have been progressively reduced in recent budgets. In fact, the main driver of this new foray is the last Union Budget, which offered a range of incentives to boost affordable housing. Most importantly, it conferred infrastructure status on this segment, thus making it a priority area and thereby easier for developers to raise loans at lower rates of interest than before. The Budget also spelt out the government's own commitment to this segment by promising to provide housing for all by 2022 under the Pradhan Mantri Awas Yojna, which would include building 10 million houses for the poor and homeless by 2019, and 20 million by 2022 - a forthcoming bonanza for developers willing to take the public-private-partnership (PPP) route.
Further, to stimulate housing for the not-so-poor, the Budget increased the ambit of affordable housing, raising the maximum permissible size of such apartments to 60 sq.mt. of "carpet area" (the actual liveable area of a house), instead of "built-up area" (which includes the space taken up by the lobby, elevators, etc.) as before, except in the four traditional metros. It raised the time limit for completing such projects from three years to five, and introduced a new section in the Income-tax Act to allow for 100 per cent deduction of tax on profits from affordable housing. In the case of a landowner and developer putting up a housing project together, it deferred the need for landowners to pay capital gains tax till one year before the project's completion. This is expected to prove particular useful for companies like Tata Housing. "We follow an asset-light model," says Banerjee. "We don't buy land but rely primarily on joint ventures with landowners and PPPs with the government allowing for faster turnaround with lesser resources involved."
For home buyers too, the Budget offered waiver of stamp duty as well as a credit-linked subsidy on loans, while for home sellers, it reduced the period for which they could hold on to their earnings without paying capital gains tax - or buying another property - from three years to two, thereby providing a stimulus to the secondary housing market. It also announced that the National Housing Bank will refinance individual housing loans worth Rs20,000 crore in 2017/18. "Developers did not execute too many affordable housing projects in the past because there were issues like slow approvals and land acquisition," says Neeraj Bansal, Partner at KPMG. "But now the tax breaks and other incentives announced in the Budget are generating fresh activity and rekindling investor interest."
Twin Branding Strategy
Twin brands of the same product from the same company, but priced differently, is a marketing technique that has been successfully used in many other sectors, from automobiles to mobiles to fast-moving consumer goods. The mother brand's identity remains undiluted, while some of its goodwill spills over to help the new brand as well. No doubt, to sustain the goodwill, the new entrants in affordable housing will have to ensure that standards of construction and amenities provided are on par with those at the colonies which built their reputations, while at the same time keeping costs down to ensure decent margins. "Considering that pricing is capped, margins in affordable housing will depend on controlling execution costs," says CBRE's Sivaramakrishnan.
To achieve cost efficiency and quality, realtors are using the latest construction techniques like precast concrete. Well aware that the affordable segment is highly price-conscious and expects an enhanced lifestyle from branded builders, they are not skimping on the amenities either. Most have incorporated joggers' tracks, clubhouses, gyms, meditation centres, libraries, swimming pools, indoor games' areas and play areas for children, and even convenience stores, within the colonies they are building. "At Santorini, the Spanish-themed 18-acre township we are building in Chennai, we have podium gardens and themed landscapes with sit-outs and pergolas," says Banerjee of Tata Housing. "At Boisar, on Mumbai's outskirts, we have landscaped gardens all through, just as we do in our premium projects."
Mahindra's Happinest colonies are paying special attention to a sustainable environment, using energy-efficient material like cellular lightweight concrete (CLC) blocks, incorporating rainwater harvesting equipment and optimising use of natural light. "We are paying special attention to balconies and community spaces," says Mahadevan. In all such colonies, tight security is a given with CCTV cameras liberally installed. At its Destination 150 colony in Noida, Tata Value Homes is also adding smart features such as wi-fi gazebos and enhanced perimeter security.
Robust Outlook
The overall residential real estate market has been sluggish for a number of years now, but the demand for affordable housing remains strong across both large and small cities. A report by real estate advisory PropTiger says the affordable housing segment accounted for almost 54 per cent of the cumulative sales of 43,512 units across India's nine top cities in the December quarter of 2016/17. HDFC Bank confirms that the affordable segment is where its loan portfolio is really growing, even as the prime home loan segment is witnessing moderation. Entrants into this segment are all ensuring easy financing for their customers. "We are creating an ecosystem for closer access to home finance by partnering with NBFCs to soak in the extra financial burden on home buyers," says Mahadevan of Happinest.
Tata Value Homes has launched new projects at Boisar and Noida, while adding to its existing ones in Bengaluru, Bahadurgarh, Chennai and Talegaon. "We are holding discussions with multiple landowners across Kolkata, Pune, Mumbai, Chennai and Bengaluru for more projects and should be able to launch three new ones this year," says Ban- erjee. "All projects are colonies occupying more than 20 acres, where apartments will have a starting price of Rs25 lakh. There is no looking back on the affordable segment."
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