Economy Sep 27, 2012
New Delhi: Even as crumbling infrastructure, government apathy and rising costs have paralysed India's real estate sector, affordable housing - which was the flavour of the season following the slowdown in 2008 - seems to have lost its allure among developers.
But PS Jayakumar (Jaya), Managing Director of Value & Budget Housing Corporation (VBHC), says there is a way to make the segment affordable and viable: standardising the procedures for building afforable houses, and working on smaller projects and plots of land.
Assembly line production model
"The key is standardisation for more productivity and efficiency on a project - pretty much like an assembly line production in the auto industry," Jaya toldFirstpost. "Our whole notion at the company is to use similar principles of manufacturing."VBHC's line of thinking, he added, was: "Can we bring analogous practices in the housing industry like in the auto sector? Can we run mass housing like the auto industry?"
The company, whose flagship project Vaibhava in Bangalore received its permissions in late 2010, began construction in September 2011. It has so far delivered the first set of 400 apartments - in about 15 months, according to Jaya.
VBHC plans to launch six projects this year, including two in suburban MMR, two in NCR and one each in Bangalore and Chennai. It is also looking at options in Gujarat, he said.
Abiding by the 'auto assembly line' model, VBHC follows a cast-in-place technology, which enables it to build homes efficiently, adhering to the time cycle.
The company, which follows a manufacturing and assembly line process, already has a prototype model of the house, plumbing and electrical kits for each house and steel frames for each unit ready even before construction.
"We work with maturity meters, which read concrete strength - and cycle times gets much more defined with this. There are also a lot of measurement points that we define in a 6 Sigma way - we try to see that the difference is not more than 1 mm. So, even things like doors and windows will fit exactly like they should," Jaya said. "The whole game is perfection in execution so as to be more productive and most efficient."
Connectivity and value for money
Connectivity and offering genuinely low-cost homes for true value is another mantra that VBHC follows.
"When you buy a big bottle of shampoo and then you buy satches of the same shampoo, the quality is the same. That's how it should be. So, just because something is low cost, it doesn't mean it is or should be of bad quality," Jaya told Firstpost.
Since many of those who buy affordable housing are working-class people, it is also imperative that their homes are well connected to their surrounding main urban areas by a transport system and are accessible.
"Not everyone travels to the central business district of a city for work, but it's important that peoples homes are close to and well connected by public transport systems," Jaya said.
Another factor that could make affordable housing more popular despite being in outer city limits or on the peripheries of cities is that it creates a community and provides for wholesome living.
"We conducted extensive customer market research before we ventured into our first project," notes Jaya. "We tested these concepts with individual focus groups: the emphasis on things like excellent ventilation, natural lighting, low maintenance, being ecologically friendly. The objective plan is to create the joy of living." Those are some of the elements that get traded off when developers look to maximise FSI - and profits.
Small is beautiful
The affordable housing segment typically offers homes that are up to around 600 sq feet carpet area for up to Rs 20-25 lakh.
Many like VBHC are looking at properties to build homes in the sub-Rs 10-15 lakh range; this means that the projects will typically be peri-urban. Affordable housing developers are also looking at and developing smaller plots of up to 30 acres.
This enables them to have better turnaround times, and benefit from shorter approval cycles and speedier permissions.
In April this year, Mahindra Lifespaces announced its forayinto the affordable housing sector. The group is still finalising land parcels in Maharashtra and Tamil Nadu, where it proposes to build homes priced between Rs 7 lakh and Rs 15 lakh, with each project having 1,000 to 2,000 units on land that is 10 acres or more in size.
VBHC too typically looks at plots of around 20-30 acres to develop. "Our business model hinges on quick turnaround - land being treated as raw material - and low margins," Jaya told Firstpost. "We look at smaller projects with better turnaround and approval cycle times."
Affordable housing: The numbers
While developers like Vikas Oberoi, Chairman and managing director of Oberoi Realty Ltd., say affordable housing is no more affordable, the number of affordable housing projects across the country only reflects that sentiment.
The number of project launches for the low-cost segment has taken a dip in the past two years. In 2010-11, the number of project launches costing below Rs 20 lakh stood at 407, according to data by real estate research firm PropEquity. Compare that with project launches for the year 2011-12, where the numbers dipped to just 279 or by over 25 percent. The present financial year seems to look just as bleak if not worse. So far, till date, this year has seen just 50 project launches in the sub Rs 20 lakh segment.
Project launches in the sub Rs 15 lakh category have fallen even further. In 2010-11 the number of project launches in this price range was 135 . This number dipped by 30 percent to just 95 projects in 2011-12.
After announcing ambitious projects post-2008, developers like DLF and Omaxe have pulled out of the affordable housing sector. Niranjan Hiranandani, Chairman, Hiranandani Constructions says that until the infrastructure improves and permissions are easier to get, one cannot create affordable housing.
Consequently, fewer developers are venturing into the segment and staying in it: the Tatas' Smart Value Homes Ltd (SVHL), Mahindra Lifespace Developers Ltd and Value and Budget Housing Corporation (VBHC) are among the significant players.
Experts say that while affordable housing projects have strong demand from end-users and present good return opportunities for developers, policy changes and incentives to make the segment more attractive need to come into place.
"If developers are incentivised to develop affordable housing projects by way of giving extra FSI (assuming they build only affordable housing projects) and are provided with greater availability of funding for projects, the growth in this segment would go a long way," PropEquity Founder and CEO, Samir Jasuja told Firstpost. "Also, the challenge for buyers of such projects is easier access to credit, i.e., usually the buyers fall in the income group category where they do not have all the standard documents required for loan processing. If the processes are made smoother, then the demand base could significantly widen, thereby benefitting both buyers and developers," Jasuja said.
Even Tata Housing, one of the first few to foray into this space in 2009, with its low-cost Shubh Griha project in Vasind, Mumbai, now pegs its affordable homes as 'smart value homes' - whose costs are much higher than in its Vasind project.
Among its projects in Mumbai, homes in Shubh Griha cost upwards of Rs 5.79 lakh. Its other projects like Amantra in Thane-Kalyan start at Rs 42 lakh and their houses in New Haven Crest start at Rs 95 lakh - all under the entity carved out of Tata Housing called Smart Value Homes Ltd.
"A lot has changed since the 2008-09 slowdown, due to the increasing cost of cement and steel coupled with the hike in the land cost... The fashion (of announcing affordable housing) has faded off and only serious players with long-term vision for affordable housing and those who know how to run the business viably have continued in the segment," Brotin Banerjee, managing director and chief executive of Tata Housing told Business Standard recently.
But perhaps Jaya's vision - of affordable homes rolling off like in an automobile assembly line - could get the engines of this segment humming again...
More From Arlene Chang.