<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[A Distant Dream: Demand for mass housing schemes by Mhada in Pratiksha Nagar, Mumbai, has exceeded supply (Pic By Satheesh Nair)
By the end of the second day of sale of forms for booking 3,863 small and mid-sized flats in Mumbai this week by the Maharashtra Housing & Area Development Authority (Mhada), 1.89 lakh applicants had queued up. Ultimately, several lakhs will be in the race for these homes, priced at 50 per cent of market rates. In Delhi, the Delhi Development Authority’s (DDA) 5,010 low-cost homes priced between Rs 7 lakh and Rs 77 lakh attracted as many as 560,000 aspirants. The 16 December lottery has been frozen because of multiple scams in allotments, but the writing on the wall is clear: millions of people do not own a home, and if somebody provides it cheap, it opens a floodgate of demand.
The irony is: in the commercial housing market today, there is a paralysis of demand. This has forced industry players to make two moves. First, the tribe of private builders has changed course and is now coaxing the middle class to buy a new segment of homes it calls “affordable”. Second, the Central and state governments have proposed a slew of measures aimed at creating housing stock for the poor in townships and colonies being constructed by private players.
Neither tack seems to be working. Builders are finding that customers are just not biting the bait. Most buyers feel the market is yet to bottom out. On the other hand, politically well-intentioned measures aimed at generating low-cost housing continue to remain what they always were: good intentions.
Sops Not Working
Government babus and politicians have reason to be unnerved in an election year. The housing shortage is increasing rapidly, and so are slums and other ‘informal’ housing. In Delhi and the National Capital Region, slums account for 30 per cent of the housing units; while in Mumbai, it is over 1.5 million or around 50 per cent of the city. According to the Centre’s National Urban Housing & Habitat Policy 2007, by the end of this decade the shortage will be a huge 26.5 million units. Since government bodies such as DDA and Mhada, which earlier built affordable homes for the poor, are not focusing on constructing mass housing schemes, private builders are offered sops to fill the gap. This has not worked as builders have always managed to bend concessions without meeting their quid pro quo commitments.
Under the now repealed Urban Land (Acquisition & Regulation) Act, for instance, builders holding excess land liable for takeover could get out of the net by leveraging Section 20 and 21 of the Act and by pledging to undertake mass housing schemes to provide homes not exceeding 800 sq. ft. However, builders amalgamated the flats internally but sold them as two separate units to the rich and the upper middle class, as the recent legal battle involving builder Niranjan Hiranandani illustrates.
The prestigious Hiranandani Gardens spread over 230 acres at Mumbai’s suburb of Powai was initially to be developed as an ‘affordable’ mass housing scheme. Two petitions being heard by the Bombay High Court allege that the terms of the 1986 agreement under which the land was allotted to the builder were grossly violated. The terms provided that 50 per cent of the flats constructed had to be less than 40 sq. metres (430 sq. ft) and the rest could not exceed 80 sq. metres (861 sq. ft). Later in 1989, the builder was allowed to merge flats, but the amalgamated flats could not exceed 15 per cent of the total development.
According to the petitioners, Kamlakar Satve and Rajendra Thacker, the area of the flats constructed by Hiranandani Developers range between 1,870 sq. ft and 4,925 sq. ft, and priced at Rs 4 crore or more. The preliminary report by the state government submitted to the court admits that of the 6,739 flats built by the group so far, 2,469 have been amalgamated — obviously far in excess of the 15 per cent allowed. On 4 December, the Bombay High Court restrained the Hiranandanis from selling more that two apartments to one person in the project.
Now, Housing For All
At the peak of the property boom in 2006, builders were upfront about keeping away from homes that were smaller than 800 sq. ft, priced below Rs 20 lakh. The smaller margins and higher costs in terms of marketing did not make sense in a seller’s market.
From mid-2008, builders were singing paeans to ‘affordable’ housing and selling the housing-for-all dream. The recent sop of categorising loans of Rs 20 lakh or less as priority lending for banks has boosted this trend.
Kumar Gera, chairman of the Confederation of Real Estate Developers Association of India (Credai), said projects with three-bedroom flats were being reworked midway to halve their size to make them more saleable.
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Gurgaon headquartered DLF, which has so far not built anything ‘affordable’, has now announced that it will be investing Rs 15,000 crore over three years in seven cities, targeting the mid-income buyers looking for homes in the Rs 15-40 lakh range. Delhi-based Omaxe plans to build 6,000-8,000 ‘affordable’ flats, costing Rs 12-25 lakh across 10 cities, the company’s CMD Rohtas Goel announced. In Bangalore, Sobha Builders is “looking at providing Rs 30-lakh houses”, says J.C. Sharma, managing director of the company. Mumbai-based developer Akruti City, which was mainly into development of hospitality, retail and township projects, is now marketing homes under the brand name ‘Just Perfect Homes’ in the Rs 22-32 lakh range, the company’s MD Hemant Shah said.
‘Affordable’ Does Not Come Cheap
But these ‘affordable’ homes are neither cheap nor are they aimed at the poor, and should not be confused with-low cost housing. The ‘affordability index’ used by HDFC is the annual income multiplied by 5.1. In other words, for a person earning Rs 3 lakh a year, an ‘affordable’ home should cost Rs 15 lakh, for which a loan can be paid back in eight years. A low-cost home for the poor, on the other hand, assumes a price not exceeding Rs 3 lakh for those with incomes of Rs 60,000 a year or less.
By reducing the carpet area of flats and getting rid of frills such as providing a ‘puja room’, builders are able to offer budget rates. “Lower commodity prices of material such as steel and cement also allows builders to offer a lower price without reducing their margin,” says Milind Korde, CEO of Godrej Properties. Echoes Ashish Puravankara, executive director of the Bangalore-based Puravankara Group, “By using simpler pre-cast technology, we can get the cost down to below Rs 20 lakh for a 1,000-sq. ft flat.”
However, reports emerging from the real estate market indicate that the affordable housing segment is not selling. “The enquiries in December increased compared to previous months, but the conversions into sale have been small,” concedes Godrej Properties’ Korde, whose company is launching projects in Kolkata, Bangalore and Ahmedabad. It will be a four-six month cycle for buying to start after liquidity improves and the flow of home loans increases, he predicts.
Pranay Vakil, chairman of broking house Knight Frank India, says sales were just 10 per cent of what they were a year ago. “Compared to 50-60 sale registrations at the stamp duty office a day in Mumbai, there are barely 10-15 currently,” he says. Guaranteed returns to investors and acquisition of land at high prices restricted the builders to reduce prices, he adds. “The Runwals (Mumbai-based builders) have guaranteed returns of 25 per cent to the Singapore fund Capital Land for their Ghatkopar projects. It is difficult for them to reduce their price line.”
The Lost-Cost Housing Chimera
In the low-cost segment, investment is virtually absent. To create more housing stock, the Union Ministry for Housing and Poverty Alleviation has now proposed that private builders reserve 20-25 per cent of their townships to house the poor in small, cheaply priced units. Housing being a state subject, the Central ministry is hoping to enforce the quota through a combination of sops and penalties. States that fail to bring in quota legislation might find it difficult to seek funds from the Rs 50,000-crore Jawaharlal Nehru National Urban Renewal Mission.
Credai’s Gera does not mince words describing the quota-for-the-poor move as an election ploy, and points out that building homes for the ‘weaker sections’ is not the responsibility of private developers. This is not the first time such a quota has been proposed. The Maharashtra Legislature in July 2007 approved a policy that requires new projects to provide 10 per cent of the layout for tiny units not exceeding 320 sq. ft and another 10 per cent for small units of 525 sq. ft. However, despite the good intentions, as Gera points out, it is not enforceable as it is “only a policy and is not part of municipal rules”.
The earlier Nehruvian era saw the public sector intervening and competing with private developers. Bodies such as Mhada, Cidco and DDA were mandated to provide homes for low-income groups. The National Housing Policy 1994 and the National Housing & Habitat Policy 1998 changed all that, redefining the role of public bodies as ‘facilitators’ rather than developers.
Mumbai’s failed slum rehabilitation scheme, driven by builders who were given sops, is a typical example of how a housing policy for the poor has gone astray. The 1995 ‘plan’ aimed at constructing 1 million small, 225 sq. ft units. In 13 years since its inception, it has not met even 10 per cent of its target.
When dealing with a housing shortfall of close to 27 million units, most of them required for the desperately poor, the chances of meeting targets by arm-twisting reluctant builders is very slim. Perhaps the government should consider donning the mantle of ‘social builder’ once again.
As for affordable housing for the middle class, unless builders, who have profited from a 300 per cent appreciation in the past, begin to seriously slash prices, offtake is unlikely to improve.
gurbir dot singh at abp dot in
(Businessworld Issue 21-26 Jan 09)