Low-cost housing is set to witness a second phase of growth as entrepreneurs and private developers who ventured into this segment during the economic slowdown plan fresh projects. Traditionally a government-led domain, budget housing saw the entry of firms such as Tata Housing Development Co. Ltd, Janaadhar Constructions Pvt. Ltd, Value and Budget Housing Corp. Pvt. Ltd (VBHC) and Usha Breco Realty Pvt. Ltd in 2009-10. Now, despite facing inconsistent sales and land acquisition problems, they are keen to launch new ventures.

Demand for such projects is huge in India. The country faces a shortage of 24.7 million dwelling units, of which 88.14% pertains to the poor, according to government data. Janaadhar Constructions launched 540 homes in Bangalore in April, each costing less than Rs.5 lakh, in its first budget housing project. After selling around one-third of this stock, it plans to launch three similar projects at an average cost of Rs.25-30 crore each. “We are happy with the sales (in the first project) because we didn’t encourage bulk investors or speculators, and focused on end-users, and that will continue,” said Ramesh Ramanathan, a promoter in the firm and who runs the non-profit body Janaagraha. VBHC, promoted by entrepreneur Jaithirth Rao and P.S. Jayakumar, launched its maiden project Vaibhava this year in Bangalore, with homes priced up to Rs.10 lakh. It now plans to launch 8-10 projects in Nashik, Mumbai, the Delhi-National Capital Region (NCR), Chennai and Hyderabad by the end of next year. Rao said VBHC will sell stake in private placements to raise up to Rs.100 crore. It raised Rs.17.3 crore in September from India Financial Inclusion Fund (IFIF), an India-focused fund. Low-cost builders hope the Union and state governments will support this growth process. Talks are on for incentives such as speedy land approvals and single-window clearance. Currently, it could take up to 200 days to get all permissions for one project. “We are asking for an infrastructure status for our projects to avail tax benefits,” said Rajeeb Dash, head, marketing, Tata Housing. “We are addressing the issue of high land transaction costs and the lengthy process of approvals so that a single window clearance can be provided, and asking states to lower stamp duty and registration fee,” said Kiran Dhingra, secretary, Union ministry of housing and urban poverty alleviation. Pankaj Kapoor, chief executive of research firm Liases Foras, said, “There should be a holistic approach towards offering such housing products at genuine price points even within large property markets.” Developers, having gained experience from their first projects, said they won’t commit the same mistakes again.

Usha Breco’s second project at Boisar, near Mumbai, will have fewer single-bedroom flats, said Pranav Desai, chief investment officer. “It’s been a learning curve for us in buying patterns, like people don’t mind (spending) a little more but they want two bedrooms.”

Rampiyari Bai Botele’s family previously had no way of accessing home loans or related financial services. The family needed about 4.5 lakh, or $10,000, an amount too small for a bank to service, to acquire land on which they hoped to retire. Rampiyari Bai works as a matron in a government hospital in Gwalior in Madhya Pradesh for the last 20 years. The family’s tiny pension, Rampiyari’s humble earnings and those of her son Vishnu, who is a clerk at a private college, were not enough to make the purchase without additional resources. A loan from IFC client Aadhar Housing, a housing finance company, assisted in meeting the gap to help the family’s dream become reality. Aadhar is a newly-formed company that provides home loans to under-served populations in India’s low-income states like Uttar Pradesh, Orissa, and Madhya Pradesh. Rampiyari is just one example of the over one billion people around the world that live in inadequate housing and have limited options of obtaining affordable home loans. Access to housing and affordable home financing has important multiplier effects. According to an estimate accepted by the National Housing Bank, India’s urban housing shortage is almost 25 million units. A majority of this is among the lower-income groups. At an estimated $10,000 per unit, this is a potential $250-billion dollar market opportunity. Public resources alone cannot meet this demand, and there is need for private sector participation and multi-stakeholder approach. With differentiated credit appraisal processes and risk management systems, specialised housing finance companies have an important role to play in unlocking this opportunity. Since IFC’s equity investment in Aadhar in March 2010, several other players entering the market on the housing finance side have started taking the demand from lower-income groups more seriously. While several projects across the country in affordable housing (defined by IFC as 25,000 household income levels and below per month) have come up, adequate supply of units available for these remains a challenge. The Indian government and the National Housing Bank have made great strides in creating a supportive regulatory environment for this sector. Yet, more needs to be done.

Encourage PPPs
State governments can encourage developers to build in larger quantities at reasonable sizes and affordable prices in a public-private partnership approach. If turnaround times for development can be kept low, builders can make significant (30-40%, a high figure by any measure) returns even in the affordable sector. This requires minimising delays in obtaining clearances.  

Lessons from elsewhere
India can also look at other markets and consider replicating or customising successful models from elsewhere and define new business opportunities from the lessons learnt. With positive externalities and economic benefits, developers, financiers, regulators, and investors/multilaterals must come together to understand the impediments to developing an enormous opportunity into a sustainable business proposition to meet this demand and suggest a roadmap. When stakeholders come together to implement this, the dreams to own a decent home of many more like Rampiyari can be met faster and better in coming years.