After the obvious deficit of affordable housing for the LIG and EWS groups, what is most striking is the low availability of budget housing projects that fall in the price range of Rs. 40-55 lakh in urban areas.
Indian developers focus on housing for higher income groups whenever there is an uptick in the economy. The demand and supply trends for the last decade have not been supportive to the cause of affordable housing for the Indian middle class. It is no accident that the mid-income housing segment is the most important customer base of housing finance companies.
Encouraging more institutional funding will help fast-pace the budget housing pipeline. With the potential rate of return being as high as 25%, investment into budget housing projects offers excellent incentives for institutional funders. However, given India’s abysmal track record for transparency in the past, such funds will always seek the security and sustainability of developers with a good reputation.
Challenges for budget housing
One challenge is bottlenecks in the project approval process. Secondly, most of our larger cities suffer from a lack of good support infrastructure in emerging locations.
Building infrastructure, especially roads, to connect adjacent geographies to prime city centres is the most logical and sustainable way to keep real estate costs within reach of the growing middle class. City planners must undertake detailed feasibility studies before launching large infrastructure projects.
The presence of too many fly-by-night players in this segment tends to discourage large-scale FDI funding. This has been the top reason why institutional funding requires so much time to identify its preferred plays in the Indian budget housing market. Also, profit margins have been and will remain thin if developers limit themselves to a small number of units. Often, projects with large number of units are promoted by large developers – the primary reason why massive integrated townships with an adequate supply of budget housing see maximum investment from foreign investors and funds.
Large integrated townships help reduce the impact of high land prices on end-users as developers are able to pass on the economies of scale to their buyers and simultaneously provide superior amenities and more green spaces.