The Mahindra Group is making its debut in the affordable housing segment in Chennai. The project will come up in July 2014 under a new vertical, launched by group company Mahindra Lifespace Developers Ltd. (MLDL).

Speaking to The Hindu , Anand Mahindra , Chairman, Mahindra Group, and Anita Arjundas , Managing Director & CEO, MLDL, elaborated on the new venture:

Why is the group venturing into this segment and why now?

Anand Mahindra: We are trying to find the sweet spot in the market needs which is amenable to private enterprise, to the return on capital that shareholders want and a model that is scalable. We sense that if we get this right, we can be trailblazers and so many others can follow.

Getting it right means doing it proper.

There is a business process involved in terms of swiftness in the process of getting the land and the rapidity of your execution and so execution is critical in this business.

If it is done on time, done efficiently and you have quality, then you have a very replicable business model and there will be a wildfire in terms of how this part of the industry will increase.

Interestingly, it is combined with the whole ease of doing business in India. If the Prime Minister succeeds in making India a better place to do business — less red tape, ease in getting land, transparency in providing houses so that we can execute efficiently — there is no reason why this segment cannot be a very profitable segment.

The concept of affordable housing is still amorphous, and there is no standardization of size or price. What about this project?

Anita Arjundas: The size of the units range between 350 sq. ft. and 650 sq. ft. and they will be one-bedroom-hall-kitchen (BHK) and two-BHK priced between Rs.10 lakh and Rs.20 lakh.

However, in Mumbai, we will also offer one-room-kitchen format. The location would vary city-wise. Transport linkages are important and both these projects are located 4 km from a railway station.

We are working in modules of 10-15 acres so projects would typically have 1,200 to 1,500 homes. The Chennai project covers 13 acres while the Mumbai project is of 15 acres.

After getting these projects running this year, we plan to get two more in Maharashtra into the book in terms of having the land ready and starting the approval process. As we go forward, we will look at bigger projects.

Anand Mahindra: What we have to get right is the return on capital. So if you take that as your starting point and work backwards, then in any location, in order to get the return on capital depending on the price of land, the perception of affordability in that area, one will change the variable of size of the facility and that will become the variable.

What we do not want to get wrong is the return.

It is not about profit-making, but about ensuring that it becomes replicable. Only if it is attractive will you have a revolution in affordable housing.

What about funding for these projects?

Anita Arjundas: For both projects, the land has been funded by internal accruals and construction will be driven by a combination of internal funding and cash flows that come from customers as we build.

We are not seeking any borrowing. We believe if we get the returns and mathematics right, it is a very big project.

Anand Mahindra: This is a very profitable project if execution can be carried out as planned. We typically have margin structures lower than conventional real estate but if we look at return on capital employed, we are much higher.

Because if it is about execution speeds, turning around faster, lower land costs, those would be significantly better and that is the key.