F rom 2016 to 2020, the total demand for urban housing across the top eight cities — Ahmedabad, Bengaluru, Chennai, Delhi-NCR, Hyderabad, Kolkata, Mumbai, and Pune — is estimated to be 4.2 million units. A report released by Cushman & Wakefield and GRI finds that 1 million housing units that are under construction and planned by private developers are expected to be delivered during this period.
The report estimates that the lower income group (LIG) category (below Rs. 15 lakh) is the most under-serviced segment. While the demand in this segment is likely to be about 1.98 million units by 2020, supply by private developers is barely 25,000 units. Similarly, though the middle income group (MIG) (Rs. 15-70 lakh) accounts for 63 per cent of the total housing supply across eight cities, at 6,47,000 units between 2016 and 2020, , the demand is estimated to be much higher number at 1,457,000 units.
Chennai has witnessed a 46 per cent drop in project launches, and the LIG and MIG segments will account for nearly 80 per cent of the total housing demand in 2016-20. The demand is likely to increase in the affordable segment, says T. Chitty Babu, CMD of Akshaya. “Following demonetisation, there has been a slump in sales of units developed by smaller players who deal in cash transactions. The markets of Chennai and Bangalore account for 45 per cent of total sales during the first half of 2016, and the demand for homes in the affordable and mid-end segment is high,” he says.
At ground level, despite demand grossly exceeding supply, there is a considerable proportion of unsold inventory in the MIG and HIG categories, which are not absorbed as these properties are unable to demonstrate value for buyers. Anshul Jain, Managing Director, India, Cushman & Wakefield, says, “Such units fall out of preference either on account of higher-than-expected prices or due to their location. Lack of funds, high land price and development costs are the primary reasons why developers are not opting for smaller units closer to city centres,” she says.
Dr. R Kumar, Managing Director, Navin’s, says that in Chennai, there are very few options below Rs. 15 lakh for buyers. The few available are on the outskirts in areas near Sriperumbudur or near Mahabalipuram. “While the demand exists close to the city, factors such as land and approval costs, operational overheads, interest on capital, make it extremely difficult for private developers to service the demand at such low prices,” he says. Jain further adds, “To utilise the opportunity of the shortfall in supply to demand, private developers will need to change their approach and bring in better strategies, systems, technology and funding options.”
Another issue developers who wish to cater to this segment face is that of financing. Pankaj Ojha, CMO, SPR Group, says banks and traditional housing finance institutions do not serve low-income groups as they lack a steady income. “Banks should come forward with an easy and limited documentation process to facilitate the buying power of LIG groups. Unconventional approaches by banks such as longer repayments tenures, higher exposures and reduced contributions would be welcome among these categories.”
Affordable housing remains a challenging proposition for developers as land availability and costs and delays in approvals make low-cost housing projects uneconomical. The involvement of the government is critical to give the much-needed push to this segment, says Kanchana Krishnan of Knight Frank India. Creating inclusive growth policies, single-window clearances, incentivising participation in public-private partnerships (PPP), subsidising land costs, and increasing the FSI must be done, she says.
Despite encouragements from the government through taxation and funding relief, under the Housing for All 2022 vision, top cities have not seen a significant shift in supply for smaller sized apartments. But this is set to change, says Chitty Babu. With new regulatory reforms in place, housing in the coming years could be within the reach of the common man. “This will also result in a substantial drop in interest rates and will make substantial cash resources available to banks for lending to businesses, construction, infrastructure development, and home buyer financing.”
