Of booms and busts...

Affordable housing has come as relief for the Indian realty sector. But, does it really need another boom?

The real estate sector seems to be on a recovery track as sales of housing and residential properties have started picking up, thanks to the concept of affordable housing. But what really is affordable housing? Affordable housing was perceived to be as property in the range of Rs.20-30 lakh and affordable to the mid-income group. Apart from clearing the myth of affordable housing, Kumar Gera, Chairman and Santosh Rungta, President – CREDAI (Confederation of Real Estate Developer’s Association of India), reason why there should not be another boom in the real estate sector.

4Ps B&M: What exactly is the concept of affordable housing?
SR: Generally speaking, affordability is linked with houses being cheap. But it’s different from the common myth. For various levels of income group, the affordability is different. A person who is earning Rs.2,000-3,000 per month also needs a house and that should be affordable to him. Affordability is dependant upon the earning capacity of an individual. The right interpretation of the word affordability means to be in a situation to provide a product, which is affordable to each section of the society – low-income group (LIG), mid-income group (MIG), economically weaker segments (EWS) as well as the high-income group (HIG).

4Ps B&M: But, why did prices bloat in the first place?
SR: Price is always the mechanism of demand and supply. For developers, 30-40% of the component of price is that of the cost of the land. As cities grow, cost of land increases, and therefore cost of apartments also increases.

KG: In addition to that, input costs, material costs, steel, cement, labour cost, development charges as levied by local authorities, cost of power, et al, have sky-rocketed. Price is in fact a function of all these factors.

4Ps B&M: What issues are you discussing with the government to develop affordable housing?
SR: First of all there are land issues. Government has some land and we’re discussing how that land can be converted into housing. Then, some states still continue with the Urban Land Ceiling Act that needs to be immediately removed. There is also a question of land convertibility of agricultural land into housing land. The second most important issue is the creation of infrastructure. The land is expensive in the main cities and therefore we’ve to look at the suburban land. And for that there should be a good transportation network as every person living there needs to come to city to work. Roads are not laid out, so there has to be a policy on roads as well. Then it should also be known in which direction is the town moving, for which a masterplan has to be made and pockets have to be identified.

4Ps B&M: Region wise how is the sector performing?
KG: Pretty much the same. Areas which are IT centric may be suffering more than areas which have their economies based on certain other sectors that are more stable. In fact, real estate certainly depends upon the economy of a particular region to a marked extent.

4Ps B&M: So, when do you foresee the next real estate boom?
SR: I’ve been in this business for the last 40 years and I don’t want any boom in the sector. It is not in the interest of the sector. Our ideal dream is to move with the economy and let there not be a situation where real estate moves ahead of the economy. We don’t want prices to rise suddenly but to move progressively in line with the growth of the GDP.

KG: Sector will move up as input costs will increase and there will be a reasonable price increase, which people can accept. If prices go up, profit margins will go up, but then how many units will be sold? Volumes will go down, which will bring down the sector. So, there should always remain a healthy demand at price points.

Savreen Gadhoke

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Source : IIPM Editorial, 2010.

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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