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Low-cost housing or LCH is slowly getting high on the agenda of developers. While this is understandable, because of the enormous gap between supply and demand, what should be worrying is that high land cost, and lack of connectivity owing to poor infrastructure are proving to be major impediments to LCH in India.

Add to this, the minimum cost of building. “We can have some saving in cost by doing prefab/new construction technology, however the total saving is not very high,” says Mr Vishal Goel, Associate Director, Real Estate Practice, Ernst & Young.

There are workable margins in LCH development, at 15-20 per cent, which are lower compared to gains in high-end projects, he notes, during an interaction with Business Line over the e-mail. “It is a moderate risk, moderate return business, whereby volumes give the edge, and ensure the sustainability of steady cash flows to the developer.”

The total shortage of dwelling units at the beginning of the Eleventh Plan Period — 2007 — is estimated to be nearly 2.5 crore.

Almost three-fourths of the shortage of dwelling units is for the middle- and low-income brackets — the proposed beneficiaries of LCH model, if it were to succeed.

According to the National Housing Bank (NHB), the gap of housing unit shortage would widen to about 4.5 crore units during the Eleventh Plan (2007-2012) period. The annual need for urban housing units is almost half a crore.

Obviously, the huge pent-up demand for housing presents significant opportunity especially on the low-cost mass-housing segment. With the size of the segment widening, there are immense prospects for national and international developers, foresees Mr Goel.

Yet, given the higher rate of growth witnessed in the high-end residential segment of the market and higher margins to be made, developers in India have been targeting the high-end housing market aggressively, and not exploring the LCH space, despite its potential.

“Poor urban transport systems are a major deterrent to LCH,” Mr Goel says. “For project viability, we need large land parcel; we do not have a policy to support LCH projects.”

Three models are being tried out to make the concept successful, he informs. First, the ‘Malaysian township development’ model. “In this, the land is acquired 40-50 km away from the city where land cost is low,” explains Mr Goel.

“The developer then provides connectivity via development of roads/ highways/ linkage to existing Mass Rapid Transit Systems (MRTS). In turn, the developer is incentivised by the Government by way of toll collection right.”

The second is the PPP model, where the public-private partnership happens between a Development Authority (DA) /PSU (public sector undertaking) and a developer for joint development.

“The DA/PSU contributes by way of land acquisition and infrastructure development while the developer creates quality housing facilities. The developer then sells to customers at cost plus a reasonable mark-up. PSU can also get housing for its staff. Government can provide housing to its employees in such projects.” And the third model involves a share in Government revenue, with the Government reimbursing the private player for infrastructure/linkages created.

“Government can share the revenue accrued to the state due to real estate development (property tax/property registration tax) in and around the project area,” suggests Mr Goel. “This will enable developers to fund housing projects 70-100 km away from the city centre and develop massive LCH.”

As examples of LCH projects currently underway, Mr Goel lists the following:

Singapore Township is a fully integrated township being developed by Andhra Pradesh Housing Board in collaboration with master planners from Singapore, CESMA International.

SP City, a mass housing project at New Town, Rajarhat, Kolkata, is of Shapoorji Pallonji & Co.

Marathon Nagari is a mass housing project being developed by Marathon Realty Ltd on 49 acres of land parcel in Badlapur, Thane(about 40 km from Mumbai). The project, being developed in 5 phases, employs Malaysian technology for cost-effectiveness.

.

D. MURALI

SHRIRAM KANNAN

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