Sriram S Mahadevan, Business Head, Mahindra Lifespace Developers, compares affordable homes to products carrying maximum retail price (MRP) labels. Any rise in price (above ₹20 lakh or ₹2400-₹2600 a sq ft) would have the target clientele rejecting the product, he says. With 1.5 million sq ft under development in Chennai and Boisar, near here, Mahadevan says the Mahindras are trying to perfect a business model for affordable housing.

Excerpts from an interview:

What is your definition of affordable housing and who is your target clientele?

The clientele we are targeting should have earnings between ₹20,000 and ₹40,000 a month, which, in turn, translates their purchasing power between ₹10 lakh and ₹20 lakh.

What are your investments in these projects?

We would have invested about ₹250 crore on both when complete.

We are looking to build 7.5 lakh sq ft (about 1200 apartments) at Avadi in Chennai and about 5.5 lakh sq ft (1000 flats) at Boisar, near here. The flats would range between 350 sq ft and 670 sq ft.

Are you looking for other locations?

We are looking for land for two more projects of similar size in the Mumbai Metropolitan Region. Negotiations are on.

One must understand the entire affordable housing business rests on low-margin high-volume with higher return on capital.

What sort of margins are you looking for?

It will be in the range of 15-20 per cent.

Funding is an issue for customers in the unorganised sector. How will you overcome this factor?

We expect 50 per cent of customers who do not have documented income proof. We are working with Mahindra Rural Finance, Muthoot Housing Finance and Home First Finance Company.

Have you tied up with them?

Yes. They will be funding the customers.

Some developers in the affordable space are finding sales difficult…

Location is important. A distant suburb without connectivity will not help.

It is very important for the breadwinner of the family to be able to commute to his place of work. By saying this, it is also a disadvantage of affordable housing development. You have to move out of the main town but ensure the location chosen is well-connected to the city centre with basic social infrastructure.

There is a huge demand for affordable housing in a market grossly underserviced. What is required is a quick turnaround in terms of approvals and construction. We prefer 36 months from start to completion.

We intend completing our projects in 24 months — the first phase of 50 per cent within 18 months and the balance in 24 months from the booking date.

What about project funding?

For land, it will be through internal funding.

For construction, it will be a mix of internal accruals and collection. Land cost will be about 20-25 per cent of the project cost.

You have a large area at Mahindra World Cities. Any plans for affordable housing there?

We are evaluating. At some point of time, it would come up in the World Cities.

What about locations close to your parent company?

We evaluated Pune, but land is expensive.

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