The Business of Affordable Housing: A Comeback Story

The Business of Affordable Housing: A Comeback Story

Sachin Agarwal, CMD – Maple Shelters

The definition of affordable means different for different people depending on the socio-economic class, income levels etc. In India, the term applies most pertinently to housing created for the EWS (Economically Weaker Section) of society so that they, like the middle class, can also benefit from the financial and emotional security of home ownership.

While this segment of housing did not receive sufficient impetus in earlier years, the incumbent BJP Government has made it clear that it intends to see a significant increase in housing projects aimed at the bottom-most and the thickest part of the income pyramid.

This means that we are looking at an interesting new phase in India where affordable housing in India is getting preferred rather than ‘poor cousin’ status. There is much that the new Government can do to boost this sector, including promoting re-development of old buildings and providing high-grade infrastructure to peri-urban locations where the population could reside while continuing to work within the city. The key factor here is to ease the commute time and allow access to vast land parcels outside the city.

An interesting and important fact related to Indian real estate is that affordable housing projects have the fastest absorption rates. In other words, the creation of more affordable housing makes sense not only from a socio-economic point of view but also in terms of the real estate business. The demand in terms of units is phenomenal, and developers who have been focused on affordable homes from the start (or who are getting into this segment now) can build and sell their projects for years to come.

Though affordable housing has not seen the kind of growth that India requires in this segment, it is in fact the most sustainable business model for real estate developers. Developers who concentrate on this segment of housing are completely insulated from recession or sentiment-induced market slowdowns. In fact, genuinely affordable housing – projects wherein units are priced below Rs. 20 lakh – are completely recession proof since demand is not only steady but in fact constantly growing.

As a direct effect of this dynamic, affordable housing is now also the most preferred asset class for property investors. There has been a huge supply in mid-income and high-end properties in all cities of India, but a marked lack of willingness among buyers to pay the high rates for residential spaces. As a result, we are seeing more and more investors focusing on budget homes.

Clearly, affordable housing is a business vertical that has stood the test of time when larger format housing has failed to attract buyers and investors. Today, larger developers who previously focused only on mid-income and high-end housing projects are seriously looking at building up their presence in affordable housing, as well. Their rationale is that the higher-volume/lower-margins affordable housing segment is a reliable hedge against the market slowdown in costlier housing, and also because budget housing is a new means for reputed developers to leverage their brand value.