Market for low-cost housing set to expand

New Delhi: As the country’s leading developers are busy building for the luxury and semi-luxury housing segment, there are a number of small developers across metros who have started building houses for the low-income segment, in the price range of Rs 3 lakh-Rs 7 lakh, found a recent study by the housing regulator.



According to estimates arrived at by the National Housing Bank, there will be between 25,000 to 50,000 low-cost houses on sale in the market in the fiscal year 2010-2011. "Given the plans and projections of the new breed of developers which comprise intentions to start numerous additional projects in the coming year or two years, this number should increase exponentially in the near future," the study, conducted by Monitor Inclusive Markets, revealed.



Countering the perception that low-income housing can not be a profitable venture, the study estimates that the returns on such projects are attractive.

"Developer project Internal Rate of Returns (IRR) can be as high as 40 per cent-50 per cent in these locations, with gross margins in the region of 20 per cent-30 per cent. And the demand for such low-income urban housing far outstrips supply, as seen from the pace of sale of units in various project sites in Mumbai, Ahmedabad or Chennai," the study noted.



However, concerns remain regarding the development of micro-finance market for housing loans. According to the NHB study, there will still be a shortfall of loans available to the informal, low income customer in urban India, even though the number of entrants in housing finance sector is increasing.

But, the situation has vastly improved from 2006-7, when the study was first conducted, said the regulator. In 2006-7, there was "very limited supply" of low income housing by some small developers below Rs 5 lakh.



Over the last three years, the number has risen to more than 25 developers in urban areas building good quality, multi-family units in the Rs 3 lakh to Rs 7 lakh price range. "This impetus can be credited to the commercial viability and marketability of the low income housing market," NHB said.



Another interesting trend, according to the study, is the growth of the number of new cities that are starting to see supply of low-income housing. From only two cities of Ahmedabad and Mumbai, which were the initial centers for low-income housing projects, the study predicts that other cities across India, which currently have one or two developers bringing houses to market, will also join the trend.

Source: Financial Express