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Mitigating the cost of real estate – Affordable Housing

Posted by ranjith I 30 January, 2010 archives  2

Today, everything we buy starting from cars to computers to mobiles are becoming increasingly affordable thanks to reduction in cost of raw materials, highly competitive markets and advances in technology.  However, there is one sector or area which is yet to catch up with this trend in the real sense and that is real estate in India.  While developers all around the country seem to be moving in this direction to maintain healthy balance sheets in the recession, we are yet to see a genuine effort to reach out to the masses who can only dream about buying a home.

Traditionally real estate has always been a costly affair due to high land prices, high cost of construction and the builder making a good margin on his investment.  Two thirds of the population would be counted out of this for not being able to afford it.  While pragmatism and business sense has demanded that builders develop properties outside the city to mitigate the cost of real estate not just for the builder but for the buyer as well, most builders continue to buy land in the costliest parts of Chennai city and finding out that there is no market for it.

You see, in the boom, when software was in 7th heaven and everyone wanted to spend, invest with the feel good factor, probably you may excuse someone for being naive in so much as not being able to capitalize on it and build high end luxury apartments, etc in downtown Chennai.   However, when the recession set in, there was not a soul to be found who would make a beeline for these swanky products.  The software engineer, the NRI, the CEO, the CXO dissappeared all of a sudden.  It was as if, they never existed at all.  All the zillions of dollars of marketing spend could only find the eyeballs of kids who like to read the newspaper supplements than the main paper.

Now, if you look at it from the consumer’s perspective, all wazz well! when he could take a loan and manage to pay it over 10 or 20 years with  incomes projected to go up all the time and manage the house rent, car loan along with it.  But the recession changed it.  The average consumer was happy to retain his job leave alone the pay cuts.  Cutting daily expenses and resorting to other investments such as FDs was the norm.  And then, there were people who had stretched themselves too much and defaulted on loans.  Real Estate was the last thing on everyone’s mind.

All of a sudden, demand plummeted overnight, there was excess supply in the market and developers had to cringe and bring prices down to increase sales by a marginal amount.  And then, there were those who could not start construction given the low demand, talk about denotifying SEZs, selling land parcels and cancellations as a result.

Today, the market is recovering, we can once again see people willing to spend but it is not the same as it used to be during the boom.  High end luxury homes are the last thing on the HNI’s mind.  He would rather put an equivalent amount on 3 or 4 houses than put it all in 1 basket.  Thankfully so, the builders have realized this and are diverting funds to budget housing, affordable homes.  Come to think of it, the recession was not a bad thing at all.  It made real estate affordable to a huge chunk of people who would otherwise put their money in banks, FDs etc.

Well, there are still the brave ones who would like to start ambitious projects with spanish names hoping to find the elusive, rich, cooling glass wearing, mercedes car, returned from abroad etc but they are only finding fake ones.

All this brings us to a point where it becomes practical, logical to develop houses away from the city along with the requisite infrastructure for business, learning and living.  When you know that the land cost within the city amounts to 80% of the total cost while it amounts to 10% of the cost far away from the city, it can make you think.  Here is an opportunity not just to buy a house and move in but also to invest and reap rich returns.  This land is bound to appreciate over time than the ones inside the city.  And Lo! behold, affordable housing is born and here to stay.

So, at the end of the day, it takes vision, courage and farsightedness to understand the needs of the common man and come up with a solution or a product that is not heavy on the pocket but heavy on returns.  Add industries, commercial infrastructure and a well planned city and you get happy customers who are only too happy to refer their friends.

Well, we are proud to say that we have one such product!!…

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2 Responses to “Mitigating the cost of real estate – Affordable Housing”

  1. Excellent post. Thanks!

  2. Clarkson says:

    I admire what you have done here. I like the part where you say you are doing this to give back but I would assume by all the comments that this is working for you as well.

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