Developers need to focus on affordable homes

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With every developer focussed on developing 3 and 4BHKs, penthouses and villas, it seems that opulence is the only way of life. What about affordable housing? Is the developer fraternity focusing on building as many affordable homes?

We need to question ourselves. Is our generation or the generation next to us going to be swayed by the super luxury residential living? Does that branded Italian wall paper and furniture hold any asset value? Are developers really selling real estate or are they selling high-end luxury interiors coupled with concierge services?

Building affordable for a developer is eminent today as the maximum demand lies in this segment and very few builders offer genuine affordable homes. However, a buyer must understand the cost inclusions in an affordable house.

1. Total Ticket Price Concept: Total Ticket Price implies the total cost of the flat including stamp duty, registration, value added tax (VAT), service tax and brokerage. It is important to understand that the primary reason the real estate market was hit by slow demand is that the developers went overboard with big balconies, bigger decks, terrace gardens and everything else but efficient liveable space. When all these features are included in the flat area, it makes the total ticket price unaffordable. If these frills are done away with and a buyer is offered with a living space which is properly planned instead of one which makes every square feet useable, then this would result in a considerably compact flat size. This would automatically reduce the total ticket price of the flat/apartment to be purchased.

2.    Asset Value and monthly outgoings: Real estate is all about the location. The asset value of your home is directly proportionate to its location. The better the location, the higher the chances of appreciation. Instead of offering homes at mediocre locations but packaged with high-end interiors, a developer should offer affordable housing at landmark locations.

Also, if the projects are located  at a convenient distance from jogging tracks, gyms, pools, theatres, malls, schools ,hospitals and other basic infrastructure then these amenities do not need to be  built-in the projects thereby reducing the mandatory one-time membership cost and  monthly maintenance cost for the buyer.

 What are the limitations faced by a developer to execute a project offering affordable homes?

Real Estate is a capital intensive industry. Like in any business, the developers too incur a cost of capital or interest charges, which they need to pay and account for.  Faster  completion of the project results in early recovery of invested capital, thereby reducing the interest cost, and resulting in reduced cost of the overall project which could be passed on to the buyer.

Recently, the developers have been facing hurdles primarily in acquiring approvals, due to bureaucracy at various levels of the government. This uncertainty has led to a delay in starting projects thereby increasing the interest costs.

The government needs to implement its proposed one-window clearance policy at the earliest and make effective use of the advanced technology for making approvals an online process, like in all developed countries. Once the interest cost is brought under control by effective policy decisions, and the developer adapts to smaller format homes, the total ticket price of homes will automatically fall under the affordable price range.

What lies ahead?

The future as we see it is that the developers need to revisit their drawing boards and reverse the planning process, by first determining the budget size/ticket price of the buyer and then plan their home sizes accordingly.

Buyers need to be offered amenities like better security systems, robust plumbing systems and smart homes which simplify life, save time and conserve nature rather than burden them with high maintenance costs and outgoings.

Developers should do what they do best, i.e., develop well-planned real estate rather than retailing luxury brands. As far as concierge and ancillary pampering is concerned, let the mobile apps do it!

Where is demand likely to come from?

The target consumers are in the age group of 25-40 years of age. There seems to be a shift in the way people choose their home location. They generally like to stay closer to their workplace so that they can spend the time saved with their loved ones.

Unlike the past, where the industry and office space was located at South Mumbai, today’s scenario indicates that businesses choose to shift to locations where the rents and connectivity make economic sense. For example, the financial sector prefers Bandra Kurla Complex (BKC), media sector prefers Andheri while the BPO and IT sector has found Malad appropriate. This means that Malad, Chunabhatti, Mahim, Dadar and Parel look like the most promising locations in the near future.

Author’s Note: Raj Gala Shah is Partner at Mumbai-based developer, Zara Habitats.

Disclaimer: The views expressed in the article are solely of the author and may not represent 99acres.com's opinions on the subject. 99acres.com does not take responsibility for any actions taken based on the information shared by the author.

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