Can more attention be paid to affordable housing under the present market conditions?
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Beyond reach: The Kochi skyline dotted with highrises. The question of affordability has come to the fore in these times of economic hardship.
Affordable housing is a term being increasingly used these days. But how is affordability defined? That, probably, has been keeping the builders as well as their clients guessing. The builders feel that they are definitely making products in an affordable range and the buyers think the prices have to come down.
As the global financial crisis is making its effect felt in every sector, housing is definitely a major sector that has been hit. The builders, the banks, the investors, the workers, construction material dealers… it has affected a whole range of people. Perhaps, it is against the backdrop of such a crisis that the term affordable housing has come up strongly.
According to National Sample Survey figures, it is estimated that the country has a shortage of 2.5 crore homes. So, the apparent sluggishness in the market is not because of a lack of demand. But rather the demand is more in the lower income group.
Wait and watcg
The builders will not agree that the luxury housing market has stagnated somewhat. They will prefer to say that customers in this section are adopting a wait-and-watch policy.
As inflation has dropped to some extent, people have come to expect a further fall in prices. But, there is really no such scope in Kerala, builders say. As long as the land component cost is as high as Rs. 600-700 a square foot, it is going to push up the prices considerably, says George E. George, chairman of the Kerala Builders’ Forum.
The cost of construction has not come down yet. It is only the price of steel that has come down by about Rs.10-15 a kg, which is not much compared with the constant increase in its price during the last couple of years.
Investors are afraid to come forth in the crisis period and are unsure whether it will be better to invest now or later. The funds need channelling and the builders are making an all out effort to get them flowing. Even as the Kerala Property Show in Dubai held a while ago was not much to talk about compared with the response the shows had generated earlier, the builders are drawing up aggressive strategies for another show coming up in Kochi next week.
“We work on narrow margins,” says Kunnel Antony, secretary of the forum. People are looking for better opportunities because they feel that prices have come down. Actually, builders have to cut thin on the existing margins, he added. The builders would like to bring down the prices if the government cuts down on the taxes, he says.
Taxes account for about 33 per cent of the total value of property. If the rate of taxes comes down, the builders feel that prices will become more affordable. Along with this, there should be proper infrastructure development at places that have not witnessed prime real estate development. If the two go together, the builders will definitely be interested in venturing into housing for the low-income group, Mr. George says.
If affordable housing is pegged in the range of Rs.16-22 lakh for a 1,000-sq.ft house, it is still on the higher side for the poor. But certainly, there will be a lot of takers if housing at such cost is made available.
This can happen only if land becomes slightly cheaper. For this, one has to move away from the city limits. But people will not like to buy a house that does not have access to cities, Mr. George says. He argues that if infrastructure development is assured, there is no reason why builders will not take up housing for low-income groups. Transport and commuting facility remains the first priority in housing, he adds.
In metropolitan cities, such as Delhi and Mumbai, the governmental development authorities had taken the lead in providing housing for all sections of society. It is a different situation here altogether when the government agencies have not played their role.
The Planning Commission estimates that the demand for houses in the next four years will be from the lower income groups, which experience 90 per cent of the shortage.
As the urban demographics show that over one-fourth of the poor population lives in cities, the planners and the builders have to play a role in providing affordable housing here.
It is estimated that the investment for meeting the housing demand is going to touch about Rs.4,000 crore. The builders may like to take a cue in changing trackas the number of families that would start earning more is likely to go up considerably. Hence, demand for small houses will go up proportionally.
Banks’ stand
The banks are perhaps the next in line to look for a booming housing sector. “We are definitely looking expectantly with a cut in interest rates for home loans,” says a banking professional in a private sector bank. Over the last two years, the lending rates had gone down to as low as 7-7.5 per cent and it is hovering around 12 per cent now. “Any individual, specially the salaried class finds it difficult to pay up the increased EMI. The bank would like to keep the lending rate at minimum so that its non-performing assets do not swell,” he says.
Unless customers opt for fixed rate interest, the monthly payments will become a big burden, he added. But, the banks usually do not encourage customers to go for fixed rates for the loans. However, all the banks will not be able to lower the lending rates as nationalised banks do.
For the private sector, the atmosphere is not yet conducive to the lowering of the rates considerably, says the banker.
There should be some downward trend in the deposit rates for the banks to feel happy about lowering lending rates, he adds.
