It's raining affordable homes in Gujarat

Both state govt and real estate industry set to build a slew of residential units for low and middle income groups

It's raining affordable homes in Gujarat with both the state government and real estate industry set to build a slew of affordable residential units. On one hand, the state government, as promised in assembly polls manifesto, plans to start work for building 120,000 homes for the year 2013-14. On the other hand, organised real estate players like Tata Housing, Adani Township & Real Estate, DBS Affordable Home Strategy Ltd. and Arvind Real Estate have announced low cost housing schemes for low and middle income groups.

Almost all the players are offering residential properties in the sub Rs 20 lakh category, thereby catering to the lower income group (LIG) and middle income group (MIG). Add to that, city-based DBS Affordable Home Strategy Limited recently announced a project of providing 25,000 affordable homes in next five years in the sub Rs 10 lakh and Rs 15 lakh category.

Gujarat government has announced that it will build more then 120,000 by the end of this year for the poor and home-less people of the state. For the year 2013-14 state government has allocated Rs 1,650 crore for the rural housing, of which Rs 1,062 crore has been earmarked for providing regular houses to BPL families. It has further initiated a state-wide survey of the slums and mud-houses which is likely to be completed by the end of March and then work on building affordable housing would begin.

"The conversion rate for an affordable housing is the highest as compared to mid-premium or luxury segment. There is humongous demand within the segment which needs to be taken care of and this has attracted organised players like us. As against affordable housing, lifestyle segment finds very few takers," said a senior official of Adani Township & Real Estate on condition of anonymity.

The company is in the process of completing its three-phased affordable housing project of 800 units.

The 'Pratham' project of Adani Township & Real Estate offers 1BHK of 650 sq ft at Rs 16 lakh while 2BHK property of 900 sq ft is priced at Rs 22 lakh. "We have already completed 500 units in two phases and about to complete the third phase," the official added.

Similarly, titled 'New Haven Compact', the affordable housing project in Ahmedabad has been jointly developed by Smart Value Homes, part of Tata Housing along with Arvind Real Estate, under the banner of Arvind Smart Value Home LLP, a special purpose vehicle (SPV). The project currently has around 300 units of 1 BHK of 570 sq ft size. According to Sarda, currently the affordable residential units are priced at around Rs 13.5 lakh.

"Affordable housing is attracting the people to Ahmedabad and the real estate industry is witnessing a constant demand these days. According to JLL, the rate of conversion has been the highest among affordable housing, especially in the sub-Rs 10 lakh and sub-Rs 15 lakh category. It has been rising constantly by over 15 per cent, as against other segments of residential property market," said Brotin Banerjee, MD and CEO, Tata Housing.

DBS' 25,000 affordable homes are being built at a project cost of Rs 2,000 crore in 14 different parts of Ahmedabad.

"The affordable housing segment in Ahmedabad is slowdown-proof and reaps quick sales at any given point of time. In fact, the conversion rate in an affordable housing project is 100 per cent unlike luxury or premium segment where there is still uncertainty over sales," said S Sudarshan, director at DBS Affordable Home Strategy which is looking at a target group with a family income of around Rs 10,000-25,000 per month. DBS currently constructs 1 room Kitchen and 2 room Kitchen apartments in the price range of Rs 5 lakh to Rs 10 lakh.

However, what is it that has been attracting corporate organised real estate players? "There is large number of actual users that results in quicker sales unlike other segments. Add to that, one can plan a larger project over various phases and enjoy better economies of scale. Though the margins are low compared to premium and luxury segments, affordable housing can be profitable if dealt in large volumes," says Shrenik Shah, chief executive officer of Space Management, a city-based real estate consulting firm.

And though the margins may be low, according to Sudarshan, the solution is to go for larger volumes and faster delivery.

"There is no such situation as oversupply in affordable housing. Whatever is built gets consumer within three to six months. Hence, even if the margins are low, it is advisable to produce large volumes and offer faster delivery since the conversion is almost 100 per cent," he adds.

According to a recent Monitor Group survey, the Ahmedabad city is believed to witness a demand of two million affordable homes in the range of Rs 5 lakh to Rs 15 lakh.

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