21 May 2016

Affordable housing- A mirage

Affordable housing is going to be the growth engine in real estate market. Although there has been a constant push from Government to reduce prices, builders have shown their inability.
Input costs have been increasing on a continuous basis. Governments push on infrastructure development is already fueling the demand leading to price rise. Various cartels in these core sectors are making things worse for builders.
With almost no control over the input cost, builders are left with very limited levers to make ‘affordable’ flats a reality. One of the areas which can be worked upon is the open space utilization. Most of the builders are trying to showcase open/green space to attract buyers. Although, this sounds very lucrative to potential customers, builders literally don’t get any penny for this part of the land. These are areas blocked for playground, jogging tracks, tennis court etc. High rise towers help them make money and recover cost for these open areas.
The moment they start generating more revenue per square feet of land, affordable housing can be a reality. After setting aside a certain profit margin, builders will definitely pass on the benefit to customers making affordable housing a reality even in mid and luxury segments.
Big Question- How to make the most of these open space?
  1. Utilize the power of association– Most of the renowned builders are under an umbrella of real estate association. They should use this forum to bring consensus on critical things. Have a common open area for a group of builder/townships. Instead of setting aside open spaces in each and every project, builders of a particular locality should jointly develop the open area either through land pooling or cost sharing basis. Net impact would be, more area available for construction leading to more revenue generation. Common open space shared between 3-4 society will have all the sports facilities and a restricted access, pay and use, common maintenance. These intricacies can be dealt later when these builders work together on such plans.
  1. Involve local government bodies during planning phase– Most the town planning is not done meticulously hence we hardly find municipal park. It may be available in some areas but with very minimal maintenance. These bigger societies are good source of revenue for Government as property tax collection is high and with almost no defaulters. As a group of builders/society, request local municipality to build play area or at least share the cost. An organized approach will definitely help. These new clusters of townships are often seen as a good vote bank. No one will try to annoy these middle class voters.
The above looks very simple on paper but in reality there will be some hurdles and the biggest would acceptance level among prospective customers. Some may not like sharing the open area if another township people. Cost benefit evaluation will largely depend on how much rate cut a builder is ready to pass on to customer making it a win-win for all.