Affordable homes: The fineprint

Good things, they say, come in small bundles. But it would be wise to realise that not all small bundles are necessarily good, nor are they always cheap.

And that might as well apply to the spate of real estate projects going in the garb of affordable housing ostensibly targeted at the lower income groups, and some even at the upper middle classes.

The buzz on the street is that buying homes could potentially be cheaper than even buying cars, not counting the Tata Nano. There is a long line of developers entering the space promising houses for as little as Rs 3 lakh.

While Tata Hosing created the buzz last week with the announcement of its Nano Housing project at Boisar close to Mumbai, there are a host of others like start-up CSC Construction of Bangalore, Ramesh Ramanathan of NGO Janagraha with Sterling Developers, and Jerry Rao founder MphasiS, just to name a few, who are entering the space. Low-cost housing specialist Janapriya Engineers Syndicate is increasing its focus with newer affordable housing projects.

Makes your ears prick up? Hold your breath. As with most brilliant marketing pitches, the devil is in the finer details and in the hidden, or associated costs that one should be wary of.

Take for instance Tata Housing’s nano homes named Shubh Griha in Boisar, Mumbai. The smart value homes of the Tatas are said to be constructed under the guidance of Indian Green Building Council and cost Rs 3.9 lakh to Rs 6.7 lakh across the country.

Tata Housing managing director and chief operating officer Brotin Banerjee said, “We are trying to cater to first-time buyers and economically weaker sections and there is no compromise on product offering.”

The company is offering 1,200 one-room kitchen budget flats of 283 square feet and 380 square feet sizes and one-bed-hall-kitchen flats of 465 square feet in the range of Rs 3.9 lakh and Rs 6.7 lakh.

But the project is about 100 km, or a three-hour train ride, away from Churchgate station in South Mumbai. For Mumbaikars, used to commuting long distances, that might be a cinch.

But then is it worth going so far for a flat in which you can’t even swing a cat? And then what kind of construction will one get and what are the other costs associated with such budget housing?

And then if you look at the per square foot pricing of many of these projects, there are already many developers offering housing in the same range and in much larger sizes that too closer home.

Moreover, there are many imponderables in such projects, point out analysts. “The construction cost is fluctuating and it will be a challenge for developers to sustain the price point. It is a mass product and any delay will hurt developers badly,” said Ambar Maheshwari, director-investment advisory at DTZ India.

Another analyst from a leading multinational consultancy said there may not be compromises in structural specifications but the quality of fittings would be basic. And not all are necessarily targeted at weaker sections.

For instance, CSC Constructions, a recent entrant into this space, is offering a 250 square feet flat for Rs 3 lakh at an EMI of Rs 3,000. A 400 square feet flat will cost about Rs 5 lakh at its CSC Smart Homes in Bangalore. But hold your breath, on offer along with the 2,180 flats are facilities like a swimming pool, gym, children’s play area, and jogging tracks. And no surprise that all these come at a compulsory extra cost totalling Rs 1 lakh to Rs 1.5 lakh for each flat.

Affordability apart, obtaining finance to buy these houses for the weaker sections is a major issue, said Ravinder Reddy, chairman, Janapriya Engineers Syndicate.

“Financial institutions are not ready to give loans to weaker sections as the people in the targeted segment have unstable incomes and are non tax payers.”

Janapriya is launching 1,500 units in Hyderabad in June. It will offer a 400-425 sq ft flat for Rs 5-5.5 lakh and 525-550 sq ft flat at Rs 7.25 lakh. “Developers are reducing flat sizes and not price of the product. They should reduce their profit margins as there is demand in that segment,” Reddy said.

However, PC Sukanand, managing director, CSC Construction said his firm is compromising on its margin to offer competitive pricing. CSC’s pricing is in the range of Rs 1,200-Rs 2,000 per sq ft for 250-1,000 sq ft flats.

Tata Housing’s affordable housing will cost in the range of Rs 1,083-Rs 1,440 per sq ft for units of 360-465 sq ft, while Jannagraha’s 400 sq ft units will cost approximately Rs 1,125 per sq ft.

However, a quick realty check will show that the minimum price for a mid-range product across the country depending on the location ranges Rs 1,800-Rs 2,000 per sq ft for a 1,000 sq ft apartment, analysts said.

So, the moot question that many are raising is what is the definition of an affordable housing? Is it a smaller house to fit your pocket or is it really a cheaper house that will be within the reach of the lower income groups?