Housing now unviable for buyers, realtors: Shashank Jain, executive director, PwC India

Unaffordable housing is said to be the key reason for lack of demand and oversupply in key Indian metros. Do you agree?There are larger issues. Not just the developers, the entire eco-system is to blame. Land and infrastructure are like the building blocks of affordable housing. Land prices will always be high in places where infrastructure is already developed, leading to significantly high starting input cost for the developer. So, land cost in cities like Mumbai and the National Capital Region (NCR -- Delhi and Gurgaon) could form over 50% of the total project cost. And where infrastructure is not developed, there are very few takers, thus raising questions on viability. It’s a chicken-or-egg conundrum.

Both central and state governments have not taken this proactively and focused on building infrastructure in a greenfield way. Infrastructure has always played catch-up with urbanisation and development. The residential market would pick up if you have a commercial catchment area in the vicinity. So development of commercial catchments is crucial for micro markets to pick up.

But residential prices are unaffordable even in far-off suburbs with little or no infrastructure.That has also got to do with scarcity of resources (primarily land). The situation is more severe in the Mumbai Metropolitan Region because of its geography. However, if you look at the NCR, it has expanded on all sides and offers housing at all price points. Similarly in Chennai and Bangalore. While it may not be completely affordable, one can possibly look at owning a flat there by stretching (finances) a bit.

From a developer’s perspective, the input cost is so high that it makes the starting point unviable or unaffordable for the realtor as well. For a developer, land is inventory and an essential resource for a long-term play of say 10-15 years or more. This means, land prices have already seen significant appreciation at places where a common man would actually think of buying and residing. That’s because the developer is thinking 5-7 years ahead and focuses on acquiring land that may be uninhabitable at present. So, acquisition of land and development always plays catch-up, and land prices are ahead of the curve, which could make housing unaffordable.

Also, income levels of potential home buyers haven’t kept pace with the extent of increase in realty rates in the last 3-5 years.That’s correct. Salary levels on an average would have gone up marginally when compared to overall inflation. I’d say it’s a negative growth situation. Now, consider that scenario vis-a-vis a developer’s input cost. That’s increasing on-year too. See, the primary market, which is the key driver for affordability, is seeing an increase of 10-20% every year. Salary levels certainly haven’t kept pace with it. That definitely is a key challenge.

According to Apnapaisa.com estimates, a monthly income of over Rs1.5 lakh is required to be able to buy a flat worth Rs1 crore through a home loan.Just 1% of households, or 24-25 crore households, earn Rs12.5 lakh and above annually. Let’s say 1% out of those households earn more than Rs12.5 lakh annually. So, we get a figure of 25 lakh households. If we increase the Rs12.5 lakh annual income limit to say Rs15-20 lakh, there could be just about 10-15 lakh households in top four or five metros that can afford an apartment worth Rs1 crore. When people who can afford homes are concentrated in certain geographies, prices in such markets would shoot up. And wherever developers build affordable housing, people living there do not have the means to buy such projects. It’s a vicious circle.

Housing project delivery delays have become common everywhere.From a buyer’s perspective, delay in project execution actually gives more returns. By making a booking and not paying for that due to the project delay, I actually get an appreciation on the investment. This anomaly needs to be corrected at the macro level.

Only property investors might reap higher returns. But end-users incur rental and EMI (equated monthly instalment) expenses while fighting inflation.Yes, end-users are significantly impacted. Unfortunately, majority of buyers are not end-users. It’s a vicious circle. Investors are indifferent to project delays as they help them get better appreciation. According to quarterly home registration data, a large proportion of transactions is secondary sales. In any micro market, if the secondary rates are Rs1,000 to Rs1,500 per square foot lower than what the developer is offering, that’s a clear sign of an overheated market, an investor-driven market.

But investors continue to drive the housing market, giving the developer initial cash flow.There are two types of investors. One, the business community with an element of unaccounted surplus being parked in realty. The government is trying to control them by imposing TDS (tax deducted at source) of 1% on an amount of Rs50 lakh and more. Two, a significant chunk of investment is made by white collar executives, especially in the metro micro markets. This class of investors is putting its surplus income in a second or third home. They don’t have exit pressure. That again means that prices will not come down significantly.