Low-cost housing is still a dream

While some builders are optimistic, poor investor sentiment and a sharp rise in input and interest costs is hurting such projects

Low-cost housing, which became a buzzword for many builders a few years ago, is no longer being fancied by them. Earlier, homes priced below Rs 10 lakh in metros were considered low-cost.

In the past three years, the prices of flats in the same projects have risen to over Rs 15 lakh. In fact, builders are now talking of low-cost housing in the range of Rs 15-25 lakh.

Even big guns like Tata Housing, who launched two projects under the brand Shubh Griha in Bhoisar and Vasind near Mumbai with great success, and who want to continue building sub-Rs 10 lakh, are facing cost pressure.

“Though overall costs have shot up 35 per cent, we are doing our best to keep the costs low,” said Brotin Banerjee, managing director and CEO, Tata Housing, adding that they were looking at Bangalore, Chennai and Ahmedabad for low-cost projects.

Prices of Tata Housing's low-cost projects are up 30-40 per cent to over Rs 2,000 per sq ft now from Rs 1,400-Rs 1,600 per sq ft. The projects were completely sold out in the first two-three months.

Eredene Capital-backed Tanaji Malasure City (TMC) in Karjat, is now offering a one-hall-kitchen apartment of 304 sq ft apartment at Rs 5.25 lakh, as against the launch price of Rs 3 lakh –- an increase of 75 per cent. The price of a one BHK is up over 40 per cent.

Similarly, housing projects of former chairman of MphasiS, Jerry (Jaithirth) Rao’s Value and Budget Housing Corporation (VBHC) in Bangalore have seen a 40-60 per cent jump in prices. But he is still optimistic.

“We believe we can stay in the Rs 5 lakh to Rs 15 lakh price range, varying between locations and flat size,” Rao said.

VBHC plans to launch low-cost housing projects in Ramachandrapuram in Hyderabad, Oragadam in Chennai and second Project at Kengeri in Bangalore between Sept and Oct 2011. It also plans to build such projects in Mumbai, Nashik, Indore and, Pune.

Many others were not so optimistic. “Raw material prices have gone up so high that it is not feasible to remain in the sub-Rs 10 lakh segment now. We are launching new projects between Rs 15 lakh to Rs 24 lakh in Pune, Hyderabad and Nagpur,” said Uday Dharmadhikari, chief executive officer, Usha Breco Realty.

Pranay Vakil, chairman of global property consultant Knight Frank felt that the model per se would be difficult to follow unless land is acquired at a cheap rate or additional FSI is given to builders.

Others like Sunil Rohokale, executive director, ASK Investment Holdings do not believe that low-cost has great potential.

“The whole euphoria was there in 2009. In 2010, few developers have launched the low-cost projects due to shrinking margins. In fact, the second phase of many projects was sold at high prices as there was no supply,” said Rohakale.

Sure, there is demand for low-cost housing. “We started with Rs 1,500 per sq ft. But due to high demand we gave gone up to Rs 1,800 per sq ft on larger apartments. On the smallest studios, we had an opening welcome pricing of less than Rs 1,300 per sq ft, subsequently this has been left at Rs 1,500 per sq ft,” added VBHC's Rao.

But builders can make money only through volumes because of lower margins. And this is not convincing too many investors. “The model is not established. We need to see the cash flows of these projects are sustainable. Till then, we are not comfortable investing in these projects,” added Rohokale.