After a huge slump in prices during recession, the housing market in Bangalore is revving up again, thanks to the newly introduced ‘affordable housing' segment. While there are houses priced at Rs 15-25 lakhs that are targeted at PSU and BPO employees, there are more lucrative options at Rs 25-40 lakhs for IT employees.

There are also houses under Rs 10 lakh being planned by non-profit organizations to benefit those who do not have a regular paycheck and hence have difficulty getting loans for housing. These houses are targeted at auto rickshaw drivers, construction workers etc who have total household income of Rs 12,000-25,000 per month, but live in slums or poor houses.

While affordable houses have opened up the previously unexplored segment of Rs 15-25 lakh houses, it has some aspects customers are vary of. Located far beyond the outskirts, the area of these apartments are lesser than the conventional flats by the same builders. Currently Brigade Group and Provident Housing (a fully-owned subsidiary of Puravankara Builders) are the major builders in the Rs 15-25 lakh category.

Provident's project named Wellworth City on Yelhanka-Doddballapur road comprising 3360 apartments, is expected to be completed in January 2012. The basic price for 845 sq ft 2BHK flat is Rs 15.5 lakhs, while 3 BHKs measuring 1075-1180 sq ft are priced at Rs 19.9-22.9 lakhs.

Brigade Group is planning to launch four projects - in Kanakapura road, Mysore road, Devanahalli and Whitefield. The Kanakapura road and Whitefield projects are located 10-15 kms from the city, while the ones in Mysore road and Devanahalli are 20 and 35 kms away respectively. The company has so far acquired plots for the Kanakapura road project only.

Layout plan of Provident Welworth City at Doddballapur Road. On paper, it shows a shopping mall in addition to facilities such as clubhouse, play court and jogging track. Pic Credit: Provident Housing

Bengaluru market poised to grow

According to Irfan Razack, Vice President of CREDAI (Confederation of Real Estate Developers' Associations of India) and Chairman & Managing Director of Prestige Group, ‘affordable housing' is a misnomer and any house in the 15-50 lakh range can be classified as ‘Standard or Regular Housing'; anything above this range can be considered premium housing. "There is no clear data on the number of houses in the ‘affordable' segment now. But the demand for housing will never dry up because of our huge urban population which is growing with rise in job opportunities and income levels. It's only a question of prices matching the purchasing power of aspiring buyers," he says.

Many affordable housing projects are coming up in Kanakapura, Doddballapur, Hosur and Hennur Roads. “There is a decent market for the mid-size affordable houses,” says Irshad Ahmed, President of Bangalore Realtor Association India (BRAI).

Realtors, for their part, are taking a positive line. They say that the affordable housing market will grow in the next few years, as there are many buyers for this segment. However, they opine that only big builders will succeed in this segment, reason being that affordable houses should be built in huge volumes with the best technology to minimize the cost. The primary cost-cutting for the builder is through land as the plots are bought at very low costs in outskirts.

Even though the flats are small, the facilities - clubhouse, swimming pool etc - are the same as premium houses. "This is possible as the project size is large and the same facilities are shared by more number of people, which brings down the cost. The number of apartments that a developer usually builds in a 25-acre-plot will be accommodated within five acres in an affordable housing project," says Ajit Prakash, Managing Director and CEO of Koramangala-based realty firm Sana Group. Being able to acquire construction materials at low costs in bulk also enables big developers to maintain quality.

As the locations are remote and lack facilities like schools, hospitals, banks, places of entertainment etc, builders also try to provide some facilities. For instance, in their Doddaballapur project, Provident is building a mall within the township. The mall becomes another source of income for the company. Since small builders usually do not have the capital for such huge projects, affordable housing is not a lucrative segment for them, opines Prakash.

Cost-cutting also occurs during construction in terms of the materials used. The difference shows most in the kitchen and bathroom areas. Santhosh Bhurani, Managing Director of Bhurani Real Estate agency, says, "In a regular apartment, each bedroom has a balcony, while for affordable houses there will be only one balcony around the living room area. Bedroom size will be smaller too. While using vitrified tiles, smaller slabs will be used instead of bigger ones as they are most cost-effective. There will be difference in the type of sanitary fittings and the wood used in furniture etc."

A picture of the model bedroom - with furnished interiors - used by Provident Housing in their promotional material. The interiors may look expensive, however where the aspirations of buyers are involved, no one is taking a chance. Pic Credit: Provident Housing

Faster turnaround time in completing construction is another aspect of affordable houses. This is made possible by better technology and saves the carrying cost. Technology is also used to cut down on manpower, saving cost of labour.

Many affordable housing projects are coming up in Kanakapura, Doddballapur, Hosur and Hennur Roads. "There is a decent market for the mid-size affordable houses," says Irshad Ahmed, President of Bangalore Realtor Association India (BRAI). 

While price is an important concern, location, facilities and the brand of the builder seems to be other concerns of buyers. V Karunan, who plans to buy an affordable house, says, "Time taken to commute to work is most important, so are facilities. There are many options for two BHK houses priced at Rs 25-30 lakh in the outskirts, for instance in Hosur Road. But facilities like swimming pool and gym seem to exist just for namesake."

Overcoming recession

For the builders, affordable housing segment has been a way to overcome the impacts of recession. At the beginning of the housing boom in 2002-03, premium apartments were priced at Rs 30-40 lakhs, which almost doubled due to excess demand - both real and artificial - to Rs 80 lakh by 2006-07.

For builders, affordable housing segment has been a way to overcome the impacts of recession. Prices came down steeply due to excess supply, coupled with recession in 2008, so that many premium houses could not even be sold.

"By 2008, the supply had exceeded demand, buyers had lot of choice and prices fell to 55-65 lakhs. This, coupled with the economic recession that followed, affected the market so heavily that builders who had profit margins of 50-100 per cent could not even get the thumb rule profit of 25-30 per cent. There were no buyers for many finished apartments," says Prakash. The price could not fall any further because while land was getting scarce, it was developing as well.

Hence builders turned to land in outskirts that they had already acquired at low costs anticipating development of the area and high demand in the future. They began construction in these areas at lower costs to attract buyers, which led to the beginning of the affordable housing market, says Prakash.

Nitesh Estates, Hiranandani, DLF, Mahavir, Paras, Ozone and Edifice are some builders in the 25-40 lakh segment. BM Muthanna, Deputy General Manager (Marketing) at Ozone Group, says, "Our first affordable housing project Ozone Evergreen located off Sarjapur Road was launched in January 2009. Though the initial response was slow, by April 2009 the market started picking up and now all flats have been sold. We could sell at affordable rates because we had acquired the land at low costs much earlier."

Ozone's 2 BHKs measure 908 sq ft and starts from Rs 28 lakh, while 3 BHKs measure 1206 sq ft and costs Rs 35-38 lakh. Ozone is now planning the second phase of the Sarjapur project as well as another project called Urbana in Devanahalli. Further projects will be planned after market analysis, considering the demand.

While real estate agents say that most consumers buy affordable houses for their own use, there are many who buy them as investment as well. Smitha Abraham, a resident of Indira Nagar who bought a house at Hoskote for Rs 28 lakhs, says, "Currently the house is an investment for us. We are renting it out as it is difficult to commute to work everyday from Hoskote."  Smitha works as copy editor in a publishing company.

Houses for all

For non-profit organization Ashoka, bringing about economic inclusion of low-income groups is the driving factor behind constructing affordable houses. Established in the US in 1980 and then in India in 1981, this international NGO has identified housing, water, energy and healthcare as the key areas that require infrastructure improvement all over the world. Ashoka is known for its awarding of fellowships to social entrepreneurs around the world. "In India, scarcity of land is the main problem that limits accessibility to housing. It is estimated that India has a requirement of 26 million houses in the low income segment," says Vishnu Swaminathan, Director of Ashoka's Housing for All project.

While Ashoka has successfully launched 3000 houses each in Ahmedabad and Pune, it has just entered the market in Bangalore and Chennai where it plans to launch 5000 houses each. Most of the houses in the Ahmedabad and Pune projects have already been sold.

In the projects, Ashoka brings together builders, NGOs, architects and finance providers together. Government funding is not involved. NGOs identify the right low-income buyers and ensure monthly re-payment of loans, and get paid by the builders and finance providers in turn. Though the profits are relatively low for the builders (15-25 per cent), so is the risk of non-repayment of loans, says Vishnu.

The architects ensure that key facilities for water requirement, garbage disposal are accommodated and that space optimization is done in the flats, whose area ranges from 250 square feet to 550 square feet. The houses will be eco-friendly as well. While the basic single room-kitchen flat is priced at 4-6 lakhs, 1 BHK and 2 BHK flats are priced at 6-8 lakhs and 8-12 lakhs respectively. The specifications are lower - fewer electrical points, internal plumbing etc - but quality is not compromised, says Vishnu. The designs were developed after a survey among 5000 households in the target group.

Ashoka has just entered the below-10 lakh housing market in Bangalore and Chennai where it plans to launch 5000 houses each for low income groups.

GRUH Finance, HUDCO (Housing And Urban Development Corporation Ltd), DHFL (Dewan Housing Finance Limited) and Mahindra Housing are some of the finance providers who are collaborating with Ashoka.

In Bangalore, the NGO LabourNet is working with the developer Jyothi Builders for the project. Jyothi Builders has acquired a 15-acre plot plot in Ramamurthy Nagar and is in the process of identifying two more plots. The Ramamurthy Nagar plot is being planned to accommodate 1500-2000 houses. The apartments will be 4-storeyed and the 2 BHKs might have elevators. A Jayakumar, CEO of Jyothi Builders, says, "We are planning to start more projects in this segment across India. The market is huge and there are only a few players."

"The main factors we consider are commercial viability of the model, low price and identifying the right buyers. Currently the demand for low cost housing is huge in urban areas," says Vishnu. The organisation hopes that once the model is established as viable, big builders will also enter this segment. The idea is to create communities in a sustainable environment with the essential facilities so that they do not have to go back to slums as happens many times with houses allotted by the government, Vishnu says. To encourage stakeholders to come together on their own, Ashoka plans to launch an online platform and also a pilot housing project in each state.

Janaadhar Constructions Ltd - launched by Ramesh Ramanathan who runs the NGO Janaagraha - and Value and Budget Housing Corp. (VBHC) promoted by entrepreneurs Jaithirth Rao and P S Jayakumar, are two other players in this segment. Both companies are planning to launch below-10 lakh houses in Attibele.

Future of Affordable Housing

Realtors think that while affordable housing helps developers get good returns and counter the aftereffects of recession, middle class consumers may be losing out in the bargain if the locations are remote and facilities are scarce. More builders might come in the below-25 lakh category houses if government promotes them through tax cuts and incentives, opines Prakash of Sana Group.

For now, most builders are keeping their fingers crossed, hoping to start more projects depending on the demand in the next few years.