Homing in on value

The middle class, is looking for lower prices, if market response is anything to go by. And in a market like Bangalore, where jobs are on a shaky ground, it is the affordable segment which seems to be going strong. With banks also kicking in special interest rates, the revived interest in the housing sector, particularly the sub-Rs 30-lakh category, was apparent at the recent realty expo held by the Confederation of Real Estate Developers’ Association of India (CREDAI), Karnataka.

The two-day exposition brought together 32 leading property developers and housing financial institutions under one roof offering homes at competitive prices. The properties on display were not only from Bangalore, but also from Mysore, Chennai, Hyderabad, Pune, Goa and Kochi. There were 18,000 apartments on offer.

‘Time to buy’


According to Mr Kamal Sagar, Chairman, CREDAI Realty Expo, real estate prices in Bangalore from reputed developers are still lower than equivalent locations in Chennai and Hyderabad.

“This is the best time to pick up a good property in Bangalore. The builders have decided to work on thin margins and even the financial institutions have reduced the home loan interest rates by 0.5 per cent to attract buyers.”

The trend is tilted towards the sub-Rs 30 lakh segment. Bangalore has seen the launch of quite a few projects in this segment with more reputed builders wanting to enter the fray.

Real estate consulting firm Knight Frank’s recent research estimates that the middle-income population in Bangalore needs 3.27 lakh housing units by 2011, at an average unit size of 800 sq ft. “About 80 per cent of the total middle-income housing requirement falls in the Rs 3-5 lakh income segment.” And it is this sizeable pie that the developer community is vying for now.

For instance, Provident Housing, a subsidiary of Puravankara Projects, which is involved in the affordable housing segment, launched Provident Welworth City with 3,360 apartments in Bangalore last month. Prices start at Rs 14.90 lakh for two-bedroom apartments and Rs 18.90 lakh for three-bedroom. “We opened bookings for 1,000 apartments three weeks ago, and 50 per cent have been booked (cheques received so far),” said Mr Jayakar Jerome, IAS, Managing Director, Provident Housing.

Middle income group


At the CREDAI realty expo, Provident Housing saw about 500 walk-ins, and 20 cheques were received.

Similarly, CSC Constructions, launched three projects in the Rs 4-19 lakh range in Bangalore — at Attibele near Electronics City, Devanahalli, and Sarjapur Road — a few months ago. According to Mr Abhinand Patil, General Manager - Sales and Marketing, CSC Group response to the projects has been good.

In the last two months, CSC Group has sold 80 units across projects. “We will be re-launching the Devanahalli project in about 45 days, but with a slight hike in prices,” said Mr Patil.

CSC Group has plans to launch homes in the Rs 1.5 lakh - Rs 3.5 lakh price category, but the unit sizes would be about 200 sq.ft, and the location would be “pretty far away from the city,” said Mr Patil.

In fact, the company plans to come out with such projects in Bangalore, Hyderabad and Mumbai, with each project comprising 1,000-1,200 units. According to Ms Kalpana Murthy, Regional Manager, Residential Services, at real estate services firm Cushman & Wakefield, “Majority of urban households across India, including Bangalore, earn less than Rs 5 lakh per annum and hence, their affordability is for houses below Rs 20 lakh. The inherent demand from this segment has always been there by the sheer virtue of their numbers and this unmet demand would without doubt constitute the largest segment in the city today,”

Banks provide booster


Banks have pitched in with attractive rates just at the right time. Mr Albert Tauro, Chairman and Managing Director, Vijaya Bank, said the affordable home segment has seen a robust growth in the April-June quarter in comparison with the January-March quarter of 2009. “There has been more than 50 per cent growth in the sub-Rs 20 lakh category of home loans in the June period compared to March,” he said. In the higher bracket, Rs 40-50 lakh loans, the growth has not been robust, he added.

According to Mr Sreenivas Rao, Area Manager, LIC Housing Finance, which took part in the CREDAI Realty Expo, “It is at the right time that we have reduced our rates in August. The fixed rate category will be at 8.9 per cent for three years for loans up to Rs 75 lakh, whereas the floating rate is 8.75 per cent up to Rs 35 lakh and 9.5 per cent for loans between Rs 30 lakh and Rs 70 lakh.”

Also, the stamp duty rate for sale transactions of new apartments in Karnataka which has come down from 7.5 per cent to 6 per cent seems to be working well with buyers.

Mr Irfan Razack, Chairman and Managing Director, Prestige Group, which is evaluating houses in the Rs 12-25 lakh range says, “We must get land at reasonable prices. Obviously, the size of the unit will reduce.

“We can’t go high rise — the houses will be spread horizontally and they will be in the outskirts of Bangalore, at least 30 km from the city. But we will provide the same ambience as in other residential projects.”

‘Affordability’ defined


The debate is on as to how one defines affordability and by what yardstick. While low-cost housing is primarily targeted at the lower income group (households having annual income of less than Rs 1.5 lakh), affordable housing is for all income categories.

According to the Knight Frank report, “The affordability of a household in a given location is an interactive outcome of the house price, household income, spending and saving behaviour and other demographic factors such as household size. Definition of affordable housing is a challenge for real estate players.”

HDFC says 5.1 times annual income is the maximum affordability of a household. For instance, for a household with an annual income of Rs 3 lakh, an affordable house would cost Rs 15 lakh.

According to Ernst and Young survey ‘Realty Pulse 2008’, developers believe that considering the city, location and product offering, the price of an affordable house ranges between Rs 10 lakh and Rs 25 lakh.