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Understanding The Drivers
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table of contents
1. Executive Summary. . . . . . . . . . . . . . . . . . . . . . 1
2. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. National Capital Region (NCR) . . . . . . . . . . . . . . 6
4. Mumbai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5. Pune. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6. Bengaluru. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7. Chennai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8. Hyderabad . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9. Kolkata . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
10. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Q2 2009
Affordable
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Understanding The Drivers

executive summary
Knight Frank Research presents its study on 'Affordable Housing' for
the Indian middle class (household income Rs.3-10 lakh per annum) in
the 7 cities of Mumbai, National Capital Region (NCR), Chennai,
Bengaluru, Hyderabad, Kolkata and Pune. The research encapsulates
the requirements and expectations of prospective buyers through a
comprehensive survey of 1400 households, and provides the industry's
view through discussions with builders, government development
agencies and financial institutions. The report covers analysis on
prospective buyer's preferences, actual affordability, supply
perspective, stakeholder challenges and housing need assessment.
The following are the key highlights of the findings of the report:
• Households in the income groups of Rs.3-10 lakh has turned overly
cautious after the economic crisis which set in during the first half
2008. While the affordability calculated by Knight Frank research is
higher than their own perception of affordability, the uncertain
economic environment, job losses and tight credit conditions have
adversely impacted their willingness to spend on a house property.
• The housing requirement for the Rs.3-10 lakh income group across
the 7 cities is approximately 2.06 million housing units by 2011, which
assuming an average household size of 800 sq.ft. translates to a
requirement of 1,650 million sq.ft. of residential space. Assuming a
price of Rs.2,000/sq.ft., which is par for the demand being catered to,
this total space requirement translates to a market size of
approximately Rs.3,300 billion, or USD 66 billion.
• Higher cost of living and lifestyle has adversely impacted the
affordability of households in Mumbai and Bengaluru compared to
cities like Kolkata and Hyderabad. For instance, middle class
households in Kolkata, Chennai and Hyderabad can afford houses
valued at Rs.14-45 lakh, whereas households of a similar stature in
Mumbai can afford houses valued at Rs.12-38 lakh.
• The primary deterrent in providing affordable housing in cities is the
high land cost involved in developing such projects. While the
construction cost has increased marginally in the last few years, the
land cost in contrast has gone up several times.

• The research findings indicate that 'good connectivity to frequently
travelled places', conforming primarily to work places, is the most
important factor influencing buyers' decision in selecting the location
of their residence. This is followed by 'good infrastructure' and 'good
potential for future development' as the other important influential
factors.
• Although a number of affordable housing projects have been
announced in the seven cities studied, most of them are located in the
distant suburbs which do not have the adequate social infrastructure
in order to support residential settlement. These issues would have to
be addressed with utmost importance for the proper development and
successful implementation of affordable housing.

• While most modern residential projects offer a number of amenities,

the most preferred ones that play a vital role in choosing a project over
another are basic amenities like 'uninterrupted water supply', 'power
backup' and 'high level security systems'.

• Given the apartment size preference across income groups in the

cities studied, most of the prime residential locations prove to be
unaffordable for the Rs.3-10 lakh income group. However, a balance
can be brought about if there is some amount of conciliation from both
the developers and the buyers' sides. Reduced expectations on the
end user's side and readiness for price negotiation on the developer's
front can lead to meeting the housing demand in the mid-income
segment to a large extent.

• While the unit size preference amongst most households is

550-1200 sq.ft., many of the so-called affordable projects are offering
apartments with area of 1200 sq.ft. and beyond. In such cases even
though a project is affordable on the basis of rate per sq.ft. as
calculated by Knight Frank research, the larger size of the apartments
make them unaffordable.

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KnightFrank.com

INtroduction Low cost housing generally refers to cost effective housing that relies
on 'low cost technology' that ensures similar quality and durability as
compared to more commonly used technologies. In India, low cost
From 2005 till the first half of 2008, the Indian real estate sector
housing is primarily aimed at Economically Weaker Sections (EWS) and
enjoyed almost three years of boom and unprecedented growth.
Low Income Groups (LIG), and the intervention and involvement of
During this period, demand for various asset classes remained
government authorities is likely to be prominent. As per the latest
buoyant, leading to a sharp rise in real estate prices. Simultaneously,
available literatures1, households having an annual income of less
supply across certain asset classes like the commercial and luxury
than Rs.1.5 lakh are termed as LIG, and hence, households belonging
residential sectors also increased markedly.
to EWS will be further down in terms of income classification. The
In a country like India, which comprises a population of over 1 billion, a concept of affordable housing, in contrast to that of low cost housing,
key concern among policymakers is catering to the pressing is applicable across all income categories. The affordability of a
requirement for housing. In order for this to happen, a convergence of household in a given location is an interactive outcome of the house
house prices and household incomes is essential. The growth in price, household income, spending and saving behavior and other
household incomes, which soared during the boom as GDP growth demographic factors like size of the household. It is recognized that
rose to 9%, still lagged behind the growth in property prices during the affordability is relative to geographical area, time and income
same period. Till the first half of 2008, end-users were very insistent on category. Thus, defining affordable housing continues to be a
purchasing houses. Easy credit availability and rising income levels challenge for major players of the real estate sector in India.
resulted in higher aspirations that were well beyond the means and
actual affordability of many individuals. This led to a continuous flow Some Affordability Definitions
of transactions for developers and a spiraling of house prices.
1) In many developed countries like the US, a frequently used norm for
According to the National Housing Bank (NHB)) Residex, which is the
affordability is a residential unit costing 30% or less of a household's
only housing market index in the country, house prices have registered
gross annual income. Recently, research by a US non-profit body that
a year-on-year rise of 20-40% in cities like Mumbai, Delhi and Kolkata
looks at housing issues concluded that an affordable house should be
between 2007 and 2008.
defined as one that costs about three years' salary, assuming 10%
During the second half of 2008, the onset of the economic slowdown down payment on the house and 28% of the salary going towards the
led both buyers as well as developers to sit up and take stock of the mortgage payment.
real estate scenario. In the residential sector, end-users became
2) The Housing Development Finance Corporation Limited (HDFC), the
apprehensive about taking up long term loan obligations due to job
largest lender in the housing loan market in India, considers 5.1 times
market uncertainties. Moreover, they adopted a 'wait and watch' policy
annual income as the maximum affordability of a household. In other
to take advantage of consistent price declines. On the supply side,
words, for a household earning Rs.3 lakh a year, an affordable house
developers became concerned about increasingly limited funding
should cost at most Rs.15 lakh. The report of the High Level Task Force
options and a substantial decline in aggregate demand. To mitigate
under the chairmanship of Mr. Deepak Parekh, Chairman of HDFC,
the adverse consequences of this declining demand, developers
delves into the various aspects of providing affordable housing and
started showing a keen interest in asset classes that are yet to be
has recommended a similar definition of affordability.
tapped into. While several developers are evolving their product
portfolios to focus more on healthcare infrastructure, integrated
townships, logistics and warehousing and education infrastructure, Although household
the market for affordable housing is attracting great attention.
income had a dream
What is 'affordable housing' and 'low run with the GDP
cost housing'? growth crossing 9%,
Affordable housing and low cost housing are the most talked about
issues in the real estate sector these days. However, there is a distinct
it still lagged behind
difference between the two concepts. In the absence of an institutional
rental market in India, affordable and low cost housing denotes
the growth in
ownership and not rental housing. property values
1
The Next Urban Frontier: Twenty Cities to Watch, National Council of Applied Economic Research and Future Capital Research, 2008. This publication has categorized households as Low Income
Group (LIG), Aspirants, Middle Income Group (MIG) and High Income Group (HIG).

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Affordable
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Understanding The Drivers

3) Ernst & Young Survey Realty Pulse, 2008, has assessed the concept This strategy will help tackle the housing problem through a more
of affordable housing taking into account the views of more than 100 comprehensive strategy that is both well managed and efficient.
developers and institutional investors in India. The survey results have However, MIG categories with an annual income of more than Rs.3 lakh
brought to the fore the realistic price points that Indian developers but not exceeding Rs.10 lakh have relatively different expectations and
attach to affordable housing. A majority of developers believe that preferences as compared to the EWS and LIG.
depending on city, location and product offering, the price of an
In view of the above, Knight Frank research has attempted to identify a
affordable house should range between Rs.10 lakh and Rs.25 lakh.
suitable price band for the affordable housing product for the MIG
Further, a large number of developers have opined that there has to be
segment (households in the annual income bracket of Rs.3 lakh to
a differentiation between low cost/EWS housing and affordable
Rs.10 lakh) residing in seven cities, viz., Mumbai, National Capital
housing.
Region (NCR), Chennai, Kolkata, Bangalore, Hyderabad and Pune.
Even though there is no concurrence on any standard affordability This research report includes demand side assessment and analysis
norm, the fact that there is a pressing need to identify the affordability and an overview of the supply side perspective. It should be noted that
of various income groups in different cities is acknowledged by major our demand side assessment does not cover certain segments of the
stakeholders in India's real estate industry. Given that between 1991 mid-income group whose housing decisions are dependent on several
and 2001, 79% of the new jobs were generated in urban areas, and the other factors besides affordability. Examples of such consumers are
urban population in India is growing at a brisk pace, the focus of those who are provided housing accommodation by their respective
affordable housing is expected to be more urban centric. companies, as well as those who are residing in township
developments next to IT parks and SEZs who may prefer proximity to
work.
Which income groups should be the
focus of the affordability analysis? although the MIG is
The changing role of the government from that of a provider to a technically
facilitator of housing has been well documented in various National
Housing Policies. As a consequence of this changing role, the share of considered as
public investment in housing in total investment in the economy has
declined significantly over the last couple of Plan Periods. However, financially secure,
with regard to the EWS and LIG groups, the government has continued
to act as a provider of houses either directly or in joint venture with
this segment has
private developers. This initiative has formed an important part of the
state and central governments' social and political mandates. The
borne the major
problem with the government's stance is that it left the households
belonging to the MIG and the HIG categories exposed to market forces,
brunt of the widening
and a majority of private developers targeted upper MIG and HIG gap between growth
consumers due to their high purchasing power and the profit margins
attainable. Hence, although the MIG is technically considered as in real income and
financially secure, this segment has borne the major brunt of the
widening gap between growth in real income and spiraling house spiraling house prices,
prices, particularly in the metros and the mini-metros where the
general cost of living is high and the cosmopolitan lifestyle leads to a particularly in the
higher propensity to spend.
metros and the mini-
While there is an ongoing debate relating to the inadequacy of the
number of projects that are initiated or implemented relative to the metros
large number of households belonging to EWS and LIG categories,
currently, both at the central and state government levels, various
schemes are in operation. These schemes focus on providing
affordable housing to the urban poor and improving the affordability of
the economically weaker sections of society through proper capital or
interest subsidies.

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KnightFrank.com
Approach
Sample Selection
In order to capture the demand perspective, Knight Frank research
conducted a field survey of sample MIG households in the seven cities
in collaboration with a market research company. It is assumed that a
majority of tenant households in the annual income category of
Rs.3 lakh to Rs.10 lakh have the end-user motive for purchasing a
house, and a very small proportion of the owner households in this
income category residing in metros and mini-metros can afford to own
a second house. Hence, it is inferred that tenant households would
constitute the majority of prospective home buyers in the Rs.3-10 lakh
income category, and the sample households for the purpose of the
survey were all selected from tenant households.
Across the seven cities, 1400 households in total were surveyed based
on a structured questionnaire. Based on Knight Frank's market
knowledge, locations in each city were selected in such a way so as to
predominantly feature MIG households. Lists of panel households in
these locations were procured from the market research company, and
the final selection of households to be surveyed was made based on
the following criteria:
• All selected households had to be in the annual income category of
Rs.3-10 lakh.
• The households needed to be tenant households, but not tenant
households whose tenancy fell within the regulations of the Rent
Control Act.
• All respondents/decision-makers had to be up to 50 years of age.
• All respondents/decision-makers had to have a strong intention of
purchasing a house within the next 2 yrs.
• Households fulfilling the above criteria were included in the sample
to be surveyed. It should be mentioned at the outset that the sample
has not been extrapolated with any coefficient to cover the population.
Hence, results obtained depict only the behavior of the sample.
However, efforts have been made to make the sample as
representative of the universe as possible.
Survey Framework
The major focus of the survey of prospective buyers was to capture
their budgets, willingness to pay for a house and preferences
pertaining to locations, projects and amenities within such projects.
In addition to this, the survey also touched upon the spending and
saving behavior of households, a factor that ultimately can hugely
impact purchasing power and decisions.
Besides the household survey, Knight Frank research also carried out
primary surveys of other major stakeholders in the housing sector,
namely developers, bankers and government authorities, in order to
understand the supply side dynamics. These surveys were also
intended to gauge the industry's opinion on the scope, emerging
opportunities and constraints with respect to affordable housing
across the seven cities. Based on discussions with various developers,
some of the key aspects of affordable housing market dynamics,
specifically pertaining to location of the project, property
specifications, cost of construction, amenities provided and price,
were identified. A number of bottlenecks faced by developers also
came to light, viz. high land cost, external and internal development
charges payable to the government, permissible ground coverage and
restrictive density norms.
The survey focussed
on the prospective
buyers’ income,
spending and saving
behaviour, their
preferences and
willingness to pay for
a house
Senior officials of public and private banks were also interviewed in
order to understand the demand dynamics witnessed by the home loan
sector in the past few years. The bankers admitted that demand for
home loans, which peaked from mid 2006 to late 2007, became
sluggish with the onset of the economic difficulties at the start of
2008. The market for construction loans has also lost momentum in
recent times. Government authorities and officials from the housing
board in different cities were also interviewed in order to learn more
about the government's initiatives and support in building a successful
affordable housing model. The roles and structures of regulatory
bodies have been discussed in detail in this report.
Identifying Affordability
Even though the concept of affordable housing has gained immense
prominence in the Indian real estate scenario, not much literature that
defines the boundaries of affordability is available. Knight Frank
research has taken a comprehensive approach to estimate the
maximum affordability of MIG households.
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Understanding The Drivers
The identification of affordability, given buyers' incomes and spending
and saving patterns, is a critical aspect of this report.
While the household surveys directly obtained data pertaining to the
income, expenditure and savings patterns of the households across
different income categories in Mumbai, NCR, Chennai, Kolkata,
Bangalore, Hyderabad and Pune, the maximum amount that
households can commit to purchasing a house has been derived using
certain norms. These norms, calculated from the survey findings, are
aimed at identifying the different heads of routine and non-routine
expenditure that households could forego to fund the purchase of a
house. It should be noted though that due to the size and prevalence
of the 'parallel economy' in India, the income and expenditure
disclosures of households might not be entirely reflective of their
actual purchasing power.
Cutting back on certain discretionary expenses could enhance the
affordability of households. It must be noted that this enhanced
affordability calculated is the maximum amount that an average
household can commit towards buying a house without exerting
unbearable strain on its finances. The survey results indicate that there
is a willingness among tenant households to slash expenses in order
to back house purchase decisions. Certain routine expenses, examples
being those on durables, clothing and transport, and non routine
expenses, examples being those on leisure travel, ceremonies and
entertainment, can be contained and diverted to support the purchase
of a house. Hence, the maximum amount that an average household
can pay towards buying a house has been estimated assuming an
interest rate of 9% fixed for a 20-year tenure and an 85% loan to value
ratio. While the future earning potential of a buyer would assist in
obtaining a housing loan, the 15% of the property value not funded by
lending institutions is assumed to constitute accumulated savings or
other informal sources of funding from friends and relatives.
Need Assessment
As this report is based on the premise that affordable housing is the
need of the hour in India, Knight Frank research formulated an
accounting model to forecast the requirement for such housing
amongst consumers in the Rs.3-10 lakh annual income category in the
seven cities covered in this report. The model is based on the
assumption that the housing requirement comprises existing tenant
households that wish to own a home as well as fresh owner
households, the quantities of which have been projected until 2011
based on Indicus 2007 Housing Skyline Data. Firstly, 2007 population
data for each city was used to project population for each year until
2011 using population growth rate data.
Based on average number of people per household, a figure that was
obtained from household surveys conducted, the population data for
05
each city was used to project total number of households. Using norms
regarding the percentage of total households in the Rs.3-10 lakh
income category and the percentage of rental and owner households in
total households, owner and rental households in the Rs.3-10 lakh
income category was forecasted until 2011.
The number of tenanted households in the Rs.3-10 lakh category for
each year was discounted to reflect the percentage of such households
who per the household survey did not express an interest in owning a
home in the near future. The resulting figure denotes the requirement
for housing from tenanted households, and to this figure was added
the requirement constituted by the incremental number of owner
households each year.
The congestion factor also has to be taken into account, and to this
extent our model incorporated the potential requirement emanating
from owner households with greater than 6 members. The final
requirement figure arrived at for each year simply denotes the housing
requirement assuming that desire translates to concrete demand in the
time periods covered. It must be noted that the extent to which this
assumption proves accurate depends largely on individual purchase
timelines that are determined by a wide variety of factors that for
practical purposes cannot be incorporated into our model.
This report concludes with a comparison of affordability and
preferences of MIG households across the seven cities. This
comparison brought to light certain pitfalls and challenges to the
development of affordable housing that need to be addressed. At the
same time, there is an air of apprehension regarding the 'affordability'
of projects promoted as affordable housing.
While buyers are slowly re-entering the market with the introduction of
smaller housing units at reasonable prices, certain sections of the
industry believe that affordable housing has to be able to cut across all
income segments and must make economic sense in terms of
proximity to buyers' work destinations. Affordable housing
development requires a coordinated public-private collaboration. It
remains to be seen how far the expectations of both the buyer and the
developer, regarding their own definitions of affordable housing, are
met in the forthcoming months.
Note
1 million = 10 lakh
LIG = Low Income Group
MIG = Middle Income Group
HIG = Higher Income Group
BHK = Bedroom, Hall, Kitchen
EMI = Equated Monthly Instalment
KnightFrank.com

NATIONAL CAPITAL REGION (NCR)

City Overview
The National Capital Region (NCR) spreads across an area of 33,578 sq.km, covering the states of Haryana,
Rajasthan, Uttar Pradesh and the National Capital Territory of Delhi. The concept of formation of the NCR was
introduced in the master plan of 1962. The aim of the concept was to develop a metropolitan area around
Delhi, so as to divert increasing pressure of population from the region. The concept was essential in order to
protect Delhi's infrastructure from excessive pressure and for a planned development of the region.

For the past 2-3 decades the focus of the regional authorities has been an integrated growth of the region by
means of a well developed and wide spread network of road, rail and air infrastructure. Connectivity to the
region has been strengthened by means of the national highways leading to the region. The NH 2, NH 8 & NH
24 form the core of Inter-State road connectivity, supported by a well planned network of expressways. The
partly operational and fast growing network of the Delhi Metro project is the most rapid and cost effective
means of communication within the region. Presence of a strong socio-economic infrastructure is an added
advantage to the region. A perfect mix of public and private owned school & colleges and professional
institutes provide the talent pool required in the fast growing industrial and services sectors in the NCR.
Sectors like the IT/ITeS, Automobile, Telecommunications, Medicine, Banking and Finance are the main
economic drivers.

In the last decade the Indian GDP has grown with a CAGR of about 7.8% per annum. Healthy economic
conditions have lead to an employment growth rate of 4.80% per annum in the NCR. A diversified talent pool
of professionals and a high literacy rate of about 79% have been the prime reasons behind employment
growth in the NCR. The average per capita income for NCR is around Rs.60,000 per annum.

Ever since the year 2000, Gurgaon and Noida have witnessed substantial growth as these regions were
identified by global companies, as suitable locations, to set up operational base in northern India. This
growth is mainly attributed to the off-shoring business, including high-end technology consulting, call
centers and software businesses. Ghaziabad and Faridabad on the other hand have predominantly been the
industrial town within the NCR. It has always been the manufacturing sector which has been the economic
driver for these locations. But in recent times, with the growing volume of retail business in NCR, a number of
national developers have explored Ghaziabad and Faridabad for retail developments. High-end
multi-brand malls, supported by a kitty of standalone stores and high street markets, have strengthened the
retail base in the region.
Figure 1
Demand Perspective
Distribution of Sample Households According to
Buyer Profile Type of Occupation
The survey of tenant households, who are considered to be the most
potential buyers of residential property, has revealed certain
household characteristics. It has been observed that 83% of the
sample households are nuclear in nature with the rest belonging to the Salaried Govt - 13%
Salaried Private - 70%
joint family type. The average household size is 3.86. Another issue
Self employed (business) - 11%
worth mentioning is that a quarter of the respondents are females and
Self employed professional - 6%
it highlights active participation of females in the decision making (doctor, lawyer, CA)
process of house purchase. Among the households surveyed, 51%
represents the migratory population of the region. Of this, nearly 89%
of the households have migrated to the NCR for jobs and about 11%
after their marriage. The average number of years for which a migrant Source: Knight Frank Research
household has been living in the region is about 5 years.

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Understanding The Drivers

As far as the type of occupation is concerned, majority (70%) of the Buyer Preferences
households are salaried in the private sector. Since the study is
restricted to households having total annual income in the range of A prospective buyer's purchase decision is influenced by a host of

Rs.3 lakh and Rs.10 lakh, the sample is distributed across this income factors ranging from price points to location. Due to the growing

category. At a disaggregated income level, 54% of the households awareness among consumers, choice of facilities and amenities are

have reported to have an annual household income in the range of also found to be important determinants.

Rs.3 lakh to Rs.6 lakh and the rest between Rs.6 lakh to Rs.10 lakh.
To start with, the survey has gauged the budgets of households who
Figure 2 are willing to purchase a house in near future. In addition, the survey
Distribution of Sample Households According to has also brought out the factors influencing preferences of potential
Total Annual Income buyers pertaining to locations, projects and amenities within the
projects.

In the NCR, the average budget of the buyers varies between Rs.19 lakh
and Rs.31 lakh. It is observed that the budget has increased with
Rs. 3-5 lakh - 33%
higher income households. The average budget of a household in the
Rs. 5-6 lakh - 21%
Rs. 6-8 lakh - 19% annual income range of Rs.5-6 lakh is around 21% higher than a
Rs. 8-10 lakh - 27% household in the income range of Rs.3-5 lakh. Similarly, the average
budget of a household in the income range of Rs.8-10 lakh is found to
be approximately 15% higher than a household falling within the
income range of Rs.6-8 lakh. It can also be observed that annual
Source: Knight Frank Research household income has a bearing on the household's preference for a
specific apartment size. A higher household income translates into a
The survey findings reveal that, on an average, tenant households are
higher house budget, which, in turn, leads to the choice of a bigger
staying in their current residence for the last two and a half years.
apartment size.
Majority of the households are residing in 2 BHK type of
accommodation irrespective of the income category. The average size Table 3
Average Preferred Budget and Size
of a 1 BHK flat is around 550 sq.ft. and it commands a monthly rental of
Annual Income Average Budget Average Preferred
around Rs.7000/month. The size and monthly rentals of 2 BHK and
(Rs. lakh) Size (sq.ft.)
independent houses are very similar in the NCR. However, the highest
Rs. 3-5 lakh 19 713
monthly rental is prevalent in a 3 BHK flat which has an average size of
Rs. 5-6 lakh 24 733
a little over 1000 sq.ft.
Rs. 6-8 lakh 27 810
Table 1
Rs. 8-10 lakh 31 955
Percentage Distribution of Current Residence Type
Based on Annual Income Source: Knight Frank Research

Annual Income 1 BHK 2 BHK 3 BHK Independent As far as the factors influencing choice of location are concerned, it is
Rs. 3-5 lakh 26% 68% 5% 0% observed that 'good connectivity to frequently travelled places' has
Rs. 5-6 lakh 11% 84% 5% 0% emerged as the most crucial factor followed by 'good potential for
Rs. 6-8 lakh 18% 70% 12% 0% development'.
Rs. 8-10 lakh 22% 52% 22% 4% Figure 3
Source: Knight Frank Research Factors Influencing Preference for Location
Good connectivity to frequently
Table 2 43%
travelled places
Current Residence Type W.R.T
Average Size and Rentals Good potential for development 34%
Current Residence type Average Size Average Rental
(sq.ft.) (Rs./month) Good infrastructure 15%

1 BHK 545 7,043 Presence of social circle

7%
(friends, relatives)
2 BHK 696 9,678
3 BHK 1,045 13,947 Favourable demographics 1%

Independent house 713 9,750 0% 10% 20% 30% 40% 50%

Source: Knight Frank Research Source: Knight Frank Research Percentage of Responses

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KnightFrank.com

Keeping in mind the factors influencing choice of locations, buyers in
the NCR perceive Noida, Ghaziabad and Gurgaon as the most favoured
ones. In the Noida Greater Noida Expressway, sectors 93 (A and B), 105,
119, 137 and 151 have been identified as the most preferred locations.
Similarly, the potential buyers have expressed strong willingness to
consider locations near NH 8, Sushant Lok (II and III), extended Golf
Course Road and Sohna Road in Gurgaon. In addition to good
connectivity, Noida and Gurgaon have the advantage of commercial
attractiveness which is guiding the households towards these
locations. Ghaziabad has also been considered as an important
location for house purchase. The stretches of Indirapuram, Vasundhara
and Vaishali which are very close to sector 62 the emerging
commercial hub in Noida, have emerged as important locations where
potential buyers have expressed their preferences to buy a house.
Though property rates in Faridabad and Greater Noida are lower as
high level of security and power backup as a part of the project.
Finishing of apartment/flat is also considered to be moderately
important. Amenities like a gymnasium/spa, swimming pool and club
house are not given adequate preference. It may be inferred that the
households are more keen in getting good basic amenities than
aspiring for premium amenities like swimming pool and club house.
Figure 4
Preferred Amenities within a Residential Project
Un-interrupted water supply
High level of security systems
Power Back-up
Finishing
GymnasiumSpa
Swimming pool

compared to Noida or Gurgaon, the buyers have serious issues Interior fixtures

pertaining to connectivity and infrastructure facilities of these Club house

locations. Multipurpose hall

Modular Kitchen
The present study has captured the factors which influence the Servant quarters
decision of a buyer in the selection of residential projects in a preferred
Creche
location. The respondents have rated a set of factors on a scale of 1 to 0 50 100 150 200
4 (4 being the most important and 1 the least). Based on the ratings, No. of Responses
mean scores are generated for each factor and the one with the highest Source: Knight Frank Research
mean score have been identified as the most important factor and
ranked 1.
Supply Perspective
Un-interrupted power supply, water supply and safety and security are
The NCR residential market has witnessed sizeable development over
the top three important factors influencing a buyer's decision with
the past 2-3 years. Since 2006, housing demand in the region was
respect to residential project in a preferred location. Apartment price
largely seen to be tilted towards the premium and luxury segment. A
and accommodation size are also considered to be important. The
higher rate of appreciation in property prices and easing of credit
potential buyers are not much concerned about developers' brand and
conditions eventually led to the growth in speculative trend. As a result,
goodwill.
prices soared to unaffordable levels, thereby reducing the buying
capacity of the MIG segment across the NCR.
Table 4
Factors Influencing Choice of Residential Project
Around mid 2008, the impact of the global economic recession took its
Factors Rank
effect on the Indian economy, ensuing a setback to the real estate
Un-interrupted power supply 1
sector as well. Consequently, the NCR residential market witnessed a
Water supply 2
sharp decline in demand for housing and after a brief stagnation
Safety & security 3
period, a decline in the prices as well. The rapidly flagging property
Price 4
prices led the investors to pull out of the market. The market dynamics
Apartment size 5 thus brought attention to the segment where genuine end-user
Facilities available 6 demand existed. However, mismatch on the product and price front
Developer goodwill 7 restricted the demand in the segment from being fulfilled.
Disturbance caused by traffic/noise/congestion 8
Knight Frank research team carried out primary surveys across major
Source: Knight Frank Research
stakeholders in the sector comprising of developers, bankers and
Regarding amenities of a residential project, it is clearly evident from government authorities to understand the supply dynamics.
the survey result that a prospective buyer in the NCR would want the
developer to provide basic amenities like un-interrupted water supply,

08
Q2 2009
Affordable
housing
Understanding The Drivers

It was observed that most of the developers in the NCR witnessed a affordable housing project. These amenities do not make a huge
decline in their product enquires as well as conversion rates in the past difference in the cost of construction, as the total cost of such services
8-10 months. Market enquiries, on an average, have gone down by gets distributed among a large number of units.
about 25-30%, while the conversion rate (i.e. actual demand) has
4. Price of the product - As per the developers, given the earning
declined by about 50%. Job insecurity among the potential buyers has
propensity of households within NCR, a product that can be sold within
drastically reduced their confidence to enter into a long term fixed
the range of Rs.1600-2200/sq.ft., can be classified as affordable in the
financial obligation. Moreover, end users have become more cautious
NCR.
in judging the “value for money” and as a result the purchase
decisions are deferred and they have adopted a “wait and watch
While majority of developers have evinced interest to construct
policy” with the expectation of house prices to fall further in near future.
projects of affordable nature in the NCR, certain bottle necks have been
observed in the implementation of such plans:
Of late, identifying the latent demand in the mid-income segment,
developers have sensed a volume driven opportunity in initiating
1. Land cost across the NCR market is quite high. As land is a major
affordable housing projects across various locations in the NCR.
component of the cost of the property, it is difficult for the developers
Following are some of the key take-aways on the affordable housing
to provide apartments in the price range of Rs.1600-2200/sq.ft. On the
market, based on the discussion with the developers:
other hand, land cost in the peripheral locations of the NCR is quite low
and suitable for affordable housing projects. But the public transport
1. Location of the project - The developers feel that any location which
system is not efficient enough in terms of connecting such locations to
is in the radius of 30-35 kms from the CBD can be considered feasible
the CBD regions, hence restricting the developers to explore such
for affordable housing projects. According to them, the following
locations for affordable housing projects.
locations are preferred for affordable housing projects:

2. Also, developers have to pay external and internal development

a. Haryana
charges to the government. The External development charges (EDCs)
i. Gurgaon Sectors 37 C&D, new planned sectors 56 and beyond.
are basically imposed on the developer by the government for
ii. NH-8, Manesar
providing basic social amenities like colony roads, sewerage system,
iii. Bhiwadi
street lights and common play grounds. Internal development charges
iv. Dharuhera
(IDCs), on the other hand, are a kind of bank guarantee that a
v. Kundli and Rohtak road.
developer has to keep with the government. In a residential project a
vi. Faridabad, new planned locations between sectors 70 to 88.
developer is responsible for providing basic social infrastructure within
b. Uttar Pradesh (UP) the project premises. If the developer fails to do so, the regional
i. Noida Greater Noida express highway, sectors 93 A/B, 119, 151 and authorities use the IDC funds to carry out internal development activity.
beyond These costs are transferred on to the end user by the developer. These
ii. Ghaziabad Mohan Nagar, Vasundhara, Vaishali, Indirapuram, Raj costs can go as high as Rs.350-400/sq.ft. Transaction cost and stamp
Nagar and NH-24 duty on land registration is also quite high. Stamp duty in Haryana is
iii. Greater Noida All residential zones. around 8%, in UP is around 10% and in Delhi it is about 6%.

c. Delhi 3. Permissible ground coverage and restrictive density norms

i. GT Karnal Road applicable for the NCR do not allow the developer to fully utilise the
ii. Dwarka Najafgarh road project FSI.

2. Property Specifications - It has been observed in the NCR market,
that developers have opted for adaptable value engineering in order to
alter product specifications. Use of load bearing structures, standard
flooring patterns like vitrified tiles and use of distemper paints instead
of Plaster of Paris, can bring down the input cost considerably and at
the same time make the product more affordable for the end user.
3. Amenities provided - The developers feel that provisioning of
amenities like power backup, uninterrupted water supply, 24 hrs
security, in-house clubs, gyms and swimming pool are important in an
Within the NCR, there are four active regulatory bodies, viz., the Delhi
Development Authority (DDA) in Delhi, Haryana Urban Development
Authority (HUDA) in Haryana, the New Okhla Industrial Development
Authority (NOIDA) for Noida and Greater Noida regions and the
Ghaziabad Development Authority (GDA). Though primary and
facilitating initiatives for housing developments are undertaken by
these authorities in their respective regions, none of the regulatory
bodies are working in collaboration with private developers in a PPP
model.

09
KnightFrank.com

Development models for both the DDA and HUDA are similar. These
authorities work as autonomous bodies in their respective regions
under the guidelines of the central and the state governments. DDA
and HUDA acquire agricultural land from farmers and the landlords and
with the aid of their internal engineering team carry out the housing
development activity. Any construction activity carried out by either of
the authorities is part of an approved planned development. DDA or
HUDA also carry out joint development activity with co-operative
societies. In this particular format, DDA or HUDA allocates land to a
particular co-operative society on the basis of a lottery, and facilitates
the society in carrying out construction activity.
The structural layout plan of the project is decided by the internal
engineering team and the sale price of the project is also decided by
the internal pricing team. There is a clause associated to this joint
development activity, which states that the co-operative society will be
awarded the land, “if and only if” the members of the society will use
the developed housing units for their own use. Awardees are awarded
a particular housing unit on a perpetual lease of 99 years.
parcel for group housing development. The authority is also planning
to enter into a PPP model with private developers, but currently it is
into a planning phase and no such efforts have been implemented.
Senior officials in the authority feel that with a PPP model in place,
marketability of their projects will improve. Besides, involvement of a
private player in the development model may help to improve and
modernise the project specifications. On the home loan front, bankers
have pointed out that demand for home loans was at its peak from mid
2006 to late 2007 in the NCR. Higher number of enquires led to a high
conversion ratio. The year 2008 has witnessed sluggishness in the
home loan sector. As per the industry statistics, home loan enquires
have dropped considerably and the conversion rate is almost 30% of
what it was in 2006-07.
The market for construction loans has also lost pace in recent times.
Banks have become cautious and are showing reluctance to provide
construction loans to the developers. At present, a multi level
screening of the developer is carried out before a construction loan is
approved.

The Noida authority facilitates the private developer in carrying out

residential development in the region. Land is allocated to a private
developer through a bidding process. Pricing bids are invited from the
developers, and the one with the maximum bid is awarded the land

Table 5
Select Affordable Housing Projects in NCR
Sr.No Project Name Developer Location May '09 Rate (Rs./sq.ft.) Unit Size Range (sq.ft.)
1 Omaxe Height Omaxe Ltd Sec 86,Faridabad 1,900 1,165-1,475
2 Omaxe New Height Omaxe Ltd Sec 78,Faridabad 1,720 850-1,350
3 Era Divine Court Era Group Sec 76,Faridabad 1,792 890-1,225
4 Redwood Residency Era Group Sec 78,Faridabad 1,900 1,150-1,470
5 Princess Park BPTP Ltd Sec 86,Faridabad 2,250 1,289-1,835
6 Park Floors II BPTP Ltd Sec 78, Faridabad 2,050 1,170-1,414
7 Imperial Estate SPR Buildtech Sec 82, Faridabad 1,950 1,881
8 ILD Spire Green ILD Group Sec 37C, Gurgaon 2,222 1,208-2,510
9 Park Serene BPTP Ltd Sec 37D, Gurgaon 2,250 1,488-2,450
10 Era Divine Era Group Sec-68, Gurgaon 2,550 1,290-1,700
11 Tulip Orange Tulip Group Sec-69/70, Gurgaon 2,200 1,137
12 Purvanchal Heights Purvanchal Construction Zeta – 1, Greater Noida 2,350 1,830-2,770
13 Jaypee Aman Jaypee Group Sec 151, Noida 2,100 850-1,320
14 Mahagun Mascot Mahagun Pvt.Ltd NH 24, Ghaziabad 2,070 1,100-1,890
15 River Heights Landcraft Developers Nh 58, Raj Nagar Ext, Ghaziabad 1,794 965-1,750
16 Mahagunpuram Mahagun Group NH 24, Ghaziabad 1,725 900-1,300
17 GulmoharTower SVP Group Sec-6, Ghaziabad 1,990 1,260-1,560
18 Grand Savana KDP Group Nh 58, Raj Nagar Ext, Ghaziabad 1,900 825-1,550
19 Camellia Garden M-Tech Developers On NH-8, Alwar Road 1,890 1,200-1,900
20 Ashiana Aangan Ashiana group On NH-8, Alwar road 2,100 1,200-1,520

Source: Knight Frank Research

10
Q2 2009
Affordable
housing
Understanding The Drivers

property with an average price of Rs.2300/sq.ft., the same enabled the

Identifying Affordability
NCR revealed a number of interesting facts during the household
survey carried out in order to ascertain the affordability of the various
income groups at city level. Table 6 depicts in detail the maximum
affordable EMI of households in various income levels. This EMI has
been estimated from the annual income of household and its spending
and saving behavior. The maximum EMI has been translated into
affordable house property value based on an assumed interest rate,
loan tenure and loan to value ratio. The table also shows the capital
values that the households will have to pay keeping in view the
preferred house size and the affordable house property value. An
interesting point that was inferred from the survey results was that the
income groups of Rs.3-5 lakh and Rs.5-6 lakh preferred similar sized
units for their housing needs. Both the income categories expressed
the area of their residential units in the range of 700-800 sq.ft.
However, while this allows the lower income group to purchase a
higher income group of Rs.5-6 lakh to opt for properties in the range of
Rs.2900-3650/sq.ft. Meanwhile, NCR, spanning a larger area with vast
land parcels available for residential development, provides varied
location options for the residents of the city to fulfill their housing
needs. The category of households with income of Rs.6 lakh and above
can afford residential units in select pockets of the newly developed
zones in Gurgaon, Noida as well as along NH-2 and NH-24. Though
these locations suit the budget preference of households, they are
located about 30 kms from the CBD area of Delhi i.e. Connaught Place.
For example residential locations in Gurgaon and Noida are atleast 30
kms from the CBD. Residential locations on NH 24, Ghaziabad and NH
2, Faridabad, are about 35 kms and 27 kms respectively from the CBD.
Meanwhile, if households, especially those in the income category of
Rs.3-5 Lakh, are willing to compromise on unit sizes, they will have
more options in terms of housing locations to choose from.

Table 6
Affordability in NCR
Household income (per annum) Rs. 3 lakh - 5 lakh Rs. 5 lakh - 6 lakh Rs. 6 lakh - 8 lakh Rs. 8 lakh - 10 lakh
Maximum EMI (Rs.) 11,000 - 15,000 16,000 - 21,000 19,000 - 24,000 28,000 - 30,000
Maximum loan eligibility (Rs.)
(9% interest rate, 20 year loan tenure) 12,17,000 - 16,50,000 17,74,000 - 23,38,000 20,90,000 - 26,84,000 30,88,000 - 33,00,000
Buyer's own contribution (Rs.)
(Assuming 85% loan) 2,15,000 - 2,91,000 3,13,000 - 4,12,000 3,69,000 - 4,74,000 5,45,000 - 5,83,000
Affordable house property value (Rs.) 14,32,000 - 19,40,000 20,87,000 - 27,50,000 24,60,000 - 31,58,000 36,33,000 - 38,84,000
Preferred size (sq.ft.) 700 - 800 700 - 800 750 - 850 900 - 1,000
Price (Rs./sq.ft.) 2,000 - 2,500 2,900 - 3,650 3,250 - 3,750 3,800 - 4,000

Locations available Gurgaon- Delhi- Delhi- Delhi-

considering preferred size Sushant Lok II & III, Rohini/Pitampura Rohini/Pitampura Rohini/Pitampura
and few residential areas Extd Golf Course Road, Gurgaon- Gurgaon- Gurgaon-
Sohna Road, NH-8
Sushant Lok I, II, III, Sushant Lok I, II, III, Sushant Lok I, II, III,
Ghaziabad - Golf Course Road, Golf Course Road, Golf Course Road,
Indirapuram Sectors 52/ 56/58/61, Sectors 52/ 56/58/61, Sectors 52/ 56/58/61,
Vaishali Extd Golf Course Road, Extd Golf Course Road, Extd Golf Course Road,
Vasundhara, NH-24 Sohna Road, NH-8 Sohna Road, NH-8 Sohna Road, NH-8
Noida- Ghaziabad- Ghaziabad- Ghaziabad-
Sectors 93 A & B, Mohan Nagar Mohan Nagar Mohan Nagar
Sectors 119, 137, 151 Raj Nagar Raj Nagar Raj Nagar
Faridabad- Kavi Nagar, Indirapuram Kavi Nagar, Indirapuram Kavi Nagar, Indirapuram
Vaishali/Vasundhara Vaishali/Vasundhara Vaishali/Vasundhara
Sectors 70-88
NH-24 NH-24 NH-24
Greater Noida
Noida- Noida- Noida-
Sectors 93 A & B Sectors 93 A & B Sectors 50, 61, 62, 63,
Sectors 119, 137, 151 Sectors 119, 137, 151 Sectors 71, 82
Faridabad- Faridabad- Sectors 93 A & B
Sectors 119, 137, 151
Suraj Kund, Suraj Kund,
Sectors 70-88 Sectors 70-88 Faridabad-
NH-2 NH-2 Suraj Kund,
Greater Noida Greater Noida Sectors 70-88
NH-2
Greater Noida
Source: Knight Frank Research

11
KnightFrank.com

Table 7 illustrates this fact based on the willingness of the buyer to compromise on the size of the residential unit:
Table 7
Size Preference in NCR- Min-700 sq.ft. Max-1000 sq.ft.
Not Affordable
Affordable House Property in NCR- Min 14.32 lakh Max 38.84 lakh
Locations May '09 Rates Max Size (in sq.ft.) & Total Property Value (in Rs.lakh)
(in Rs./sq.ft.)
500 600 700 800 900 1000 1100 1200
sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft.
Greater Kailash I&II/ Min 11,000 55.0 66.0 77.0 88.0 99.0 110.0 121.0 132.0
New Friends Colony Max 15,000 75.0 90.0 105.0 120.0 135.0 150.0 165.0 180.0
Min 4,150 20.8 24.9 29.1 33.2 37.3 41.5 45.7 49.8
Janakpuri
Max 7,000 35.0 42.0 49.0 56.0 63.0 70.0 77.0 84.0
Min 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Dwarka
Max 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
Rohini/Pitampura
Max 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
Min 3,350 16.8 20.1 23.5 26.8 30.2 33.5 36.9 40.2
Gurgaon-Sushant Lok 1
Max 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0
Min 2,400 12.0 14.4 16.8 19.2 21.6 24.0 26.4 28.8
Gurgaon-Sushant Lok II & III
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Gurgaon-Golf Course Road - Min 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Sectors 52/ 56/58 and 61 Max 7,200 36.0 43.2 50.4 57.6 64.8 72.0 79.2 86.4
Gurgaon-Extended Golf Min 2,100 10.5 12.6 14.7 16.8 18.9 21.0 23.1 25.2
Course Road/Sohna Road Max 3,800 19.0 22.8 26.6 30.4 34.2 38.0 41.8 45.6
Min 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Gurgoan-DLF Phase 1-4
Max 7,000 35.0 42.0 49.0 56.0 63.0 70.0 77.0 84.0
Min 2,100 10.5 12.6 14.7 16.8 18.9 21.0 23.1 25.2
Gurgaon-Near NH-8
Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Old Ghaziabad-Mohan Nagar/ Min 2,800 14.0 16.8 19.6 22.4 25.2 28.0 30.8 33.6
Raj Nagar/Kavi nagar Max 4,500 22.5 27.0 31.5 36.0 40.5 45.0 49.5 54.0
Min 2,200 11.0 13.2 15.4 17.6 19.8 22.0 24.2 26.4
Indirapuram-Ghaziabad
Max 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
Min 2,000 10.0 12.0 14.0 16.0 18.0 20.0 22.0 24.0
Vaishali/Vasundhara-Ghaziabad
Max 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
Min 1,900 9.5 11.4 13.3 15.2 17.1 19.0 20.9 22.8
NH-24 Ghaziabad
Max 2,400 12.0 14.4 16.8 19.2 21.6 24.0 26.4 28.8
Min 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Old Faridabad 15, 16, 17,21
Max 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
Min 3,400 17.0 20.4 23.8 27.2 30.6 34.0 37.4 40.8
Faridabad-Suraj kund
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Min 1,800 9.0 10.8 12.6 14.4 16.2 18.0 19.8 21.6
Faridabad (Sectors 70-88)
Max 2,400 12.0 14.4 16.8 19.2 21.6 24.0 26.4 28.8
Min 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
NH-2 Faridabad
Max 4,200 21.0 25.2 29.4 33.6 37.8 42.0 46.2 50.4
Noida-Sectors 93 A & B, Min 2,100 10.5 12.6 14.7 16.8 18.9 21.0 23.1 25.2
119, 137, 151 Max 4,200 21.0 25.2 29.4 33.6 37.8 42.0 46.2 50.4
Noida-Sectors - 50, 61, 62, 63, Min 3,800 19.0 22.8 26.6 30.4 34.2 38.0 41.8 45.6
71, 82 Max 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
Min 1,700 8.5 10.2 11.9 13.6 15.3 17.0 18.7 20.4
Greater Noida
Max 2,600 13.0 15.6 18.2 20.8 23.4 26.0 28.6 31.2
Source: Knight Frank Research

12
Q2 2009
Affordable
housing
Understanding The Drivers
As is apparent from Table 7, assuming lower unit sizes, most of the
locations fall within the affordability of the various income groups.
Evidently, locations like Greater Noida, Faridabad (sectors 70-88), NH
24 and Indirapuram are affordable for all income segments without any
need for compromise on apartment size. However, upmarket locations
like Greater Kailash I & II and New Friends Colony, with residential
values in the range of Rs.11000-15000/sq.ft., continue to remain
beyond the reach of the mid-income segment of the NCR. Also, the
upper limit of capital values in select locations in Delhi (Janakpuri,
Dwarka and Rohini), Noida (sectors 50, 61, 62, 63, 71, 82),Gurgaon
(Sushant Lok 1, DLF Phase 1-4 and Golf Course Road) and old Faridabad
are too expensive for most of the respondents even if compromises on
unit sizes are made. While the average budget expressed by the
income groups remained within their calculated affordability, the only
anomaly observed was in case of the higher income group of Rs.8-10
lakh. As per the calculated affordable house value, a household within
this income category can opt for a property between Rs.36.3-38.8 lakh.
However, the survey revealed that respondents from this income
category preferred to have a much lower average budget of only Rs.31
lakh for buying a housey.
City Outlook
The National Capital Region (NCR), which consists of New Delhi,
Gurgaon, Greater Noida, Ghaziabad and Faridabad, represents a
diverse set of locations which vary in levels of development. The region
comprises a population of approximately 22 mn. that is growing at
approximately 4.4% per annum, with Greater Noida, Gurgaon,
Ghaziabad and Faridabad being the major contributors to this growth.
This is reflective of the relatively recent development of these locations
as compared to Delhi. Figure 5 specifies the housing requirement for
the middle income segment in the NCR region in 2009, 2010 and 2011.
Figure 5
Total Housing Unit Requirement for Rs. 3-10 lakh
Income Category
560,000
5,47,434
550,000
540,000
530,000
5,24,380
520,000
510,000
5,02,298
500,000
490,000
480,000
470,000
2011
2009
2010
Previous Years’ Cumulative Requirement Incremental Requirement
Source: Knight Frank Research
13
Knight Frank research estimates that the middle income population in
the NCR region will require approximately 5.50 lakh housing units by
2011, which assuming an average unit size of 800 sq.ft. translates to
approximately 438 mn.sq.ft. of residential space. Approximately 70%
of this total middle income housing requirement will be accounted for
by the Rs.3-5 lakh income segment. In order for this requirement to be
converted to demand, the Rs.3-5 lakh income category would have to
be targeted with houses in the price range of Rs.14-19 lakh. A very
important consideration in assessing the demand for houses in the
middle income segment is the consumers' purchase timelines, as even
if 100% of the requirement translates to demand, how this demand
pans out depends on when consumers are willing to incur the financial
burden of purchasing a house. Figure 6 details the preferred purchase
timelines of rental households surveyed.
Figure 6
Household Purchase Timelines
0-6 months - 5%
6-12 months - 29%
1-2 years - 66%
Source: Knight Frank Research
About one third of prospective buyers are seeking to purchase a house
within the next year, with the remaining two thirds preferring to
purchase anytime up until the first quarter of 2011. The stalling of
residential projects in the NCR region has rendered middle income
consumers apprehensive about project completion, and consequently,
these consumers are now looking at purchasing only completed units.
This factor has delayed purchase decisions by prospective buyers.
Certain pockets in Sushant Lok I, II & III, extended Golf Course Road,
Sohna Road and locations near NH-8 are prime affordable housing
areas in the city. Indirapuram Vaishali and Vasundhara in Ghaziabad
and sector 70-88 of Faridabad also represent prominent affordable
locations. However, established housing locations in the NCR are
plagued by a lack of socioeconomic infrastructure and basic utility
services. Gurgaon, for example, faces a problem of power outages.
Ghaziabad and Faridabad lack basic amenities like regular water and
power supply, and are bereft of adequate healthcare services like
quality hospitals and nursing homes. In addition, a lack of proper
governance and public security initiatives in these areas has resulted
in safety concerns among potential home buyers. Greater Noida is
plagued by a lack of physical Infrastructure. A network of roads is still
under development and accessibility to upcoming residential locations
is limited. It is evident that even if prices are aligned with consumers'
preferences, the limitations detailed above hinder housing demand in
the aforementioned locations.
KnightFrank.com

mumbai
City Overview
The commercial capital of India, Mumbai is one of the fastest growing cities in the country. The city comprises
an archipelago of seven islands amalgamated with the northern lands to form down town South Mumbai,
North Mumbai with suburbs Navi Mumbai and Thane. Being well connected to key global cities makes
Mumbai a gateway to India. Besides port related trade activities, Mumbai has also been the entertainment
capital of India. Important financial institutions like the Reserve Bank of India, the Bombay Stock Exchange,
the National Stock Exchange and the headquarters of many Indian corporates including a number of FMCG
corporates are located here. It is also an important location for multi-national companies entering the Indian
market.

Over the years, the residential demand shifted from South Mumbai to North Mumbai on account of the fresh
supply and comparatively lesser capital values. Further, developments like widening of the Mumbai-Pune
highway has led to extensive development along this corridor. This also led to the development of various
locations across Navi Mumbai. The expansion of the IT/ITES and BPO sector in the city, increase in double
income families, disposable income of general workforce, easy availability of home loans, etc. collectively
thereby lent optimism to the Mumbai real estate market. While most of the earlier developments provided
just the basic amenities, newer ones had a large amount of added features where the buyer aspired for a
higher level of luxury, be it in the heart of the city or in the suburbs of Mumbai.

The high-end residential market is concentrated in South Mumbai locations, viz. Malabar Hill, Napeansea
Road, Cuffe Parade, Altamont Road and Central Mumbai locations of Prabhadevi and Worli. Suburban
locations of Bandra, Khar, Santacruz, Juhu and Versova are sought after residential locations due to excellent
social infrastructure and their proximity to the airports and the suburban business districts of Bandra Kurla
Complex, Andheri and Powai-Vikhroli. Other western suburban locations of Goregaon, Malad, Kandivali and
central suburban locations of Powai, Ghatkopar, Bhandup and Mulund have witnessed large scale
developments in the residential sector. A noticeable trend among many developers is the creation of entire
townships in areas with availability of vast stretches of land. Locations like Thane, Vasai and Virar have seen
the development of many such townships.

Figure 7
Demand Perspective
Distribution of Sample Households According to
Buyer Profile Type of Occupation
The potential buyers reveal various household characteristics giving
us an indication about the demographic profile of the residents of
Mumbai. The people who belong originally to the city comprise 43% of
the sample. Of the 57% who are not originally from Mumbai, a startling Salaried Govt - 4%
Salaried Private - 90%
93% have shifted to the city for job purposes. 72% of the migratory
Self employed (business) - 3%
population have been residing in Mumbai for a period of 1-5 years and
Self employed professional - 3%
wish to purchase a house here. Considering the diversity of the (doctor, lawyer, CA)
existing population and influence created by the variety of
multinational companies, people of the city have been experiencing a
culture transition over the years. While only a small percentage of the
respondents belonged to the joint family structure, around 79% were Source: Knight Frank Research

nuclear type families with an average household size of 3-4 members.

14
Q2 2009
Affordable
housing
Understanding The Drivers

In terms of occupation roughly 90% of the respondents from Mumbai Buyer Preferences
belong to the salaried private sector, while 3% each are self employed
in business and professional sector. The respondents engaged with It is observed that though price and size are important determinants

government offices formed around 4% of the total. The survey being when making a purchase decision, other factors corresponding to the

restricted to the middle income households within the bracket of changing city dynamics and individual preference based on evolving

Rs.3-10 lakh annual income, the entire sample is distributed within this lifestyles also have an impact on the final choice.

income group. As such, the income category of Rs.3-6 lakh constitutes

While most tenant household currently reside in housing units of sizes
a large portion of these respondents.
varying from 560-1,000 sq.ft., it is observed that the average minimum
Figure 8 size preferred is not less than 751 sq.ft. when making a purchase
Distribution of Sample Households According to decision. It is also noticed that budget preference correspondingly
Total Annual Income changes with varying income levels.

The average budget of Rs.3-5 lakh is Rs.17 lakh , while that of a

Rs.8-10 lakh household is Rs.25 lakh. However, in the Rs.6-8 lakh
income category, it is noticed that the average preferred size reduces
Rs. 3-5 lakh - 45%
Rs. 5-6 lakh - 25% marginally while there is an increase in budget in comparison to the
Rs. 6-8 lakh - 21% previous income bracket. Individuals may compromise on size so as to
Rs. 8-10 lakh - 9% accommodate other luxuries within a property or move closer to city
centre locations.

Table 10
Source: Knight Frank Research Average Preferred Budget and Size
Annual Income Average Budget Average Preferred
On an average, approximately 32% of the interviewed respondents
(Rs. lakh) Size (sq.ft.)
have been residing in their current residence for the past 2-3 years
Rs. 3-5 lakh 17 834
while 30% have been there for 1-2 years. It is observed that in the
Rs. 5-6 lakh 18 868
Rs.3-5 lakh income category around 63% reside in 1 BHK apartments
Rs. 6-8 lakh 20 751
with an average size of 560 sq.ft. , while in the Rs.8-10 lakh income
Rs. 8-10 lakh 25 875
bracket, 71% reside in 3 BHK apartments with an average size of 1,000
Source: Knight Frank Research
sq.ft. It is also witnessed that the average monthly rentals vary from
Rs.6,200- 8,600 per month for 1 BHK and 2 BHK apartments.
It is observed that connectivity to frequently travelled places and good
Table 8 infrastructure are the two key factors that drive the demand for a
Percentage Distribution of Current Residence Type
project in terms of location. The potential for development is the next
Based on Annual Income
important factor. On the other hand, presence of social circle and
Annual Income 1 BHK 2 BHK 3 BHK
favourable demographics hold the least weightage for the decision of
Rs. 3-5 lakh 63% 36% 1%
potential buyers in Mumbai.
Rs. 5-6 lakh 41% 59% 0%
Rs. 6-8 lakh 52% 45% 3%
Figure 9
Rs. 8-10 lakh 29% 71% 0%
Factors Influencing Preference for Location
Source: Knight Frank Research
Good connectivity to frequently
40%
travelled places
Table 9
Current Residence Type W.R.T Good infrastructure 34%
Average Size and Rentals
Good potential for development 20%
Current Residence type Average Size Average Rental
(sq.ft.) (Rs./month) Presence of social circle
6%
1 BHK 560 6,267 (friends, relatives)

2 BHK 852 8,595 Favourable demographics 1%

3 BHK 1,000 10,250
0% 10% 20% 30% 40% 50%
Source: Knight Frank Research Source: Knight Frank Research Percentage of Responses

15
KnightFrank.com

A majority of respondents were interested in purchasing affordable During the course of the survey the respondents were asked to mention
houses in Thane and Navi Mumbai , primarily in Kharghar. Since, Navi the amenities that they would like to have in the residential projects
Mumbai is a relatively newly developed location, people in the city that they would finally choose. The survey results reveal that
would be keen to purchase a house there due to its good connectivity uninterrupted water supply is of prime importance, while high level
to Pune via the Mumbai-Pune expressway. Besides this, infrastructure security systems and power- backup are the other two factors that
developments along these corridors are extremely good and with the received significant responses. It is observed that though general
new airport that has been recently sanctioned, the potential for further safety and security does not rate very high regarding influencing the
development has increased significantly. In the western suburbs, choice of a project, high level security systems within that project are a
locations like Vasai, Mira Road, Virar, Dahisar, Borivali, Kandivali and preference. Finishing is the last factor that received a considerable
Naigoan were most prefrerred. Of these, Kandivali, Borivali and number of responses while the other amenities acquire much lower
Dahisar are considered to be within city limits, while Mira Road, preference levels. This would indicate that people in this city
Naigaon, Vasai and Virar are in the outskirts of the western suburbs. irrespective of income category are interested mainly in the basic
Land costs in these outskirt locations are relatively cheap, hence amenities when looking at purchasing an apartment. Uninterrupted
although road connectivity is not that developed, these locations water supply is of prime importance, while high level security systems
would still be preferred for those households that are unwilling to and power- backup are the other 2 factors that receive significant
compromise on the size given a lower budget. Locations like Kandivali , responses.
Borivali and Dahisar have comparatively higher costs but their Figure 10
proximity to the western suburban locations of Andheri and Bandra
Preferred Amenities within a Residential Project
would make them more preferred for those individuals that frequent
Un-interrupted water supply
these locations. In the central suburbs Powai and Dombivali were the
High level of security systems
preferred locations.
Power Back-up
The present study has captured the factors which influence the
Finishing
decision of a buyer in the selection of residential projects in a preferred
Gymnasium/Spa
location. Respondents have rated a set of factors on a scale of 1 to 4
Swimming pool
(4 being the most important and 1 the least). Based on the ratings,
mean scores are generated for each factor and the one with the highest Interior fixtures
mean score has been identified as the most important factor and Modular Kitchen
ranked 1. Creche
Others
Water supply, uninterrupted power supply and price are the top three
Servant quarters
factors that influence the choice for a residential project in a given
0 20 40 60 80 100 120 140 160
location. Appartment size and facilities available are the next two
No. of Responses
important determinants, while safety & security, developer goodwill
Source: Knight Frank Research
and disturbance caused by noise/traffic and congestion were of the
least importance.
Supply Perspective
Table 11
Factors Influencing Choice of Residential Project Mumbai, in the last few years, witnessed the development of a number
Factors Rank of high-end residential complexes. The suburbs and extended suburbs
Water supply 1 continued to absorb the demand emanating from the land-strapped
Un-interrupted power supply 2 Island city, with residents opting to take advantage of lower costs and

Price 3 newer large-scale residential developments here. Of late, factors like

global economic turmoil, rising interest rates and spiralling
Apartment home size 4
construction costs proving to be deterrents to many aspiring
Facilities available 4
homebuyers, real estate developers are changing their strategies to
Safety & security 6
keep their business afloat. As a recent measure, they have been
Developer goodwill 7
shifting their focus to developing affordable housing projects or on
Disturbance caused by traffic/noise/congestion 8
attracting high-end customers, who mostly buy cash down or with
Source: Knight Frank Research
limited amount of borrowing.

16
Q2 2009
Affordable
housing
Understanding The Drivers

Knight Frank research team carried out primary surveys across major
stakeholders in the sector comprising developers, bankers and
government authorities to understand the supply dynamics. Following
are some of major opinions and apprehensions of the developers
regarding affordable housing in Mumbai:
1. Income - According to most developers, demand is constant
irrespective of income as everyone would like to own a house, and
even those who own a house would wish to upgrade their residence
with the progression of time.
The maximum demand however would come from the lower MIG and
mid MIG segment as most households in these categories currently do
not own a house due to the prevalent high residential rates, but would
be aspiring for one. Though the RBI has reduced interest rates for loans
upto Rs.20 lakh, in the opinion of the developers, it would not help
much as correspondingly there should be units available in that
affordable range.

Table 12
Select Affordable Housing Projects in Mumbai
Sr.No Project Name Developer Location May '09 Rate* (Rs./sq.ft.) Unit Size Range (sq.ft.)
1 Garden View Apartments Royal Palms Goregaon (E) 4,800 483-1,259
2 Acme Amrut Acme Group Dahisar (E) 3,000 657-795
3 Orchid Ozone DB Realty Dahisar (W) 3,168 574-882
4 Lodha Aqua Lodha Group Dahisar (E) 3,800 616-2,232
5 Viceroy Park Tower B Vijay Associates Dahisar (W) 4,950 778-958
(Wadhwa) Developers
6 NG Shelter RNA Builders (NG) Mira Road 2,750 629-996
7 Gardenia Akruti City Mira Road 3,000 585 -1,010*
8 Mittal Enclave Mittal Builders Naigaon (E) 2,000 370-770
9 Sigrun Splendour Sigrun Vasai (E) 2,200 543-1,044
10 Virar Gardens Mayfair Housing Virar (W) 2,100* 370-510
11 Rustomjee Estate Rustomjee Virar (W) 1,660-2,054 523-604
12 Gokul Sapphire Agarwal Group Virar (W) 2,300 660-1,000
13 Viva Vrindavan Agarwal Group Virar (W) 2,050 885-1,100
14 Galaxy Apartment HDIL Kurla (E) 4,551 650-920
15 Rustomjee Rustomjee Thane (W) 3,960 780
Township-Atelier A Wing
16 Rustomjee Rustomjee Thane (W) 3,960-4,050 910
Township-Acura A & B Wing
17 Rustomjee Rustomjee Thane (W) 3,929 422-430
Township-Atelier E Wing
18 Dosti Vihar Dosti Group Thane (W) 4,241 837-1,212
19 Cosmos Lounge- Orchid Cosmos Builders Thane (W) 3,500 1,005-1,025
& Promoters Ltd.
20 Akruti Greenwoods Akruti Nirman Ltd. Thane (W) 3,900 565-990
21 Everest Countryside Everest Developers Thane (W) 2,780-3,140 587-831
22 Mittal Park Mittal Builders Thane (W) 3,500 880-2,100
23 Bhoomi Acres Bhoomi Group Thane (W) 3,500 625-925
24 Niharika Kanakia Builders Thane (W) 3,500 1,030-1,190

*These rates exclude significant floor rise additions *Rates charged on carpet area
Source: Knight Frank Research

17
KnightFrank.com
2. Price - Most of developers are also of the view that an affordable
housing project should pay focus on two factors - size of the unit
should depend on the budget. i.e. lower budget should equate with
smaller size, and price should be ideally 10-15% less than the prevalent
rates in similar locality within a radius of around 5 kms. While the cost
of construction can be reduced by decreasing the type of materials
used, one should ensure that although this is done, the developers do
not use inferior quality goods as this would create problems within a
shorter period.
3. Location - Currently the only locations where affordable housing
project can come up are in the distant suburbs where the cost of land
is relatively lower. Although these projects would sell as they are
within the budget of the middle income group, for a city like Mumbai it
will not drastically affect the mass. Though connectivity to locations
like Vashi, Virar, Thane etc. does exist, the time taken to reach these
locations would vary anywhere between an hour to two from the CBD
locations of south Mumbai where most individuals work. The second
factor is that this is cumbersome for those individuals in the service
industry with working erratic schedules, for instance, those in
hospitals, hotels, police and fire brigade services, etc.
4. Product Features - Most developers are of the opinion that, in
majority of the cases, individuals are not looking for high-end features
but ideally want to own a house with the basic amenities. In fact, most
of the times, people learn to live with some minor problems and take it
as a part of everyday life. For instance, in some of the peripheral
locations like Vasai, power cuts are quite frequent. However, people
generally invest in power back-up to compensate for those hours in
which the power cuts take place. Also another problem in the outskirts
is the lack of uninterrupted water supply. In those cases, a number of
societies get together to arrange tankers that provide water on a
weekly basis. The adequate size for an affordable housing unit should
ideally be compact, so that the cost of the apartment would reduce
even if land costs and construction costs are high. The following are
some of the unit sizes preferred by the developers for affordable
housing:
• 1 RK or 1 BHK = 450 sq.ft.
• 1 BHK = 600 sq.ft.
• 1.5 BHK = 700 sq.ft.
• 2 BHK = 800 sq.ft.
5. Availability of land - Developers do not mind coming up with
affordable projects within the city if they can avail of subsidised land
cost or a PPP model that encourages the development of such projects.
The present scenario is being viewed as being unfair by the developers.
According to them, while the government is creating an issue about the
developers catering only to the premium segment and how they are
making large efforts to bridge the gap between actual demand and
supply, they effectively make it impossible for developers to construct
these projects in locations within the city limits. Further, when the
government auctions land they put up only a small portion and offer
the same to at least 10 developers who drive up the price during the
bidding process. So, if they pay a premium price for the land, then they
would need to correspondingly increase prices of the product in order
to make even a marginal profit, which in turn would work out
unaffordable to the masses.
Though connectivity
to locations like
Vashi, Virar, Thane etc.
does exist, the time
taken to reach these
locations would vary
anywhere between an
hour to two from the
CBD locations of
south Mumbai where
most individuals work
6. Government Support - Currently there are no tax incentives that are
being offered to developers. There were some incentives offered a few
years back, but it was soon retracted as some developers tried to
misuse the same. Developers feel that some form of tax incentives are
definitely required in order to encourage the development of affordable
housing in the city. In order to make the system more effective, there
should also be the provision for strict penalty for those misusing the
tax policies.
7. Other constraints - The developers further note that in terms of
infrastructure, by building these projects in the outskirts, two
situations arise. One, it further burdens the existing modes and means
of transport as a large percentage of the residents would need to travel
out of the city, considering that the MIG and LIG segment constitutes
around 80% of the population of Mumbai.
Two, considering the time involved in such travel and the
corresponding extreme distances from the commercial hubs of the city,
many may not relocate.
18
Q2 2009
Affordable
housing
Understanding The Drivers

Among buyers in the lower MIG segment and LIG segment, there is a emphasis on Mumbai. Though MHADA primarily caters to the EWS and
higher probability of avoiding relocation as they would prefer to either LIG, of late, they have been including MIG also in the thrust areas.
rent or buy units that have been illegally constructed in order to stay
The plan is to increase its housing stock, not only through
within the city limits. This burdens the existing infrastructure, but in an
redevelopment of its old colonies. Recently, MHADA has ventured into
unorganised manner. Thus, if the government makes parcels of land
its most ambitious project ever to construct HIG flats in the plush
available within the city limits, utilising a PPP model is likely to benefit
localities of Versova, Oshiwara, Bandra, Dindoshi etc. Apart from the
the masses more.
MHADA Versova housing complex, MHADA plans to acquire lands in
Senior officials of public and private banks were also interviewed to Mulund, Vikhroli and other northeastern suburbs of Mumbai.
understand the demand dynamics witnessed by the home loan sector
The Government has granted MHADA buildings an FSI of 2.5 for both,
in the past few years. Bankers are of the opinions that demand for
new constructions and redevelopment in the suburbs, and an FSI of 4
home loans is a function of a combination of factors. Loan
for those in South Mumbai. To be eligible, applicants have to be Indian
disbursement criteria depend on the prevailing market conditions, rate
nationals, resident of Maharshtra for 15 years, fall under the prescribed
of interest on home loans and job security. Job security ensures that
monthly family income levels (Rs.12,000-20,000 for MIG and
the individual can service the EMI conveniently. In recent times, due to
Rs.20,000 plus for HIG) and not own a flat either in their own name or
the economic downturn, companies all across are downsizing their
their spouse's name in the relevant district. While 51% of the flats are
work force. This has had an adverse impact on the home loan demand.
allotted to the general public, 49% are for reserved categories.
According to the bankers, demand for home loans was at its peak from
mid 2006 to late 2007. High quantum of enquires led to a high
conversion ratio. The year 2008 has witnessed sluggishness in the
Bankers are also of
home loan sector. Enquiries had basically become non existent during the view that market
the months of September to early December 2008 in Mumbai.

The market for construction loan has also lost momentum in the last
revival is possible only
few months. Normally, a construction loan is provided for a period of by introducing the
3-5 years. Banks have become cautious and are showing reluctance in
providing construction loans to the developers. right product mix in
A few factors that are considered before approving a construction loan the market and by
are:
1. Category of the Builder (Grade A, B or C) catering to the
2. Ability to deliver the project on time
3. Financial stability actual end-user
4. Market reputation
5. Location and specifications of the project. The location of the project demand
should be part of a planned development

As per the bankers, the correction that the Mumbai residential market Identifying Affordability
has witnessed will prove healthy for the industry in the long run. They
The results of the household survey were used to compute affordability
feel that prices in the past were artificially inflated due to the
pertaining to various locations in the city. Table 13 depicts in detail the
speculative behaviour of the investors. With the correction in property
maximum affordable EMI of households of various income levels. This
prices, a perfect balance can be achieved in the market in terms of
EMI figure was arrived at by considering the respondents' stated
property specification and the right price. Bankers are also of the view
affordable EMI with regards to their saving and spending patterns. The
that market revival is possible only by introducing the right product
resulting figure was then translated into a house price based on an
mix in the market and by catering to the actual end-user demand.
assumed interest rate, loan tenure and loan to value ratio. The house
Government authorities and officials from Maharashtra Housing and price is then converted to a per sq.ft. rate assuming house size, and
Area Development Authority (MHADA) were also interviewed to learn this conversion facilitates comparisons with prevailing rates in
about the government's initiatives and support in making affordable different locations.
housing a successful model across Maharashtra, with particular

19
KnightFrank.com

Not surprisingly, given the exorbitant cost of land in Mumbai, the
financial hub of the country, the mid-income segment always had
difficulty in purchasing a residential property within the city. More so,
with the steep incline in residential prices in the last few years, owning
a housing unit in the city seemed a distant dream for the residents of
Mumbai. However, the recent years also witnessed the growth of the
extended suburbs like Vasai and Virar in the west as well as locations
in Navi Mumbai. The residential developments in these locations, due
to the distance factor, have lower prices, thus proving to be within the
affordability of the mid-income segment to purchase a home there. It is
evident from Table 13 that the size preference for the respondents
remains almost consistent in the range of 750-900 sq.ft. across all
income categories in the Rs.3-10 lakh income group. Given these size
preferences, the income category of Rs.3-5 lakh can afford to buy a
home only in locations like Naigaon, Vasai and Virar, which are around
15-25 kms away from the MCGM, while the households in the slightly
higher income category of Rs.5-6 lakh can additionally afford a home in
Kharghar at Navi Mumbai.
Thus, affordability is a serious consideration for the residents of the
city. With their size preference for 750-800 sq.ft. the households with
Table 13
Affordability in Mumbai
Household income (per annum) Rs. 3 lakh - 5 lakh
Maximum EMI (Rs.) 9,000-11,500
Maximum loan eligibility (Rs.)
(9% interest rate, 20 year loan tenure) 10,08,000-12,79,000
Buyer's own contribution (Rs.)
(Assuming 85% loan) 1,78,000-2,26,000
Affordable house property value (Rs.) 11,86,000-15,05,000
Preferred size (sq.ft.) 800-900
Price (Rs./sq.ft.) 1,500-1,600
annual income of Rs.6-8 lakh may not be able to stretch beyond a price
range of Rs.3,400-3,800/sq.ft., which is not available in most of the
prime residential locations. They can afford to buy residential property
only in pockets like Mira Road, Vasai, Virar, Naigaon, Navi Mumbai and
Thane. The higher income category of Rs.8-10 lakh can additionally
purchase property in the central suburban locations of Powai, Chembur,
Ghatkopar, and in western suburban locations of Borivali, Kandivali,
Goregaon and Malad. Thus, purchasing a house in the preferred
residential locations like Bandra, Khar and Andheri is not feasible for
the mid-income segment in Mumbai. Alternatively, the mid-income
group can own a house only if they are willing to compromise on their
size requirement and opt for a smaller unit. For instance, if a household
in the income category of Rs.6-8 lakh opts for a residential unit of
500 sq.ft. instead of the preferred 850 sq.ft., it can purchase a property
worth Rs.5,000/sq.ft. in locations like Andheri and Vile Parle, which are
some of the most preferred locations in the western suburbs. Similarly,
smaller unit configurations can lead to more options in locations
across the city's suburbs. This holds true for the other income groups
as well. This fact has been represented by the Table 14 that depicts the
locations which are affordable to a household wiling to compromise on
the unit size.
Rs. 5 lakh - 6 lakh Rs. 6 lakh - 8 lakh Rs. 8 lakh - 10 lakh
13,000-17,000 19,000-22,000 25,000-29,000
14,57,000-18,67,000 21,15,000-24,66,000 28,07,000-32,45,000
2,57,000-3,30,000 3,73,000-4,35,000 4,95,000-5,73,000
17,15,000-21,97,000 24,89,000-29,02,000 33,02,000-38,18,000
800-900 750-800 800-950
2,000-2,400 3,400-3,800 4,000-4,100

Locations available Extended Suburbs Extended Suburbs Western Suburbs Western Suburbs
considering preferred size Naigoan Naigoan Mira Road Mira Road
and few residential areas Vasai Vasai Extended Suburbs Goregaon
Virar Virar Naigaon Malad
Navi Mumbai Vasai Kandivali
Kharghar Virar Borivali
Navi Mumbai Extended Suburbs
Vashi Naigaon
Nerul Vasai
Airoli Virar
Kharghar
Navi Mumbai
Central Suburbs
Vashi
Thane
Nerul
Airoli
Kharghar
Central Suburbs
Powai
Chembur
Ghatkopar
Thane
Source: Knight Frank Research

20
Q2 2009
Affordable
housing
Understanding The Drivers

Table 14
Size Preference in Mumbai - Min-750 sq.ft. Max-950 sq.ft.
Not Affordable
Affordable House Property in Mumbai - Min 11.86 lakh Max 38.18 lakh
Locations May '09 Rates Max Size (in sq.ft.) & Total Property Value (in Rs.lakh)
(in Rs./sq.ft.)
500 600 700 800 900 1000 1100 1200
sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft.
Western Suburbs 1 Min 13,000 65.0 78.0 91.0 104.0 117.0 130.0 143.0 156.0
(Bandra W / Khar W / Santacruz W) Max 30,000 150.0 180.0 210.0 240.0 270.0 300.0 330.0 360.0
Western Suburbs 2 Min 7,000 35.0 42.0 49.0 56.0 63.0 70.0 77.0 84.0
(Bandra E / Khar E / Santacruz E) Max 12,000 60.0 72.0 84.0 96.0 108.0 120.0 132.0 144.0
Western Suburbs 3 Min 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0
(Vile Parle /Andheri /Jogeshwari ) Max 15,000 75.0 90.0 105.0 120.0 135.0 150.0 165.0 180.0
Western Suburbs 4 Min 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
(Goregaon / Malad/ Max 7,500 37.5 45.0 52.5 60.0 67.5 75.0 82.5 90.0
Kandivali, Borivali)
Western Suburbs 5 Min 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
(Mira Road) Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Extended Suburbs Min 1,400 7.0 8.4 9.8 11.2 12.6 14.0 15.4 16.8
(Naigoan , Vasai, Virar) Max 2,400 12.0 14.4 16.8 19.2 21.6 24.0 26.4 28.8
Navi Mumbai 1 Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
(Vashi) Max 5,500 27.5 33.0 38.5 44.0 49.5 55.0 60.5 66.0
Navi Mumbai 2 Min 2,700 13.5 16.2 18.9 21.6 24.3 27.0 29.7 32.4
(Nerul) Max 4,500 22.5 27.0 31.5 36.0 40.5 45.0 49.5 54.0
Navi Mumbai 3 Min 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
(Airoli) Max 3,750 18.8 22.5 26.3 30.0 33.8 37.5 41.3 45.0
Navi Mumbai 4 Min 2,000 10.0 12.0 14.0 16.0 18.0 20.0 22.0 24.0
(Kharghar) Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Central Suburbs1 Min 4,500 22.5 27.0 31.5 36.0 40.5 45.0 49.5 54.0
(Sion/Wadala) Max 8,500 42.5 51.0 59.5 68.0 76.5 85.0 93.5 102.0
Central Suburbs2 Min 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
(Powai/ Chembur/Ghatkopar) Max 9,000 45.0 54.0 63.0 72.0 81.0 90.0 99.0 108.0
Central Suburbs3 Min 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
(Thane) Max 5,500 27.5 33.0 38.5 44.0 49.5 55.0 60.5 66.0

Source: Knight Frank Research

Thus, it is important that the developers take into consideration the group for purchasing a property is Rs.25 lakh. This can be attributed
affordability of the buyers and thereby come up with products with primarily to the present unfavourable economic conditions and the
smaller unit configurations and lower prices. Reduced unit size insecurity regarding the ability to pay off housing loans in the face of
expectations on the end user's side and readiness for price negotiation job lay-offs.
on the developer's front can lead to meeting the housing demand in
the mid-income segment to a large extent.
City Outlook
Another interesting fact observed during the survey was that the
Mumbai comprises a population of 15 million that has been growing at
prudence shown by the respondents while quoting their preferred
the rate of 2.7% per annum. Being the financial capital of the country,
average budget to purchase a house. In most cases, the budgets
the city attracts a huge influx of migratory population every year. As a
stated by the respondents are much lower than their affordable range
consequence of this sizeable population growth, the housing stock of
calculated by Knight Frank research. For instance, the maximum
the city has come under severe strain. Consequently, in recent years,
affordable house value arrived at for the income category of
extensive development has taken place in the extended suburbs.
Rs.8-10 lakh fall in the range of Rs.33-38 lakh, while the average
preferred budget as expressed by the respondents in this income

21
KnightFrank.com

Presently, these suburbs accommodate a large portion of the city's
population, and some represent prime areas for affordable housing
development. Figure 11 specifies the housing requirement for the
middle income segment in Mumbai in 2009, 2010 and 2011.
Figure 11
Total Housing Unit Requirement for Rs. 3-10 lakh
Income Category
410,000
These locations, hitherto dormant, have witnessed considerable
infrastructure development in recent years. In addition, these locations
are provided good connectivity by the local railway network. Navi
Mumbai has benefitted greatly from the property boom of 2005-08.
This period witnessed great residential, office and retail space
development in the region. The upcoming international airport at Navi
Mumbai has also increased the attractiveness of Navi Mumbai as a real
estate investment destination.

405,000 4,04,673 The 44% of respondents who indicated a desire to wait up to 2 years to
400,000 purchase a house are of the view that a 'wait and watch' approach is
best given the general perception that prices might yet decline further.
395,000 3,94,034
Another reason that certain consumers are currently unwilling to invest
390,000 in property in that due to the tight liquidity situation faced by
developers, most projects have been stalled and their completion
385,000
3,83,675
dates postponed. This has created uncertainty pertaining to the
380,000 delivery of units, leading a section of prospective buyers to defer
375,000 purchases.
Figure 12
370,000
2011
2009

2010

Household Purchase Timelines

Previous Years’ Cumulative Requirement Incremental Requirement

Source: Knight Frank Research

0-6 months - 7%
Knight Frank research estimates that the middle income population in
6-12 months - 49%
Mumbai will require approximately 4.05 lakh housing units by 2011, 1-2 years - 44%
which assuming an average unit size of 800 sq.ft. translates to
approximately 324 mn.sq.ft. of residential space. Approximately 86%
of this total middle income housing requirement will be accounted for
by the Rs.3-5 lakh income segment.
Source: Knight Frank Research
As per survey results, this income group prefers property prices in the
Although a number of affordable housing projects have been
range of Rs.12-15 lakh. Thus, in order to cater to the affordability of the
announced in Mumbai, quoted prices are still unaffordable for a chunk
middle income segment, developers need to compromise on their
of the middle income segment. Thus, it is important for developers to
pricing strategies and come up with products of lower size
consider lowering their prices. At present, the attractiveness of the
configurations. From the buyers' perspective, it is imperative to
most affordable projects, which are located in the distant suburbs, is
compromise on preferred unit sizes. A very important consideration in
diminished by the inadequate social infrastructure in these suburban
assessing the demand for houses in the middle income segment is the
locations. Therefore, while there is sizeable demand for housing from
consumers' purchase timelines, as even if 100% of the requirement
Mumbai's middle income segment, the extent to which this demand is
translates to demand, how this demand pans out depends on when
satiated remains to be seen.
consumers are willing to incur the financial burden of purchasing a
house.

Figure 12 details the preferred purchase timelines of rental households

surveyed. Despite the prevailing adverse economic conditions,
approximately 56% of the survey respondents expressed a desire to
purchase a house within a year. This desire can be catered to due to
the rapid development of the extended suburbs like Naigaon, Vasai
and Virar as well as the satellite township of Navi Mumbai.

22
Q2 2009
Affordable
housing
Understanding The Drivers

Pune
City Overview
The city of Pune has witnessed an enormous change over the last decade. Located to the west of India at a
distance of around 150 kms east of Mumbai, it the second largest city in the state of Maharashtra and the 8th
largest urban agglomeration in India. What was once referred to as a pensioner's paradise has now
transformed into the Oxford of India due to the presence of several reputed colleges and other top class
educational institutions. Prominent professional colleges in Pune are affiliated to the University of Pune,
which is one of the largest universities in the world in terms of matriculation.

While the city is reputed for its educational institutions, Pune also boasts a strong presence of the
engineering and automobile sectors. Economic activity in the city is triggered by the presence of big
corporate giants like Bajaj, TELCO, Fiat, General,Motors and Bharat Forge, and over the years has helped
consolidate Pune's position as the 'Detroit of India'.

In addition to this, over the past few years, Pune has emerged as a preferred IT destination. Companies like
Infosys, Wipro, TCS and Syntel have their bases here and have been increasing their business at a significant
pace. Its proximity to India's financial capital Mumbai has also helped to accelerate real estate activity in the
region. The Mumbai-Pune expressway, which connects both the destinations, has made Pune a much sought
after location for even out of town investors.

In the recent years, real estate development across the city has geared up to keep pace with changes in
demand. This has led to the residential market evolving through various consumer profiles and preferences,
thereby creating significant changes in project profiles, housing patterns, facilities offered etc. The past three
years have witnessed an increased residential demand that was spread throughout all income categories,
but was most prevalent among the high end segment of the market. At present, major high-end residential
locations of Pune city are Koregaon Park, Hadapsar, Kalyani Nagar, Boat Club Road, Bund Garden Road,
Shivaji Nagar and Law College Road.

Figure 13
Demand Perspective
Distribution of Sample Households According to
Buyer Profile Type of Occupation
A high proportion (around 70%) of potential buyers interviewed in
Pune is not originally from the city. By and large, the stay period of
these migrant households is in the range of 1-5 years. Since Pune is a
city that is largely driven by the IT/ITES sector, automobile sector as Salaried Govt - 14%
Salaried Private - 80%
well as educational institutes, a large number of potential buyers
Self employed (business) - 5%
include those who have shifted to the city for educational as well as
Self employed professional - 1%
job purposes. (doctor, lawyer, CA)

Most of the sample households have 3-4 members, and it is observed

that a little over 70% of them are nuclear households. Only 30% of the
prospective buyers are staying in joint families. Source: Knight Frank Research

In terms of occupation, around 80% of the sample households in Pune

are employed in the salaried private sector.

23
KnightFrank.com

As the study is restricted to households with an annual income in the Buyer Preferences
range of Rs.3-10 lakh, around 62% of the sample are between the
income range of Rs.3-6 lakh, with the rest falling in the Rs.6-10 lakh While the overall budget of a household is the primary determinant in

income bracket. the purchase decision, a host of various other factors also have
significant impacts on the ultimate choice of a house. These are the
Figure 14 outcomes of city dynamics and changing lifestyles of a population.
Distribution of Sample Households According to
Total Annual Income An important observation to note is that although most of the tenant
households in the annual income level of Rs.3-5 lakh currently reside in
1 BHK apartments with an average size of 590 sq.ft., they would ideally
prefer an average size of at least 640 sq.ft. when making a purchase
decision. The average budget of a household in the annual income
Rs. 3-5 lakh - 31%
Rs. 5-6 lakh - 31% category of Rs.3-5 lakh is Rs.16 lakh vis-à-vis Rs.20 lakh for households
Rs. 6-8 lakh - 26% in the next higher income slab. This trend clearly shows that preferred
Rs. 8-10 lakh - 12% size and budget increase with higher income levels.

Table 17
Average Preferred Budget and Size
Annual Income Average Budget Average Preferred
Source: Knight Frank Research (Rs. lakh) Size (sq.ft.)
Rs. 3-5 lakh 16 638
On an average, around 55% of the sample respondents have been Rs. 5-6 lakh 20 689
residing in their current residence for the past 1-2 years and the rest for Rs. 6-8 lakh 23 736
2-3 years. It is observed that almost all the households are residing in
Rs. 8-10 lakh 26 788
1 BHK and 2 BHK apartments which have average sizes of around
Source: Knight Frank Research
590 and 750 sq.ft. respectively. The prevailing rents of 1 BHK and 2 BHK
apartments are in the range of Rs.7,000-10,300/month. It is observed that good connectivity, availability of necessary
infrastructure facilities and high potential for development are the
Table 15 major factors that drive the decisions of potential buyers in selecting
Percentage Distribution of Current Residence Type
locations for their houses. Favourable demographics and the presence
Based on Annual Income
of a social circle in the form of friends and relatives do not matter much
Annual Income 1 BHK 2 BHK 3 BHK Independent
in the choice of locations.
Rs. 3-5 lakh 55% 39% 5% 1%
Figure 15
Rs. 5-6 lakh 41% 55% 5% 0%
Factors Influencing Preference for Location
Rs. 6-8 lakh 50% 42% 8% 0%
Good connectivity to frequently
Rs. 8-10 lakh 29% 71% 0% 0% 40%
travelled places
Source: Knight Frank Research 27%
Good infrastructure

Good potential for development 25%

Table 16
Current Residence Type W.R.T Presence of social circle
7%
Average Size and Rentals (friends, relatives)
Current Residence type Average Size Average Rental Others 1%
(sq.ft.) (Rs./month)
0% 10% 20% 30% 40% 50%
1 BHK 587 7,084
Source: Knight Frank Research Percentage of Responses
2 BHK 751 10,260
Keeping in mind the factors influencing location, buyers in Pune
3 BHK 1,029 12,929
identified Kothrud, Hadapsar and the Pimpri-Chinchwad region as their
Source: Knight Frank Research
top three preferred locations. There is strong preference towards
locations like Bavdhan and Aundh as well. Pimpri-Chinchwad and
Aundh, located to the northern part of the city, have been considered
as important locations for a house purchase due to their proximity to
many manufacturing industries that are located at Bhosari/Pimpri.

24
Q2 2009
Affordable
housing
Understanding The Drivers

Also, these locations enjoy the advantage of being close to the
Mumbai- Bengaluru highway. Kothrud, located in the south-west, is
one of the oldest residential markets in addition to being one of the
fastest growing micro-markets of Pune in terms of social infrastructure,
and this has led households to prefer this location. Bavdhan, which is
slightly further south-west, is in proximity to Kothrud but commands
relatively lower rates. Both these locations are also well connected to
the Mumbai-Bengaluru highway which connects them to Hinjewadi,
which is an important commerical location. Hadapsar in the eastern
part of the city is generally favoured by people engaged in the IT/ITES
sector due to its proximity to Eon and MIDC IT Park at Kharadi,
Magarpatta City and Kumar IT Planet, which are some of the prime
commercial IT developments of the region. In addition, this location is
also preferred by the out of town people from villages further ahead on
Sholapur Road. From the above observations, it can be emphasized
that good connectivity to frequently travelled places, good
infrastructure and good potential for development are the primary
Factors like Finishing, Gymnasium/Spa and Interior Fixtures are the
next three important factors, and it may be argued that once the
primary requirements of the household have been met, the aspirations
for better amenities emerge. Developers in Pune city should ideally
include the top two primary requirements in any affordable housing
project. They may also include the other four amenities for the
semi-luxury affordable projects which would cater to relatively higher
income households with larger budgets.
Figure 16
Preferred Amenities within a Residential Project
Un-interrupted water supply
Power Back-up
High level of security systems
Finishing
Gymnasium/Spa
Interior fixtures

determinants influencing the location choice of a buyer in Pune. Swimming pool

Multipurpose hall
The present study has captured the factors which influence the Creche
decision of a buyer in the selection of residential projects in a preferred Club house
location. Respondents have rated a set of factors on a scale of 1 to 4 (4 Modular Kitchen
being the most important and 1 the least). Based on the ratings, mean Servant quarters
scores are generated for each factor and the one with the highest mean 0 20 40 60 80 100 120 140
score has been identified as the most important factor and ranked 1. No. of Responses
Table 18 Source: Knight Frank Research
Factors Influencing Choice of Residential Project
Factors Rank
Supply Perspective
Water supply 1
Price 2 In the recent past, the residential market in Pune witnessed hectic real
Un-interrupted power supply 3 estate activity, aided by strong demand from the IT/ITES sector. The

Apartment home size 4 developers geared up to keep pace with the rise in quality demand,

Safety & security 5 leading to a significant change in project profiles, housing patterns
and facilities offered. Increase in demand was spread throughout all
Facilities available 6
size categories, but was most significant at the high-end segment of
Disturbance caused by traffic/noise/congestion 7
the market. Many old developments have been demolished to give way
Developer goodwill 8
to new high rise developments due to limited land availability in prime
Source: Knight Frank Research
locations.
Water supply, price and un-interrupted power supply are the three
important factors that influence a buyer's decision in Pune with respect In the past five years, estimated growth in the population of the city

to a residential project in a chosen location. These potential buyers do has been approximately 24%. Similarly, the migrating population has

not place much importance on the disturbance caused by doubled over the past five years, which assures steady demand for

traffic/noise/congestion and on developers' goodwill. housing units. Thus, the housing sector in Pune is primarily end-user
driven.
During the course of the survey, the tenant households have been
asked to mention the amenities they would like to have in the Knight Frank research carried out primary surveys across major

residential projects of their choice. It is observed that the top three stakeholders in the sector comprising developers, bankers and

amenities preferred while making a purchase decision include government authorities to understand the supply dynamics.

Un-interrupted water supply, Power Back-up and High Level Security

Systems. It can therefore be inferred that a potential buyer would be
unwilling to compromise on these basic requirements.

25
KnightFrank.com

Following are some of the opinions and apprehensions expressed by
the developers on the affordable housing market in Pune:
1. Ticket size - According to the general opinion of the developers, the
lower MIG belonging to the income group of Rs.3-5 lakh would aim for a
house costing Rs.15-20 lakh, while the income groups of Rs.6-7 lakh
and Rs.7-10 lakh could increase their budget range to Rs.25-30 lakh
and Rs.35-40 lakh respectively. They also indicated that in terms of
socio-economic classification, IT/ITES employees are their most
attractive target clientele.
2. Availability of land - In terms of supply, considering the cost of land
within the city limits (PMC), the developers ruled out any possibility of
affordability housing schemes in these established areas. Most felt
that the shortage of land is the primary reason for higher rates and this
could be resolved by increasing the FSI. Land rates in the peripheral
locations of Dhanori, Wagholi, Manjri, Pisoli/Undri Yeolewadi, Chakan,
Mahalunge, and Ambegaon range between Rs.400-800/sq.ft, while
those in Wakad, Bavdhan and Pimple Nilakh are relatively higher at
around Rs.1,000-1,200/sq.ft.
around 25-30%. Besides this basic cost, an additional charge for the
MSEB (Maharashtra State Electricity Board), Stamp Duty, Registration
and Legal Charges further increases the cost that the end-user
ultimately pays. This makes it still comparatively unaffordable to the
masses. In order to reduce the cost, many developers have reduced the
size of units but maintain the higher price levels. Thus, many of the
marketed affordable housing units are not really catering to the
demand and space requirements of an average MIG household.
5. Tax - Developers also pointed out the various transaction costs and
taxes (during land acquisition till completion of project) which add on
to the selling cost. The tax components like stamp duty, VAT, etc.
constitute 35% of the cost per sq.ft. of the final product. They feel that
these should be subsidised to the extent of at least 20% out of the
35% for the idea of affordable housing to really take off.
Despite these bottlenecks, a number of developers have expressed
their willingness to take up affordable housing. Currently, most of the
upcoming affordable housing schemes being planned are coming up
in the outskirts.

3. Policy change - The developers also stated that the old gaothan
areas of Pune city should have a conducive policy for redevelopment
that focuses on affordable housing schemes, and that
re-development of the old city should be looked into.
4. Cost of construction - While the cost of construction is around
Rs.1,000/sq.ft., the developer's profit margin is still considered at
Officials of public and private banks were also interviewed to
understand the demand dynamics witnessed by the home loan sector
in the past few years. The banks agreed with developers that it would
prove more effective to increase FSI rather than increase TDR, as they
were largely concerned over the TDR buying capacity of developers and
thus the exclusion of smaller developers.

Table 19
Select Affordable Housing Projects in Pune
Sr.No Project Name Developer Location May '09 Rate Unit Size Range
(Rs./sq.ft.) (sq.ft.)
1 Sanskruti - Phase I & II Gini Const. Co. Hadapsar - Handewadi Road 2,750 1,045-1,400
2 Seagul - Phase I & II Runwal Housing Hadapsar - Handewadi Road 2,400-2,500 700-1,362
3 Ashok Nagar Phase I Harshad Const. Hadapsar - Handewadi Road 2,200 885- 1,255
4 Elegance Phase I & II Dreams Group Hadapsar - Handewadi Road 2,250-2,500 800 - 953
5 Green City Phase I Arihant Venkateshwara Hadapsar - Handewadi Road 1,900 552-2,300
Housing
6 Rose Wood Kolte Patil Developers Ltd. Undri 2,500 1,115 -1,890
7 Skyheights Phase I Lushlife & Undri - Pisoli Road 2,250 568 -1,025
Trimurti Developers
8 Sankalp and Lotus Ranjeet Developers Undri 2,000 572-1,500
9 Sunshine Hills Phase I Tricon Builders Undri - Pisoli Road, Pisoli 2,200 600-830
10 Ganga Sparsh and Goel Ganga Group Undri 2,500 530-1,325
Ganga Elika
11 Raheja Vistas K Raheja Corp. Mohammadwadi 2,750 1,095-1,515
12 Hill View Anand Shelters Kondhwa Khurd 2,700 804-930
13 Akruti Countrywoods Phase I Akruti Jay Developers Kondhwa Budruk 2,250 565-885
14 Bellagio Mirchandani Group Undri 2,575 1,250-1,650
Source: Knight Frank Research

26
Q2 2009
Affordable
housing
Understanding The Drivers

The major apprehensions of banks while lending to an affordable

housing project are the criteria of location (i.e it should not be far from
the city or without proper connectivity), the saleability of the project
and the location's future development and price appreciation potential.
In their opinion, infrastructure development no longer becomes a
primary issue if the residential schemes are larger and similar
developments are constructed in that area, as the developers
themselves take care of these basic requirements. As such,
connectivity to the workplace and social amenities become important
factors.
Bankers are also of the opinion that Wakad, Balewadi, Pimple
Saudagar (marketed as Aundh Annex), Wagholi, Viman Nagar and
Kharadi are the locations where most households belonging to the MIG
category are buying homes. The reasons for preferring these locations
are mainly due to better connectivity and the availability of affordable
housing options. Many of these developments provide amenities like
community centre, children's play area, good roads and pathways.
Besides these, most of the developers are adhering to standard
specifications minus any expensive or redundant finishing, with a
loading of 25% being charged for the affordable projects as well.
Identifying Affordability
A number of interesting facts came up during the household survey
carried out in Pune to ascertain the affordability of the various income
groups at city level. Table 20 depicts in detail the maximum affordable
EMI of households in various income levels. This EMI has been
estimated from the annual income of a household and its spending
and saving behaviour. The maximum EMI has been translated into an
affordable house property value based on an assumed interest rate,
loan tenure and loan to value ratio. Table 20 also shows the capital
values that the households will have to pay keeping in view the
preferred house size and the affordable house property value.
It highlights the fact that despite being in proximity to Mumbai, where
property prices are considered to be the highest in the country, Pune is
relatively affordable for purchasing a property. A number of locations
are available for the mid-income category for their housing needs. It
has been observed that based on their unit size preference, the
households falling in the range of Rs.3-8 lakh can afford properties in
recently developed locations like Aundh, Baner and Viman Nagar as
well as in upcoming locations like Magarpatta, Wakad and Hinjewadi.

Table 20
Affordability in Pune
Household income (per annum) Rs. 3 lakh - 5 lakh Rs. 5 lakh - 6 lakh Rs. 6 lakh - 8 lakh Rs. 8 lakh - 10 lakh
Maximum EMI (Rs.) 10,200-16,400 15,300-22,700 21,000-23,500 27,000-30,300
Maximum loan eligibility (Rs.)
(9% interest rate, 20 year loan tenure) 11,37,000-18,22,000 17,04,000-25,22,000 23,33,000-26,10,000 30,04,000-33,63,000
Buyer's own contribution (Rs.)
(Assuming 85% loan) 2,00,000-3,21,000 3,00,000-4,45,000 4,12,000-4,60,000 5,30,000-5,93,000
Affordable house property value (Rs.) 13,38,000-21,43,000 20,05,000-29,67,000 27,45,000-30,70,000 35,34,000-39,56,000
Preferred size (sq.ft.) 600-650 650-700 700-750 700-800
Price (Rs./sq.ft.) 2,100-3,300 2,900-4,200 3,800-4,300 4,400-5,900

Locations available Baner Aundh Aundh Koregaon Park

considering preferred size Magarpatta Kothrud Kothrud Deccan
and few residential areas Bavdhan Baner Baner Bhosale Nagar
Vishrantwadi Magarpatta Magarpatta Aundh
Pashan Bavdhan Bavdhan Kothrud
Vadgoan Sheri Vishrantwadi Vishrantwadi Baner
Hinjewadi Pashan Pashan Magarpatta
Viman Nagar Vadgoan Sheri Vadgoan Sheri Bavdhan
Kharadi Hinjewadi Hinjewadi Vishrantwadi
Kondhwa-Undri Viman Nagar Viman Nagar Pashan
Pimpri-Chinchwad Kharadi Kharadi Vadgoan Sheri
Wakad Kondhwa-Undri Kondhwa-Undri Hinjewadi
Manjri Pimpri-Chinchwad Pimpri-Chinchwad Viman Nagar
Wakad Wakad Kharadi
Manjri Manjri Kondhwa - Undri
Pimpri-Chinchwad
Wakad
Manjri
Source: Knight Frank Research

27
KnightFrank.com

Table 21
Size Preference in Pune - Min-600 sq.ft. Max-1000 sq.ft.
Not Affordable
Affordable House Property in Pune - Min 13.38 lakh Max 39.56 lakh
Locations May '09 Rates Max Size (in sq.ft.) & Total Property Value (in Rs.lakh)
(in Rs./sq.ft.)
500 600 700 800 900 1000 1100 1200
sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft.
Koregaon Park/ Deccan Min 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0
Max 10,000 50.0 60.0 70.0 80.0 90.0 100.0 110.0 120.0
Bhosale Nagar Min 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0
Max 8,000 40.0 48.0 56.0 64.0 72.0 80.0 88.0 96.0
Aundh Min 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Max 5,500 27.5 33.0 38.5 44.0 49.5 55.0 60.5 66.0
Kothrud Min 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Max 4,500 22.5 27.0 31.5 36.0 40.5 45.0 49.5 54.0
Baner Min 3,200 16.0 19.2 22.4 25.6 28.8 32.0 35.2 38.4
Max 4,200 21.0 25.2 29.4 33.6 37.8 42.0 46.2 50.4
Magarpatta Min 3,200 16.0 19.2 22.4 25.6 28.8 32.0 35.2 38.4
Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Bavdhan Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Vishrantwadi Min 2,800 14.0 16.8 19.6 22.4 25.2 28.0 30.8 33.6
Max 3,200 16.0 19.2 22.4 25.6 28.8 32.0 35.2 38.4
Pashan/Vadgoan Sheri Min 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
Max 3,200 16.0 19.2 22.4 25.6 28.8 32.0 35.2 38.4
Hinjewadi Min 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Viman Nagar Min 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Kharadi Min 2,400 12.0 14.4 16.8 19.2 21.6 24.0 26.4 28.8
Max 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
Kondhwa - Undri Min 2,200 11.0 13.2 15.4 17.6 19.8 22.0 24.2 26.4
Max 3,100 15.5 18.6 21.7 24.8 27.9 31.0 34.1 37.2
Pimpri-Chinchwad Min 2,200 11.0 13.2 15.4 17.6 19.8 22.0 24.2 26.4
Max 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
Manjri Min 1,400 7.0 8.4 9.8 11.2 12.6 14.0 15.4 16.8
Max 1,800 9.0 10.8 12.6 14.4 16.2 18.0 19.8 21.6

Source: Knight Frank Research

Of late, these locations, although located around 10-18 kms from
Shivaji Nagar , have become prime IT hubs in the region and are being
actively promoted by the state government. Another point which came
across in the survey was that the size preference for residential units
did not vary much among the different income groups. While the lower
income groups preferred a unit size of around 600-700 sq.ft., the
upper income groups of Rs.6 lakh and above prefer unit size in the
range of 700-800 sq.ft. As a result of these relatively lower unit size
preferences, the income category of Rs.8-10 lakh can afford to
purchase properties in prime residential locations like Koregaon Park,
Deccan and Bhosale Nagar.
However, notwithstanding the affordable nature of most of the
residential locations in Pune, the households in the lower income
categories would be able to purchase a house in the more upmarket
locations within the city only if they are willing to compromise on their
unit sizes. Table 21 illustrates this fact based on the willingness of the
buyer to compromise on the size of the residential unit. The table
elucidates the point that given the lower size of the residential units,
locations like Koregaon Park, Deccan and Bhosale Nagar, which are
considered to be the most sought after locations in the city, become
affordable to the income category of Rs.5-6 lakh and above.

28
Q2 2009
Affordable
housing
Understanding The Drivers

This income category, whose affordable house property value has been
calculated to be in the range of Rs.20-29.7 lakh, would be able to
afford a house in Koregaon Park/Deccan at Rs.5,000/sq.ft. with an unit
size of 600 sq.ft. However, it also depends on whether the developer
would be ready to come up with smaller sized units and lower prices at
such central locations within the city.
As with the other cities surveyed, the residents of Pune in the higher
income category of Rs.8-10 lakh, too, proved to be cautious while
expressing their preferred budget. While households in this income
group can afford to purchase a property in the range of Rs.35-40 lakh,
as computed by Knight Frank Research, they conveyed a preferred
average budget of Rs.26 lakh, which was much lower than their
affordability. This implies that the higher income households in the
mid-income segment would rather curtail their aspirations and
maintain a conservative approach in times of economic adversity. On
the other hand, the lower income groups continue to keep their
preferred budget within their affordability.
Knight Frank research estimates that the middle income population in
Pune will require approximately 1.34 lakh housing units by 2011, which
assuming an average unit size of 800 sq.ft. translates to approximately
107 mn.sq.ft. of residential space. Approximately 87% of this total
middle income housing requirement will be accounted for by the
Rs.3-5 lakh income segment. In order for this requirement to be
converted to demand, the Rs.3-5 lakh income category would have to
be targeted with houses in the price range of Rs.13-18 lakh. A very
important consideration in assessing the demand for houses in the
middle income segment is the consumers' purchase timelines, as even
if 100% of the requirement translates to demand, how this demand
pans out depends on when consumers are willing to incur the financial
burden of purchasing a house. Figure 18 details the preferred purchase
timelines of rental households surveyed.
Figure 18
Household Purchase Timelines

City Outlook 0-6 months - 9%

6-12 months - 38%
Pune has a population of over 5 million that has been growing at the
1-2 years - 53%
rate of 4% per annum. The city features a strong presence of the
automobile sector, and of late has become a viable destination for the
IT/ITES sector. The increase in employment opportunities in Pune has
resulted in increased demand for housing that has put pressure on the
city's housing stock. Figure 17 specifies the housing requirement for Source: Knight Frank Research
the middle income segment in Pune in 2009, 2010 and 2011.
As per the survey, about half of the prospective buyers are seeking to
purchase a house within the next year, while the other half expressed a
desire to purchase anytime within the next 2 years.
Figure 17
The growth of Pune has been limited by a lack of infrastructure support.
Total Housing Unit Requirement for Rs. 3-10 lakh
Poor quality of roads, interrupted power supply and lack of proper
Income Category
public transport services have hindered the development of the city.
136,000
1,34,264 Eastern locations of the city like Kharadi and Kondhawa are preferred
134,000
housing destinations, primarily due to their relative proximity to
132,000 established commercial hubs like Magarpatta City and developed
130,000 1,29,100 residential locations like Kalyani Nagar. Viman Nagar is also an
attractive affordable housing destination due to its proximity to the
128,000
airport. Towards the west, locations like Wakad and Hinjewadi are
126,000
generating interest due to the strong IT/ITES development in these
1,24,135
124,000 areas and their proximity to the MumbaiPune Expressway.
122,000 Pimpri-Chinchwad, located towards the north of Pune, is also a viable

120,000
location for affordable housing, but its relative distance from the city
and its strong composition of automobile & manufacturing units has
118,000
reduced its attractiveness among potential home buyers. Therefore,
2011
2009

2010

while there is demand for affordable housing from Pune's middle

income segment, the extent to which this demand is satiated depends
Previous Years’ Cumulative Requirement Incremental Requirement
on how fast infrastructural gaps in the city are plugged.
Source: Knight Frank Research

29
KnightFrank.com

Bengaluru
City Overview
The city of Bengaluru, previously known as Bangalore, is the capital of the state of Karnataka. Located on the
Deccan plateau in the south-eastern part of Karnataka, Bengaluru is India's third most populous city and fifth
most populous urban agglomeration. Today, it is recognized as one of the world's major metropolises and is
home to some of the most renowned colleges and research institutions in India and abroad. Bengaluru also
houses numerous public sector heavy industries, software companies, aerospace offices and
telecommunication offices.

Over the past decade Bengaluru has established itself as India's premier IT destination. It is currently the
nation's leading IT employer and exporter. The city also has the third highest number of high net worth
individuals in the country, and consequently represents the country's fourth largest fast moving consumer
goods (FMCG) market. A demographically diverse city, Bengaluru is a major economic hub and the fastest
growing major metropolis in India. Favourable weather conditions and a friendly political climate have
facilitated investment in the city.

Bengaluru has followed a radial growth pattern. MG Road and surrounding locations constitute the Central
Business District (CBD) and represent the most developed parts of the city. Prominent residential
catchments like Jayanagar, JP Nagar, and Malleshwaram are located towards the southern and western
locations of the city. At present, peripheral locations like Whitefield and Kanakpura Road are attracting
strong interest due to the presence of a number of important office projects there along with developments
underway.

Bengaluru's IT/ITES sector, which is the prime economic driver of the city, has been directly responsible for
the increase in housing demand among the city's various demographic segments. Over the past decade
there has been a paradigm shift in the attitude of home buyers. Strong economic growth has resulted in an
increase in the city's per capita income, which along with fast paced development has changed the home
buyer's outlook. The traditionally conservative consumer mindset has been replaced by a desire for instant
gratification, which has resulted in frantic activity in the property market. Home buyers in Bengaluru
represent a mix of end-users and investors, whereas previously the former constituted the majority of
housing demand.

Figure 19
Demand Perspective
Distribution of Sample Households According to
Buyer Profile Type of Occupation
Bengaluru's cosmopolitan constitution reflects the large influx of a
migratory population seeking better work opportunities. The
representative sample for the household survey carried out reveals that
close to 77% of the respondents are migrants. Over a period of time, Self employed professional - 1%
(doctor, lawyer, CA)
these migrants increasingly integrate with the rest of the population
Self employed (business) - 8%
and become actively involved in property acquisitions.
Salaried Private - 88%

A typical home buyer in Bengaluru is a salaried professional working in Salaried Govt - 3%

the service sector. Among the households surveyed, 88% of household

heads are employed in the service sector, with a large number
employed in the IT/ITES sector. The educated middle class segment in Source: Knight Frank Research
the city is quite large and forms a strong potential demand base.

30
Q2 2009
Affordable
housing
Understanding The Drivers

The survey results revealed that close to 59% of the survey Table 23
respondents are in the annual household income bracket of Current Residence Type W.R.T
Rs.4-6 lakh, and would constitute a major chunk of housing demand. Average Size and Rentals
Current Residence type Average Size Average Rental
(sq.ft.) (Rs./month)
Figure 20
1 BHK 573 5,241
Distribution of Sample Households According to
2 BHK 835 7,592
Total Annual Income
3 BHK 1,055 13,000
Source: Knight Frank Research

Buyer Preferences
Rs. 3-5 lakh - 25%
Rs. 5-6 lakh - 33% A prospective middle income home buyer in Bengaluru considers
Rs. 6-8 lakh - 18% various factors when deciding on the type of dwelling unit in which to
Rs. 8-10 lakh - 24% invest. Notable factors include unit price, location characteristics, unit
size, facilities and amenities. Over the years, the number of factors to
consider has increased, making it mandatory for the buyer to have a
high level of awareness of all aspects pertaining to a property. The cost
Source: Knight Frank Research of a housing unit is obviously the primary concern, and the survey
results revealed that the middle income segment in Bengaluru would
The results of the household survey revealed that the Rs.5-6 lakh prefer the property cost not to exceed Rs.26 lakh.
income segment represents the biggest contributor to demand for
2 BHK apartments. This behavior is drastically different from that of The size of the property is also a key criterion to consider when

higher income groups, especially the Rs.8-10 lakh bracket, which was deciding on a residential unit. Although those renting homes tend to

revealed to be more inclined towards purchasing 1 BHK apartments. live in smaller units, they would prefer a bigger unit size if purchasing.

This is primarily due to this income bracket's view of housing as a The table below depicts that across all middle income brackets,

short-term investment that would not warrant high capital outlays. apartment sizes preferred range from 900-1000 sq.ft.

Table 24
Table 22 Average Preferred Budget and Size
Percentage Distribution of Current Residence Type Annual Income Average Budget Average Preferred
Based on Annual Income (Rs. lakh) Size (sq.ft.)
Annual Income 1 BHK 2 BHK 3 BHK Independent Row Rs. 3-5 lakh 18 900
House House
Rs. 5-6 lakh 20 913
Rs. 3-5 lakh 38% 53% 3% 3% 3%
Rs. 6-8 lakh 22 931
Rs. 5-6 lakh 28% 65% 4% 2% 0%
Rs. 8-10 lakh 26 994
Rs. 6-8 lakh 40% 56% 0% 4% 0%
Source: Knight Frank Research
Rs. 8-10 lakh 42% 37% 16% 5% 0%
Source: Knight Frank Research When deciding on location, a majority of buyers prefer good
connectivity to frequently travelled places and high development
Average property rental values are directly influenced by apartment potential. This reflects the fact that a lack of connectivity effectively
sizes. The results of the survey revealed buyer preference to be for blocks the development of potential housing markets. Good
2 BHK apartments, the size of which range between 800-900 sq.ft. infrastructure and the presence of a healthy social circle were also
1 BHK houses command a monthly rental of approximately Rs.5,200, revealed to be important considerations pertaining to location
which is about 44% less than the monthly rental for 2 BHK houses. preferences.
This exemplifies the huge rental increments as house size increases.

31
KnightFrank.com

Figure 21 Figure 22
Factors Influencing Preference for Location Preferred Amenities within a Residential Project
Good connectivity to frequently Un-interrupted water supply
31%
travelled places
Power Back-up
Good potential for development 26%
High level of security systems
Good infrastructure 22% Modular Kitchen
Presence of social circle Gymnasium/Spa
17%
(friends, relatives)
Interior fixtures
Favourable demographics 4%
Finishing

0% 10% 20% 30% 40% Club house

Source: Knight Frank Research Percentage of Responses Swimming pool

The results of the household survey revealed that Bannerghatta Road Multipurpose hall

is the respondents' most preferred location to reside at. This is not Servant quarters

surprising given the location's good connectivity, strong development 0 20 40 60 80 100 120 140
potential, proximity to major markets and relatively lower cost. Other No. of Responses
locations like Koramangala, Ulsoor and Old Airport Road also proved Source: Knight Frank Research
attractive, but they are relatively mature locations that exhibit higher
prices. Jayanagar and Hebbal are peripheral locations which the survey Supply Perspective
respondents demonstrated an interest in. Bengaluru has witnessed strong growth in residential property
development over the past five years. A majority of this development,
The table below reveals that the unit price and the availability of basic
which was driven by investor demand, was in the premium housing
amenities like power and water is a more important consideration than
segment, leading to astronomical increases in property values across
apartment size when purchase decisions are made. This reflects the
the city. This sharp escalation in residential prices has made housing
importance of basic amenities for the middle income group.
unaffordable for Bengaluru's middle income segment.

Table 25 The current slowdown in the economy has considerably affected

Factors Influencing Choice of Residential Project speculative demand, thus hindering the take up of residential units
Factors Rank
within the city. This has resulted in an oversupply of housing units,
Water supply 1 with most builders and developers finding a majority of their projects
Price 2 plagued either by a lack of financing or drastically reduced demand.
Un-interrupted power supply 3 This has put pressure on developers to explore other avenues in order
Safety & security 4 to meet their capital requirements. In this scenario, the middle income
Apartment size 5 segment has come to represent the strongest demand catchment in
Disturbance caused by traffic/noise/congestion 6 the city as it constitutes a considerable portion of end user demand. To
Facilities available 7 cater to this potential demand segment, city builders and developers
Developer goodwill 8 are trying to promote existing and upcoming high end projects as
Source: Knight Frank Research affordable housing options for the MIG segment.

In order to better understand the factors which influence the take up of

One of the questions in the household survey required tenant
housing supply, Knight Frank Research conducted interviews with
households to identify amenities that they would like to have in their
prominent developers, banking and financial institutions and
ideal house. It was revealed that uninterrupted water supply, power
government agencies in the city. It was learnt that over the past
backup and a high level of security were the most desirable amenities
8-10 months, residential enquiries have declined by an average of 30%,
amongst the households sampled. The range of amenities that are
while absolute sales have come down by about 60%. The primary
generally provided in a housing unit gives an indication of buyer
reason for the decline in residential demand was job insecurity
preference and the premium which the developer would command for
amongst home buyers. This has resulted in a sizeable number of
the property. Figure 22 shows that the middle income segment
prominent developers turning to affordable housing projects either
prioritizes the provision of basic amenities as opposed to frills like a
directly or indirectly through their subsidiary companies.
club house.

32
Q2 2009
Affordable
housing
Understanding The Drivers
Table 26
Select Affordable Housing Projects in Bengaluru
Sr.No Project Name Developer
1 Janapriya Greenwoods Janapriya
2 Commune Golden Gate
3 Westend Heights DLF
4 Vakil Townscape Vakil Housing
5 Evergreens Ozone
Source: Knight Frank Research
Most such projects are being developed towards the southern and
eastern parts of the city, which comprise strong middle income end
user demand. Locations where developers are looking to come up with
affordable housing projects include Kanakpura Road, Hebbal,
Electronic City, BTM Layout and Whitefield. The cost of an affordable
unit would vary from Rs.15-30 lakh depending on the location. Most
builders in the city are concentrating on constructing 1 and 2 BHK
apartments as affordable homes, with sizes varying from
500-900 sq.ft. and cost varying from Rs.1200-2500/sq.ft. The cost of
construction for these projects is expected to vary between
Rs.1500-2000/sq.ft., which represents an increase from the normal
cost by Rs.300-500/sq.ft. This is primarily due to the higher number of
internal walls in these projects.
Builders are of the view that although there is not much reduction in
price, the absolute reduction in unit cost would be sufficient to drive
affordable housing demand. The builders' reputation, along with
facilities and amenities such as swimming pools and gymnasiums on
offer, is expected to create genuine interest in upcoming affordable
housing projects. Developers consider high land cost and a lack of
proper incentives by the state the primary obstacles impeding the
development of affordable housing in suburban locations of Bengaluru.
Since most of the land in these locations was bought at inflated prices,
affordable housing projects are not financially viable. Most projects
that are being launched constitute hidden charges like higher
maintenance cost and corpus funds that would offset the lower price
for a unit. Hence, a product advertised for Rs.20 lakh would ultimately
cost close to Rs.7-8 lakh more. As their existing projects are not
fetching any revenue, some Grade A developers are looking to the
affordable housing segment as an opportunity to boost their cash
flows in the prevailing dormant economic climate.
The Bengaluru Development Authority (BDA) and Bruhat Bengaluru
Mahanagara Palike (BBMP) are the local agencies that regulate
development in the city. Any construction activity in the city requires
prior approvals from these bodies. In certain instances, in order to
promote housing in peripheral locations, the BDA auctions plots in
various parts of the city, some of which are decided through a lottery.
Among infrastructure projects, the development of the NICE corridor
33
Location May '09 Rate (Rs./sq.ft.) Unit Size Range (sq.ft.)
Haserghatta 1,400 925-1,400
Kanakpura Road 1,700 900-1,120
BTM Layout 1,850 1,000-1,800
Jigani 3,000 1,200-1,400
Off Sarjapur Road 3,000 600-920
towards Mysore, the Peripheral Ring Road and the elevated highway at
Electronic City are expected to give a major boost to connectivity in
southern parts of the city. The Government of Karnataka's initiatives,
which are based on the public-private partnership model, have
resulted in a range of successful projects being completed in record
time, an example being the four-lane conversion of the existing State
Highway No.17 that passes through Kengeri, Bidadi, Ramanagaram,
Chennapatna, Maddur, Mandya and Srirangapatna. The government's
focus on realty development will be concentrated on Bengaluru's
periphery, with five integrated thematic townships coming up in
Kengeri, Bidadi, Ramanagaram, Chennapatna and Maddur. The
concept of integrated townships, which is being heavily promoted, is
expected to encourage the 'walk-to-work' culture, especially in
peripheral areas. According to the Bangalore Metropolitan and Rural
Development Authority (BMRDA), each of these townships will be built
around a specific theme. Currently, Bidadi Township has been
earmarked as an IT centre. Ramanagaram, which is a proposed
heritage hub, will also be an IT centre if the demand from the Bidadi
Township spills over. The profile of other townships will be dictated by
demand.
The proposed Peripheral Ring Road (PRR) will connect the new
international airport in Devanahalli with other radial roads in the city,
especially those within the north and east zones. The PRR will connect
with all the highways and radial roads at several junctions. Phase I of
the PRR, a 65 km. stretch, will link Hosur Road in Bangalore South to
Tumkur Road in Bangalore North. Phase II, spread across 51 km., will
connect Bangalore South to the West. This stretch will cross
Kanakapura Road, Mysore Road and Magadi Road. The BDA has
planned five major residential layouts along the Peripheral Ring Road
route to meet the housing requirements of Bengaluru's growing
population. A total of 1.74 lakh plots have been planned. In Phase I of
the PRR, the layouts earmarked are Dr Shivarama Karanth Layout, D
Devaraj Urs Layout, S Nijalingappa Layout and K C Reddy Layout. Phase
II of the PRR will have the Nadaprabhu Kempegowda Layout, which is
envisaged to be the model on which the other four layouts will be
based. The layouts will also feature 60,000 flats especially for the
economically weaker sections. The Kempegowda Layout was the first
one to be approved under Master Plan 2015, and has now been notified.
KnightFrank.com

It will be developed at a cost of Rs.2,639 crore, and will span across
4,814 acres, including 12 villages between Magadi Road and Mysore
Road in Bangalore West. Each of the layouts will be self-sustained,
have both residential and commercial establishments and will provide
proper commuting facilities like bus and taxi stands. All public
amenities like parks, roads, playgrounds as well as educational
institutions and healthcare facilities will also be provided for. The
roads within the layouts will connect with the service roads linking to
the PRR. In spite of such developmental projects being announced,
their execution has been delayed. If these projects were to progress on
schedule, it would make peripheral locations more attractive and the
prospect of affordable housing far more realistic.
Currently, upcoming projects by even premier developers are being
closely scrutinized, and most banks are very cautious in their lending.
Most affordable housing projects, an example being the Commune off
Kanakpura road, are witnessing dismal sales after keen initial interest.
Banks view most affordable housing schemes as being high risk due to
the fact that a majority of such projects are coming up in peripheral
areas where infrastructural deficiencies greatly hinder demand. Most
financial institutions believe that unless developers take the lead and
come up with products that overcome various demand hindering
factors, the lull in the Bengaluru residential market can be expected to
persist for the foreseeable future.

Easier availability of home loans and construction finance are other Identifying Affordability
aspects that would dramatically improve the supply of affordable
Table 27 depicts in detail the maximum affordable EMI of households
housing. The economic downturn has witnessed loan defaults that
of various income levels. Significantly, the results of the survey
have piled financial pressure on banks. The financial institutions
revealed that the preference for size of residential units ranges from
interviewed by us revealed that in Bengaluru, more than 80% of
850-1050 sq.ft. across all income categories surveyed. Unsurprisingly,
customers apply for a loan of Rs.20 lakh and fall in the middle income
given this preference for larger unit sizes, very few locations in
bracket of Rs.4-7 lakh. Since early 2008, loan disbursements in the
Bengaluru would be affordable for consumers in the
city have reduced by 60-70% in spite of interest rate cuts. This has
Rs.5-6 lakh and Rs.6-8 lakh income categories. Amongst the
adversely impacted banks. The lending institutions interviewed were of
residential micro markets of Bengaluru, only Whitefield, Banerghatta
the view that a lot of people were waiting for prices to correct even
and Hebbal, all located at a distance of at least 10 kms from the city
further before committing to purchases. Unless developers show real
centre of MG Road, would be affordable for the aforementioned income
intent in coming out with genuinely affordable products, house buying
groups. In fact, given size preferences, the residential locations of MG
will remain low, especially considering the prevailing economic
Road, Sadashiv Nagar, Malleshwaram, Basavangudi, Indira Nagar,
conditions. Construction finance loans, which are given at a 15%
Rajaji Nagar and Koramangala are beyond the affordability of even the
interest rate, are based on the grade of the developer, location of the
Rs.8-10 lakh income group. Thus, affordability is a serious
project, target segment and time of completion.
consideration for the residents of the city.

Table 27
Affordability in Bengaluru
Household income (per annum) Rs. 3 lakh - 5 lakh Rs. 5 lakh - 6 lakh Rs. 6 lakh - 8 lakh Rs. 8 lakh - 10 lakh
Maximum EMI (Rs.) 10,000 - 14,000 14,000 - 18,500 18,500 - 22,000 25,500 - 28,000
Maximum loan eligibility (Rs.) 11,00,000 - 15,38,000 15,85,000 - 20,48,000 20,32,000 - 24,19,000 28,30,000 - 31,23,000
(9% interest rate, 20 year loan tenure)
Buyer's own contribution (Rs.) 1,94,000 - 2,71,000 2,80,000 - 3,61,000 3,59,000 - 4,27,000 5,00,000 - 5,51,000
(Assuming 85% loan)
Affordable house property value (Rs.) 12,95,000 - 18,10,000 18,65,000 - 24,09,000 23,90,000 - 28,45,000 33,29,000 - 36,75,000
Preferred size (sq.ft.) 900 - 1,000 900 - 1,000 850 - 1,050 950 - 1,050
Price (Rs./sq.ft.) 1,500 - 1,850 2,050 - 2,600 2,700 - 2,850 3,450 - 3,600

Locations available None Whitefield Whitefield Banswadi

considering preferred size Bannerghatta Road Bannerghatta Road BTM
and few residential areas Hebbal Hebbal Old Airport Road
Jayanagar
Old Madras Road
J.P. Nagar
Whitefield
Bannerghatta Road
Hebbal
Source: Knight Frank Research

34
Q2 2009
Affordable
housing
Understanding The Drivers

As a matter of fact, judging by the prevailing rates in most residential JP Nagar and Banswadi, all of which are considered amongst the more
locations and preferred unit sizes, no residential market caters to the favoured residential pockets in the city.
Rs.3-5 lakh income group. With its preference for 900-1000 sq.ft. units,
Similarly, compromising on unit size can increase affordability for
this income group may not be able to stretch beyond a price range of
consumers in other income groups as well. Table 28 illustrates this fact
Rs.1500-1850/sq.ft., which is below prevailing rates in most residential
based on the willingness of the buyer to compromise on the size of the
locations. Alternatively, consumers in the Rs.3-5 lakh income group
residential unit. The results as shown in the table prove that while
can own a house only if they are willing to compromise on their size
much has been written about the vast gap between end-user
requirement. For instance, consumers in this income group opting for a
affordability and prices quoted by developers, a balance can be
unit size of 600 sq.ft. as opposed to the preferred 900 sq.ft. can
brought about if there is some concession from both sides.
purchase a property worth Rs.3000/sq.ft. in locations like Jayanagar,
Table 28
Size Preference in Bengaluru - Min-850 sq.ft. Max-1050 sq.ft.
Not Affordable
Affordable House Property in Bengaluru - Min 12.95 lakh Max 36.75 lakh
Locations May '09 Rate Max Size (in sq.ft.) & Total Property Value (in Rs.lakh)
(in Rs./sq.ft.)
500 600 700 800 900 1000 1100 1200
sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft.
Min 7,000 35.0 42.0 49.0 56.0 63.0 70.0 77.0 84.0
MG Road
Max 12,000 60.0 72.0 84.0 96.0 108.0 120.0 132.0 144.0
Min 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
Sadashiv nagar
Max 8,000 40.0 48.0 56.0 64.0 72.0 80.0 88.0 96.0
Min 5,400 27.0 32.4 37.8 43.2 48.6 54.0 59.4 64.8
Malleshwaram
Max 5,500 27.5 33.0 38.5 44.0 49.5 55.0 60.5 66.0
Min 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0
Basavangudi
Max 5,700 28.5 34.2 39.9 45.6 51.3 57.0 62.7 68.4
Min 4,500 22.5 27.0 31.5 36.0 40.5 45.0 49.5 54.0
Indira nagar
Max 5,800 29.0 34.8 40.6 46.4 52.2 58.0 63.8 69.6
Min 4,500 22.5 27.0 31.5 36.0 40.5 45.0 49.5 54.0
Rajaji Nagar
Max 5,500 27.5 33.0 38.5 44.0 49.5 55.0 60.5 66.0
Min 4,400 22.0 26.4 30.8 35.2 39.6 44.0 48.4 52.8
Koramangala
Max 5,500 27.5 33.0 38.5 44.0 49.5 55.0 60.5 66.0
Min 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Banswadi
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
BTM
Max 4,800 24.0 28.8 33.6 38.4 43.2 48.0 52.8 57.6
Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
Old Airport Road
Max 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
Jayanagar
Max 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
Old Madras Road
Max 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0
Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
J.P. Nagar
Max 4,500 22.5 27.0 31.5 36.0 40.5 45.0 49.5 54.0
Min 2,400 12.0 14.4 16.8 19.2 21.6 24.0 26.4 28.8
Whitefield
Max 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
Min 2,000 10.0 12.0 14.0 16.0 18.0 20.0 22.0 24.0
Bannerghatta Road
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Min 2,000 10.0 12.0 14.0 16.0 18.0 20.0 22.0 24.0
Hebbal
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0

Source: Knight Frank Research

35
KnightFrank.com
Reduced expectations on the end user's side and readiness for price
negotiation on the developers' front can lead to housing demand
satiation for Bengaluru's mid-income segment. Another interesting fact
observed during the survey is that respondents belonging to the upper
income category of Rs.8-10 lakh preferred to quote a budget far lower
than their actual affordability. The maximum affordable house value
arrived at for this income group falls between Rs.33-36 lakh, while the
house value computed based on the respondents' preferred budget is
Rs.22 lakh. This reflects a cautious approach by consumers in this
income group that can be attributed to uncertainty owing to prevailing
economic conditions.
City Outlook
Bengaluru, with a population of approximately 7 mn., has been
growing at the rate of 3.2% per annum. This growth can be largely
attributed to the migratory population whose shift into the city has
been the result of strong IT/ITES development. The result of this
population growth has been enormous pressure on the city's housing
stock. Figure 23 specifies the housing requirement for the middle
income segment in Bengaluru in 2009, 2010 and 2011.
Figure 23
Total Housing Unit Requirement for Rs. 3-10 lakh
Income Category
330,000
3,27,694
325,000
320,000
3,17,533
315,000
310,000
3,07,687
305,000
300,000
295,000
2011
2009
2010
Previous Years’ Cumulative Requirement Incremental Requirement
Source: Knight Frank Research
Knight Frank research estimates that the middle income population in
Bengaluru will require approximately 3.27 lakh housing units by 2011,
which assuming an average unit size of 800 sq.ft. translates to
approximately 262 mn.sq.ft. of residential space. Approximately 80%
of this total middle income housing requirement will be accounted for
by the Rs.3-5 lakh income segment. As per survey results, this income
group prefers property prices in the range of Rs.13-18 Lakh. In order to
convert potential demand to actual demand, developers would have to
look at reducing existing profit margins and building housing units
within the affordability of the Rs.3-5 lakh income segment, while
potential home buyers would have to be willing to compromise on
house sizes. A very important consideration in assessing the demand
for houses in the middle income segment is the consumers' purchase
timelines, as even if 100% of the requirement translates to demand,
how this demand pans out depends on when consumers are willing to
incur the financial burden of purchasing a house. Figure 24 details the
preferred purchase timelines of rental households surveyed.
Figure 24
Household Purchase Timelines
0-6 months - 5%
6-12 months - 32%
1-2 years - 63%
Source: Knight Frank Research
Given the current economic instability and decline of property prices in
the recent past, it is not surprising that around 63% of buyers are
planning to purchase a new house in 1-2 years. The remaining 33% of
prospective buyers are looking at purchasing a new house within the
next year. The growth of potential residential locations in Bengaluru
has been tempered by a lack of good social and physical infrastructure
facilities. The sudden spurt of real estate development in the city has
put a lot of pressure on existing infrastructure, and the delayed
implementation of ongoing infrastructure projects has substantially
slowed down development plans. Peripheral locations of Bengaluru
have been deeply affected by the lack of proper connectivity and basic
utility services, thus rendering them less attractive as dwelling
locations. Whitefield, located towards the east of the city, lacks social
infrastructure and is afflicted by power outage issues and low
accessibility. Similarly, Bannerghatta Road and BTM Layout have
limitations pertaining to physical infrastructure, an example being
sub-par road development. In addition to the aforementioned issues,
the distance of these micro markets from Bengaluru's CBD is a major
deterrent for people working around the city centre. Hebbal, situated
towards north Bengaluru, has an inherent location advantage due to
its relative proximity to the Bengaluru International Airport. However,
the prevailing economic downturn has slowed the development of this
particular region. The location has good connectivity and quality of
infrastructure, but suffers from inefficient public transport facilities
that hinder its accessibility. Power outage is also a regular feature in
Hebbal. Unless Bengaluru's infrastructure is developed to match the
needs of its population, it will continue to hinder the development of
genuine affordable housing locations around the city.
36
Q2 2009
Affordable
housing
Understanding The Drivers

CHENNAI
City Overview
Chennai is the fourth largest city in India by area and the capital city of Tamil Nadu. Located on the
Coromandel Coast of the Bay of Bengal, Chennai's economy has a broad industrial base in the automobile,
technology, hardware manufacturing, and healthcare industries. The city is India's second largest exporter of
software, information technology (IT) and information-technology-enabled services (ITES). A major portion of
India's automobile manufacturing industry is based in and around the city. The city also contributes 39% to
the state's GDP.

The Chennai Metropolitan Area comprises of the city of Chennai and contiguous area namely parts of
Kanchipuram and Thiruvallur and is governed by the Corporation of Chennai, representing the 155 Wards. The
larger suburbs are governed by town municipalities while the smaller ones are governed by town councils
called panchayats. Satellite towns include Mahabalipuram to the south, Chengalpattu to the south-west, and
Kanchipuram, Sriperumpudur, Tiruvallur and Arakkonam to the west.

The city is generally classified in to four major areas namely the North, Central, South and Western regions.
North Chennai is predominantly an industrial region. Central Chennai is the most developed part of the city
with established commercial and residential markets. South and West Chennai, previously predominantly
residential areas are fast turning into commercial areas, hosting a large number of IT and financial services
companies.

Chennai is a base for the automobile and auto ancillary industry in the country and is acknowledged as the
largest contributor to the growth in this sector. It is also one of the premier port cities in the country, which
has always been a major source of employment. The focus on the manufacturing sector has led to strong
infrastructure development in the city. Strong intra city connectivity and presence of a good air, road and rail
network with other cities has added to the attractiveness of the city. Of late it has been witnessing the entry
of a host of new sectors which are believed to be causing radical changes to the city's landscape.The
residential development in the city has picked up in the last few years and is turning out to be an attractive
investment opportunity for buyers.

Figure 25
Demand Perspective
Distribution of Sample Households According to
Buyer Profile Type of Occupation
A typical resident of Chennai, unlike other cities, is very conservative in
his buying behaviour. A majority of the population in the city comprises
the middle income group which predominantly constitute the end user
segment. Consumers, including house buyers, are value driven and
Self employed (business) - 10%
closely evaluate all possible factors and options before deciding on a
Salaried Private - 88%
product. The household survey results reveal that 88% of the
Salaried Govt - 2%
respondents are from the salaried class working in the private sector,
which shows the dominance of this segment. The migrant population
in Chennai is relatively lower, with about 70% of the population being
local residents. The average household size in the city is around 5
members. Apartment complexes have a lower acceptance compared to Source: Knight Frank Research
other cities and given a choice, potential home buyers would prefer
individual houses.

37
KnightFrank.com

Our survey reveals that within the middle income segment, people
earning between Rs.6-8 lakh per annum constitute a major proportion,
accounting for 53% of the total respondents. A majority of this segment
is employed in the service sector and represent a relatively recent
addition to the population. About 25% of the surveyed respondents are
in the income bracket of Rs.5-6 lakh per annum and these people
mainly represent a mix of the service and manufacturing sector. The
middle income segment in the city consists of people having a mix of
The dominance of 2 BHK apartments with an average size of
approximately 800 sq.ft. and average rental values of about
Rs.9000/month indicates the willingness of the buyer for spending a
considerable amount on accomodation.
Buyers Preferences
In Chennai people have a traditional mindset with most major

traditional values with a modern outlook. Despite a steep rise in decisions being collective family decisions. This attitude reflects

income levels over the last five years the Chennai consumer continues predominantly in their property purchasing decision. Property price,

to be conservative. They are more comfortable with local builders and good physical and social infrastructure are valued more by the buyers

are indifferent to projects by national developers. than apartment size. A person in Chennai in the income category of

Figure 26 Rs.3-5 lakh per annum would be comfortable investing about

Rs.15 lakh for an apartment or an independent home with an average
Distribution of Sample Households According to
Total Annual Income size of 650 sq.ft. which is an average 35 sq.ft. larger than the current
residence. The household segment earning Rs.5-8 lakh per annum is
willing to spend between Rs.19-22 lakh for houses with sizes varying
between 840 sq.ft. to 920 sq.ft. and the Rs.8-10 lakh income segment
is willing to spend about Rs.31 lakh for apartments close to 1100 sq.ft.
Rs. 3-5 lakh - 14%
in size. Clearly apartment size is not a major factor as the increase from
Rs. 5-6 lakh - 25%
Rs. 6-8 lakh - 53% their current residence ranges from 35 to 120 sq.ft. With higher income
Rs. 8-10 lakh - 8% levels the property budget is also increasing, indicating a positive
relation between income and house budget.
Table 31
Average Preferred Budget and Size
Annual Income Average Budget Average Preferred
Source: Knight Frank Research
(Rs. lakh) Size (sq.ft.)
It is observed that about 38% of people from the Rs.3-5 lakh per annum
Rs. 3-5 lakh 14 649
income bracket are staying in Independent houses with 33% in 1 BHK
Rs. 5-6 lakh 19 843
apartment. Around 73% of the households from the Rs.6-8 lakh per
Rs. 6-8 lakh 22 919
annum income segment and 47% of the Rs.5-6 lakh per annum income
Rs. 8-10 lakh 31 1,095
group stay in 2 BHK apartments.
Source: Knight Frank Research
Table 29
Percentage Distribution of Current Residence Type Acceptable locations for a potential home buyer in Chennai depend on
Based on Annual Income good infrastructure provisions with a future potential for development
Annual Income 1 BHK 2 BHK 3 BHK Independent and presence of good social network. Although the middle income
House
segment in Chennai consists of predominantly end users, they prefer
Rs. 3-5 lakh 33% 24% 5% 38%
their property to have a steady appreciation. Connectivity as a factor
Rs. 5-6 lakh 29% 47% 10% 13%
does not rank high amongst the potential demand segment as the city
Rs. 6-8 lakh 6% 73% 7% 13%
is very well connected to most locations.
Rs. 8-10 lakh 8% 50% 25% 17%
Source: Knight Frank Research Amongst the various peripheral and suburban micro markets in
Chennai, our survey has revealed that locations like Rajiv Gandhi Salai
Table 30
Current Residence Type W.R.T and Velachery are preferred by the middle income segment with 39%
Average Size and Rentals of the respondents opting for these locations. This reflects a clear
Current Residence type Average Size Average Rental preference for South Chennai amongst the prospective buyers. The
(sq.ft.) (Rs./month) reasons for the same can be attributed to good infrastructure
1 BHK 615 6,583 development in the area with connectivity to important locations within
2 BHK 791 9,289 the city. The development of the monorail at Rajiv Gandhi Salai and
3 BHK 1,055 12,071 Velachery has made these locations more attractive to the buyer.
Source: Knight Frank Research

38
Q2 2009
Affordable
housing
Understanding The Drivers

Figure 27 Figure 28
Factors Influencing Preference for Location Preferred Amenities within a Residential Project
Un-interrupted water supply
Good infrastructure 29%
Power Back-up
Good potential for development 22% High level of security systems
Presence of social circle GymnasiumSpa
21%
(friends, relatives)
Modular Kitchen
Good connectivity to frequently
15%
travelled places Interior fixtures

Favourable demographics Finishing

13%
Multipurpose hall
0% 5% 10% 15% 20% 25% 30% 35%
Club house
Source: Knight Frank Research Percentage of Responses
Swimming pool
Lower prices compared to other developed locations in the city and Servant quarters
focus on development have resulted in high buyer interest in these Creche
locations. Other locations of interest like Tambaram, Chilapakkam and 0 20 40 60 80 100 120 140
Adayar also attest the buyer preference for southern Chennai. No. of Responses
Source: Knight Frank Research
The sample household survey clarifies that along with price of the
product, factors like water supply, noise and traffic congestion and Supply Prespective
home security are also important determinants for the potential buyer
The Chennai residential sector has always witnessed steady growth.
in the middle income segment. This highlights a direct reflection of the
The recent development of Rajiv Gandhi Salai as the IT-corridor and
city characteristics where there has been an inherent water problem
Sriperumbudur as the Electronic Corridor has been the primary reason
with houses and apartments being prone to relatively more security
for the sudden spurt of real estate development in the city. The influx of
problems in peripheral locations. Home buyers in Chennai are not
capital into the residential sector, contributed primarily by speculator
specific about the apartment size and facilities as long as the basic
demand, fueled builder concentration in premium residential
infrastructure is strong. The disturbance caused by traffic and noise
development and resulted in the astronomical increase in property
congestion ranks high among the key factors influencing the buying
prices across the city. The increased potential of the sector attracted
behaviour of the sampled middle income household. This indicates a
several national developers to foray into the city with their lifestyle
strong influence of good neighbourhood in home buying decisions.
projects. The focus on developing premium property had an adverse
Potential buyers in Chennai place a lot of importance on basic facilities impact on the middle income segment with house buying capability
like un-interrupted water supply and power back- up along with good being drastically reduced.
security systems instead of facilities like swimming pool and club
The slowdown in the economy has put a sudden halt to house
Houses. It shows that the middle income segment in Chennai does not
development activity in the city, with most ongoing residential projects
place a lot of importance on luxury facilities. If the developer can
being stalled. Developers have witnessed close to 50% reduction in
ensure uninterrupted supply of water and power, it would ensure a
sale volumes. Inflated land and property prices combined with a lull in
higher demand for the housing project.
the job market have resulted in creating further strain on the
developers. Now with the real demand only coming from the middle
Table 32
Factors Influencing Choice of Residential Project income segment builders have turned their focus towards affordable
Factors Rank housing projects to boost their sale volumes.
Water supply 1
In the current scenario developers are either launching new housing
Disturbance caused by traffic/noise/congestion 2
projects as affordable homes or modifying under construction projects
Safety & security 3
to market it as affordable housing development.
Price 4
Un-interrupted power supply 5 Knight Frank Research conducted interviews with prominent
Apartment size 6 developers, relevant developmental authorities and financial
Facilities available 7 institutions in the city, which has contributed in understanding of
Developer goodwill 8 supply dynamics in the city.
Source: Knight Frank Research

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KnightFrank.com

Table 33
Select Affordable Housing Projects in Chennai
Sr.No Project Name Developer Location May '09 Rate (Rs./sq.ft.) Unit Size Range (sq.ft.)
1 Mantri Synergy II Mantri Developers Rajiv Gandhi Salai 2,800 870-1,140
2 Cosmo City Provident Housing Rajiv Gandhi Salai 1,780 983-1,062
3 Pushpadhruma Marg Construcions Rajiv Gandhi Salai 2,099 847-1,077
4 India Bulls Greens India Bulls Properties Rajiv Gandhi Salai 3,000 650-1,700
5 Bollineri Hillside View BSCPL Rajiv Gandhi Salai 2,500 800-1,000
6 Gold City Duggar Housing Rajiv Gandhi Salai 1,790 444-1,069
Source: Knight Frank Research

Depending on the location, prime developers in Chennai regard homes The new satellite towns promoted by The Tamil Nadu Housing Board
in the price range of Rs.15-30 lakh as affordable for the middle income (TNHB) around Chennai are expected to be self-sufficient with the
segment. Most of such projects are being developed in peripheral provision of basic utilities along with strong social and physical
locations of the city. infrastructure. The developmental projects at these satellite townships
would cost about Rs 500 crore, and cover close to 1500 acres of land.
Prominent local and national developers have either launched new
These townships, which would develop around Outer Ring Road (ORR),
products for the MIG segment or converted ongoing projects to make
Old Mahabalipuram and Poonamallee High Road, would have
them affordable. These projects are concentrated towards the southern
provision for the development of commercial spaces along with
and the western parts of the city in locations like Rajiv Gandhi Salai,
residential development. This will also help in meeting future needs of
Velachery, GST Road, Vadapalani, Ambattur and Sriperumbudbur.
housing in Chennai and also result in the development of road and rail
transport. It is expected to greatly improve the profile of locations
The size of these apartments vary from 500-700 sq.ft. for 1 BHK homes
around the south-west part of the city over the next couple of years.
to 700-900 sq.ft. for 2 BHK homes. The cost of these dwelling units is
The business opportunities created by the modernisation of airport
expected to range from Rs.1200 to 2500/sq.ft. which is a variance of
would boost the property values in the areas around the facility. It is
Rs.200-300/sq.ft. from normal housing units in their respective
expected to fuel the interest of property investors in locking properties
locations. The cost of constructing affordable homes is expected to
around Inner Ring Road in expectation of high returns. The Inner Ring
range from Rs.900-1700/sq.ft., with the higher cost on partition walls
Road connects the central city localities like Kodambakkam and
to be offset by lower material costs. The facilities being provided, have
Mambalam with the airport. The proposed airport at Sriperumbudur on
also been scaled down to accommodate the price.
the NH-4 is also expected to entice residential development towards
Inspite of economic pressures, the land rates in the city continue to the west.
remain high, making it difficult to commence affordable housing
projects in emerging residential pockets. To add to the problem the Affordable housing
residents of Chennai are very particular on where they choose to buy a
home. The developers are demanding pro-active legislation from the
projects are
state government that alleviates this crisis, like provision of additional
FSI and TDR rights.
concentrated
The Chennai Metropolitan Development Authority (CMDA) is
towards the southern
responsible for regulating physical developments within Chennai
Metropolitan Area .For this purpose, CMDA has prepared a Master Plan
and western parts in
which designates the land use permissible in every part of the city.
locations like Rajiv
The development of the Outer Ring Road (ORR) which will connect
western and southern locations of the city is expected to provide a
Gandhi Salai,
major impetus to housing development in the area The ORR will
connect Vandalur (NH-45) to Tiruvottiyur Ponneri Panjetty (TPP) road.
Velachery, GST Road,
The project will come up in four stages .The six-lane ORR will include a Vadapalani, Ambattur
provision for 22-metre-wide corridor for public transport.
and Sriperumbudbur

40
Q2 2009
Affordable
housing
Understanding The Drivers

The home loan market in the city has always seen a steady demand The table also shows the capital rates that the households will have to
which can be attributed to consistent property growth in the city. The pay keeping in view the preferred house size and the affordable house
soaring growth in the real estate sector over the last 3-4 years property value.
translated in to a high growth for the home loan players in the city. The
The survey reveals that although the preferred size of residential unit
loan size and volumes have increased with banks promoting home
for the Rs.3-5 lakh income group begins at 550 sq.ft., it goes up to a
buying on a large scale. The financial institutions revealed that in
range of 900 sq.ft. Meanwhile, the higher income categories i.e.
Chennai around 70% of the applications are for loans in the
Rs.6 lakh and above has preference for unit size in excess of 800 sq.ft.,
Rs.10-30 lakh range. While the recently reduced interest rates have
with the Rs.8-10 lakh income group opting for units as large as
elicited home loan enquiries, the buyer's would wait until the property
1200 sq.ft. It is to be noted that as the preference for larger unit sizes is
prices come down further.
predominant amongst the city's residents, especially amongst the
The banking sector is apprehensive in providing construction finance higher income category, the rise in payable rates may still not be
loans to developers but the recent market recovery is expected to enough to match the growth in residential capital values. As the
entice them to have a relook in the sector. With most banks turning preference for larger unit sizes is prominent with higher income levels,
extremely cautious, the affordable housing projects of the premier the proportion of rise in payable rates may not match the proportion of
developers as well is being closely scrutinised. Banks view most rise in the affordable house value.
affordable housing projects as a high risk exposure because these
The survey of households in Chennai confirms that on the basis of the
projects are coming up in the far flung areas which make them diffiult
preferred unit sizes, the capital values for affordable houses for the
to sell.
income category Rs.3-5 lakh should not be more than Rs.2500/sq.ft.
This leaves Chitlapakkam at a price range of Rs.2200-2500/sq.ft. and
Identifying Affordability located around 20 kms away from the city centre of Mount Road, as the
only affordable residential micro-market for this income group.
As with the other cities, the household survey carried out in Chennai to
However, if the households are willing to compromise on the unit sizes
ascertain the affordability of households, brought in to light a number
they will have more location options and may also be able to afford a
of interesting features pertaining to the city's buyer profile. Table 34
property in premium locations. Table 35 illustrates this fact based on
depicts in detail the maximum affordable EMI of households at various
the willingness of the buyer to compromise on the size of the
income levels. This EMI has been estimated from the annual income of
residential unit.
household and its spending and saving behaviour. The maximum EMI
has been translated into affordable house property value based on
assumed interest rates, loan tenure and loan to value ratio.

Table 34
Affordability in Chennai
Household income (per annum) Rs. 3 lakh - 5 lakh Rs. 5 lakh - 6 lakh Rs. 6 lakh - 8 lakh Rs. 8 lakh - 10 lakh
Maximum EMI (Rs.) 10,500 - 16,500 14,500 - 21,000 21,000 - 24,500 27,000 - 34,500
Maximum loan eligibility (Rs.) 11,81,000 - 18,16,000 16,32,000 - 23,09,000 23,57,000 - 27,16,000 30,17,000 - 38,34,000
(9% interest rate, 20 year loan tenure)
Buyer's own contribution (Rs.) 2,08,000 - 3,20,000 2,88,000 - 4,07,000 4,16,000 - 4,80,000 5,30,000 - 6,77,000
(Assuming 85% loan)
Affordable house property value (Rs.) 13,89,000 - 21,36,000 19,20,000 - 27,16,000 27,73,000 - 31,96,000 35,49,000 - 45,10,000
Preferred size (sq.ft.) 550 - 900 800 - 850 900 - 1,000 1,050 - 1,200
Price (Rs./sq.ft.) 2,400 - 2,500 2,200 - 3,400 3,000 - 3,200 3,400 - 3,800
Locations available Chitlapakkam Velachery Velachery Moggapair
considering preferred size Rajiv Gandhi Salai Rajiv Gandhi Salai Guindy
and few residential areas Tambaram Tambaram Vadapalani
Chitlapakkam Chitlapakkam Velachery
Rajiv Gandhi Salai
Tambaram
Chitlapakkam

Source: Knight Frank Research

41
KnightFrank.com

It highlights the options available to the various income groups (Rs.3 -
10 lakh) in case they are ready to go for smaller sized units, provided
such units are offered by developers in the said locations. For instance,
the scenario presented in the table provides a number of residential
locations for the Rs.3-5 lakh income group. While previously this
income group could afford housing only in one location, ie,
Chitlapakkam, with lower unit size they have an enhanced ability to
buy property in relatively prime residential micro-markets like
Mogappair and Guindy with price range of Rs.3,500-4,200/sq.ft.
In case of the higher income categories, who could previously afford
residential micro-markets of Velachary, Rajiv Gandhi Salai and
Tambaram at a distance of 20-25 kms from the city centre, with unit
size compromise, they become eligible to purchase property in
upmarket residential locations like RA Puram, Anna Nagar, T Nagar,
Ashok Nagar and Egmore. These locations have residential capital
values in the range of Rs.4,500-9,000/sq.ft. However, it is to be seen if
developers would be willing to come up with products comprising
smaller sized units and lower prices in these locations.
Meanwhile, not surprisingly, the city's inherent conservative nature
showed up in the survey regarding their willingness to spend on a
property.

Table 35
Size Preference in Chennai - Min-550 sq.ft. Max-1200 sq.ft.
Not Affordable
Affordable House Property in Chennai - Min 13.89 lakh Max 45.10 lakh
Locations May '09 Rates Max Size (in sq.ft.) & Total Property Value (in Rs.lakh)
(in Rs./sq.ft.)
500 600 700 800 900 1000 1100 1200
sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft.
Min 15,000 75.0 90.0 105.0 120.0 135.0 150.0 165.0 180.0
Boat Club
Max 17,000 85.0 102.0 119.0 136.0 153.0 170.0 187.0 204.0
Min 13,500 67.5 81.0 94.5 108.0 121.5 135.0 148.5 162.0
Poes Garden
Max 14,000 70.0 84.0 98.0 112.0 126.0 140.0 154.0 168.0
Min 8,000 40.0 48.0 56.0 64.0 72.0 80.0 88.0 96.0
R A Puram
Max 9,000 45.0 54.0 63.0 72.0 81.0 90.0 99.0 108.0
Min 7,000 35.0 42.0 49.0 56.0 63.0 70.0 77.0 84.0
Anna Nagar
Max 8,000 40.0 48.0 56.0 64.0 72.0 80.0 88.0 96.0
Min 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
T Nagar
Max 8,000 40.0 48.0 56.0 64.0 72.0 80.0 88.0 96.0
Min 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0
Ashok nagar
Max 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
Min 4,500 22.5 27.0 31.5 36.0 40.5 45.0 49.5 54.0
Egmore/Kilpauk
Max 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
Min 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Moggapair
Max 4,200 21.0 25.2 29.4 33.6 37.8 42.0 46.2 50.4
Min 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Guindy
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Min 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Vadapalani
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Min 2,800 14.0 16.8 19.6 22.4 25.2 28.0 30.8 33.6
Velachery
Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Min 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
Rajiv Gandhi Salai
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Min 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
Tambaram
Max 3,200 16.0 19.2 22.4 25.6 28.8 32.0 35.2 38.4
Min 2,200 11.0 13.2 15.4 17.6 19.8 22.0 24.2 26.4
Chitlapakkam
Max 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0

Source: Knight Frank Research

42
Q2 2009
Affordable
housing
Understanding The Drivers

While the average budget expressed by the income groups in the range
of Rs.3-6 lakh remained within their calculated affordability, the Rs.6-
10 lakh income groups were found to be more conservative. In Chennai,
the calculated affordable property value for a household with an
income of Rs.6-8 lakh is between Rs.28-32 lakh. However, the survey
revealed that respondents from this income category preferred to have
an average budget of only Rs.22 lakh for the property, much lower
compared to what they can afford as per Knight Frank research
calculations. Similar trend was observed in case of the Rs.8-10 lakh
income category.
middle income segment is the consumers' purchase timelines, as even
if 100% of the requirement translates to demand, how this demand
pans out depends on when consumers are willing to incur the financial
burden of purchasing a house. Figure 30 details the preferred purchase
timelines of rental households surveyed.
Figure 30
Household Purchase Timelines

0-6 months - 3%
City Outlook 6-12 months - 19%
1-2 years - 78%
Chennai has a population of approximately 4 million that has been
growing at approximately 2.58% per annum. The city's population is
vastly spread, and consequently, the development of peripheral areas
has become increasingly important. Most of the residential units in the
city are independent houses, and the concept of apartment housing Source: Knight Frank Research

has only been indulged over the past four years. Figure 29 specifies the
The survey results revealed that only one-fifth of the middle income
housing requirement for the middle income segment in Chennai in
households desire to purchase a house within a year. The rest of the
2009, 2010 and 2011.
households surveyed would consider purchasing a house within a
Figure 29 longer time frame of 2 years.
Total Housing Unit Requirement for Rs. 3-10 lakh
Income Category In spite of the current focus on affordable housing and the evident
need for the same, its development is being hindered by certain
158,000
1,57,471 constraints. Firstly, high land costs have greatly diminished the
157,000 attractiveness of potential locations to developers. Despite the good
connectivity and accessibility of most of these locations, a deficiency
156,000
1,55,557 of surface water sources and ground water reserves has hampered
155,000 their growth to a great extent. Rajiv Gandhi Salai, the most preferred
location for affordable housing, suffers from an acute scarcity of water
154,000 1,53,667 due to a low ground water table. A lack of avenues for entertainment,

153,000 for example organized retail outlets, and healthcare facilities have also
hampered the growth of residential development in this particular
152,000 location. The location of Guindy is very well connected within the city
and has good accessibility, but being a commercial hub often faces
151,000
2011
2009

2010

traffic and noise congestion. In Velachery, the distance from the CBD
and water shortage issues are factors that deter potential house buyers.
Locations towards the west, examples being Ambattur and Moggapair,
Previous Years’ Cumulative Requirement Incremental Requirement
are fairly close to the city centre and have proper infrastructure, but are
Source: Knight Frank Research
relatively costlier as compared to southern locations. The
Knight Frank research estimates that the middle income population in aforementioned issues need to be addressed if the demand for middle
Chennai will require approximately 1.57 lakh housing units by 2011, income housing in Chennai is to be satiated.
which assuming an average unit size of 800 sq.ft. translates to
approximately 126 mn.sq.ft. of residential space. Approximately 91% of
this total middle income housing requirement will be accounted for by
the Rs.3-5 lakh income segment. As per survey results, this income
group prefers property prices in the range of Rs.14-21 lakh. A very
important consideration in assessing the demand for houses in the

44
KnightFrank.com

Hyderabad
City Overview
Hyderabad, the capital city of Andhra Pradesh, is the fifth largest and seventh most populated city in India.
The capital city comprises the twin cities of Hyderabad and Secunderabad separated by an artificial lake
called Husain Sagar. The development of a township called HITEC City with state-of-the-art facilities
prompted several IT and ITES companies to set up operations in the city. Aggressive promotion of growth in
this area has led civic boosters to call the city "Cyberabad". Hyderabad has also been referred to as the
second Silicon Valley of India after Bengaluru.

Recently, the Government of Andhra Pradesh has constituted Greater Hyderabad Municipal Corporation
(GHMC) with the merger of the surrounding 12 municipalities and eight villages. The population of GHMC
increased from 4.3 million in 1991 to 5.75 million in 2001 with a decadal growth rate of 32%. The city has
expanded from about 175 sq.km. to 725 sq.km. The urban development area is constituted as Hyderabad
Metropolitan Development Authority (HMDA) over 6300 sq.km. with a population of 60 lakh. This move was
taken in order to obtain funds from the central government to improve the infrastructure within the city and
speed up its development.

The city authorities have been instrumental in the development of a widespread network of rail, road and air
infrastructure over the last decade. The NH-7 and NH-9 form the core of interstate connectivity and the MMTS
strengthens a local communication within the city. Ongoing/Proposed infrastructure developments like
outer ring road, which is partly operational, and Mass Rapid Transit System (MRTS), were initiated with the
basic objective to decongest the city by improving connectivity between the twin cities and cutting down the
travel time. The 11.5 km long P. V. Narasimha Rao Elevated Expressway project will facilitate better
connectivity of the city to the new airport at Shamshabad. The government is building a skyscraper business
district at Manchirevula with a 450m Andhra Pradesh Industrial Infrastructure Corporation Ltd. (APIIC) Tower
at its centre . This tower upon its completion will be the tallest building in India.

In the recent years the economy of the city has transformed, with the service industry becoming the major
growth driver of economic development. This sector has emerged as the city's single largest employer,
contributing almost 75% of its total workforce. Currently the economy is also diversifying to include other
sectors such as the bio-technology, industry, trade, commerce, transportation, storage, communication and
construction sectors. Proactive state government policies, vast resource pools of skilled manpower and real
estate development by local, national and foreign developers have been instrumental in making Hyderabad a
preferred destination for global corporates.

Figure 31

Demand Perspective Distribution of Sample Households According to

Type of Occupation
Buyer Profile
In the city of Hyderabad, 77% of the prospective home buyers (tenant
households) live in nuclear families, and the rest live in joint families.
The average household size stands at around 4.5 persons per
Salaried Govt - 2%
household. Among the tenant households surveyed, 86% represent
Self employed (business) - 31%
the migratory population of the city. Of this, 59% of households have
Salaried Private - 67%
migrated to the city for job purposes, 26% have migrated for business
purposes and about 15% after marriage. Migrant households have
been living in the city on average about 6 years.

Source: Knight Frank Research

44
Q2 2009
Affordable
housing
Understanding The Drivers

In order to capture occupation-wise variations, the sample potential Buyer Preferences

home buyers have been selected from various sectors. The majority (i.e.
67%) of them are salaried and working in the private sector. Around A prospective buyer's decision to purchase property in Hyderabad is

31% are self employed and the rest work in the government sector. As influenced by a variety of factors like capital values, size of apartment,

the survey is restricted to middle income households with a Rs.3-10 location and amenities. The preferences of respondents in terms of

lakh annual income, the entire sample is distributed within this income their budget and preferred house size were studied. It was observed

group, and the Rs.3-6 lakh income group constitutes a large portion of that the potential buyers in Hyderabad have a budget ranging between

the survey respondents. Rs.16 lakh and Rs.25 lakh, with preferred sizes varying between 600 sq.
Figure 32 ft. and 1000 sq. ft. Higher income households have higher budgets and
a preference for larger apartment sizes.
Distribution of Sample Households According to
Total Annual Income Table 38
Average Preferred Budget and Size
Annual Income Average Budget Average Preferred
(Rs. lakh) Size (sq.ft.)
Rs. 3-5 lakh - 52% Rs. 3-5 lakh 16 715
Rs. 5-6 lakh - 29%
Rs. 5-6 lakh 19 787
Rs. 6-8 lakh - 6%
Rs. 6-8 lakh 23 906
Rs. 8-10 lakh - 13%
Rs. 8-10 lakh 25 1,016
Source: Knight Frank Research

Source: Knight Frank Research With the city limits expanding, there is a trend of relocation being
witnessed in the Hyderabad region. It was found that good
The survey findings revealed that on average, tenant households have
infrastructure and connectivity are the two major factors that influence
been staying in their current residence for the last two and a half years.
the choice of location of potential house buyers. The presence of a
A majority of the households are residing in 1 BHK and 2 BHK houses
social circle is the third most influential factor.
irrespective of income. A good proportion of households in the income
range of Rs.8-10 lakh reside in independent houses. The average size
of a 1 BHK flat is around 540 sq.ft. that commands a monthly rental of Figure 33

around Rs.6000/month. The average size and monthly rental of 3 BHK Factors Influencing Preference for Location
and independent houses is very similar. Good infrastructure 38%

Table 36 Good connectivity to frequently

23%
travelled places
Percentage Distribution of Current Residence Type
Presence of social circle
Based on Annual Income (friends, relatives)
18%
Annual Income 1 BHK 2 BHK 3 BHK Independent
Good potential for development 13%
House
Rs. 3-5 lakh 56% 33% 7% 4% Favourable demographics 8%
Rs. 5-6 lakh 34% 56% 2% 8%
0% 5% 10% 15% 20% 25% 30% 35% 40%
Rs. 6-8 lakh 45% 36% 18% 0%
Percentage of Responses
Rs. 8-10 lakh 39% 9% 13% 39% Source: Knight Frank Research

Source: Knight Frank Research

The soaring rates in and around the CBD areas have pushed the
Table 37
potential buyers towards the outskirts of the city, where the capital
Current Residence Type W.R.T
Average Size and Rentals rates are lower compared to the other locations within the city limits.
Current Residence type Average Size Average Rental Moreover, developers are launching new projects in the outskirts
(sq.ft.) (Rs./month) where land is available at cheaper rates. The development of Outer
1 BHK 536 6,296 Ring Road provides good connectivity to these locations.
2 BHK 757 8,958
3 BHK 1,063 9,500
Independent house 938 9,147
Source: Knight Frank Research

45
KnightFrank.com

In terms of the most preferred locations in the outskirts, the Figure 34

households have a preference for Uppal and Nacharam due to their Preferred Amenities within a Residential Project
strong representation of IT companies, proximity to Mindspace Raheja Power Back-up

at Pocharam and other industries in these areas and upcoming SEZ's in Un-interrupted water supply
the vicinity. Kukatpally, Miyapur and Madhapur are the next most High level of security systems
preferred locations as they provide good infrastructure and proximity GymnasiumSpa
to work places and entertainment zones. The presence of education Finishing
institutions, proximity to airport and good connectivity make Swimming pool
Dilshuknagar and LB Nagar the next most preferred residential Modular Kitchen
locations. Some respondents preferred Kompally because of its Interior fixtures
proximity to the CBD. Club house
Servant quarters
The study has captured the factors which influence the decision of a
Multipurpose hall
buyer in the selection of residential projects in a preferred location.
Creche
Respondents have rated a set of factors on a scale of 1 to 4 (4 being the
0 20 40 60 80 100 120 140 160 180
most important and 1 the least). Based on the ratings, mean scores are
No. of Responses
generated for each factor and the one with the highest mean score has Source: Knight Frank Research
been identified as the most important factor and ranked 1.

Table 39
Supply Perspective
Factors Influencing Choice of Residential Project
The residential market in Hyderabad has seen a noticeable change in
Factors Rank
development trend from 2005 onwards. Proactive government
Safety & security 1
initiatives, the growth of the IT, Pharma and Biotech industries and the
Un-interrupted power 2
inception of SEZs, Industrial Parks and IT campuses have all
Water supply 3
contributed to the residential boom in Hyderabad. This rapid
Disturbance caused by traffic/noise/congestion 4
development, along with the sudden demand for quality housing, has
Apartment/home size 5
seen the entry of many national and international developers into the
Facilities available 6
local market. Thus, over a span of 2-3 years, Hyderabad has witnessed
Price 7
extensive growth of premium and luxury segment housing, gated
Developer goodwill 8
communities and villas. Easy credit availability and high profit margins
Source: Knight Frank Research
of developers have led to a rise in property prices, which in turn has
driven speculation in Hyderabad's property market. Consequently,
Safety and security, un-interrupted power and water supply and
property prices have escalated to unaffordable levels, resulting in the
disturbance caused by traffic are the most important factors
reduced buying capacity of the MIG segment across Hyderabad.
influencing a buyer's decision with respect to the choice of a
residential project in a particular location in Hyderabad. Amenities like The global economic slowdown has adversely impacted the demand
a gymnasium and spa were revealed to be moderately important, while for housing in the Hyderabad residential market. Subdued interest by
those such as a swimming pool, servant's quarter, multipurpose hall, end users and investors has led to a decline in property prices.
interior fixtures and crèche have insignificant influence in purchase Meanwhile, high supply in the face of this reduced demand has
decisions. It was observed that the prospective buyers indicated a created a demand-supply mismatch in the luxury residential segment.
willingness to compromise on factors like apartment size, price,
facilities and developer's goodwill. In today's market, the final price In order to understand the supply dynamics of the affordable housing
and grade of the property has a direct bearing on its range of amenities market in Hyderabad, Knight Frank research carried out primary
provided. Consumers' increasing market awareness and exposure to a surveys of major stakeholders in the city's real estate sector, namely
cosmopolitan lifestyle have greatly influenced the nature and number developers, bankers and government authorities. Developers spoke of
of amenities provided by the developer. a decline in residential enquires as well as conversion rates in the past
8-10 months. Market enquiries have decreased by around 40%, while
the conversion rate (i.e. actual demand) has declined by about 70% in
the last 8-10 months.

46
Q2 2009
Affordable
housing
Understanding The Drivers

The primary reason attributed to the decline in residential demand was
job insecurity among the target segment, mainly the IT/ITES sector,
which forced potential end users to defer their purchase decisions.
While property prices have declined in the city over the last year,
buyers, in anticipation of a further fall in prices, have adopted a 'wait
and watch' approach towards buying a house.
adopted while providing affordable housing. Miyapur, Dilshuknagar,
Shamirpet in the north/north east, Sanath Nagar, BHEL, Nacharam,
Uppal, Gachibowli, Kondapur, Kukatpalli, Miyapur, Genome Valley,
Vijaywada Highway, Karimnagar Highway, Warangal Highway and
Shamshabad are developers' preferred locations for affordable
housing projects.

After witnessing the pinch of low conversions in the luxury segment,
developers have started to redesign their projects to suit the present
market for affordable housing. Today, many developers feel that the
only way to revive their business is to launch projects which match the
demand for affordable housing in the market. This initiative by
developers will not only revive their own business, but will also help in
reviving Hyderabad's residential market. Based on the feedback
received from developers, key characteristics of affordable housing
market dynamics have been identified as follows.
1. Location of the project - According to the developers, affordability
depends on connectivity, price variability and product features
(especially size) rather than location. Moreover, affordable housing
functions best if well connected to work places or closer to industrial
areas. It can come up anywhere in peripheral locations where large
expanses of vacant land are available and rates are cheaper.
2. Land - Though land is available at cheaper rates, people may not
prefer to move to peripheral locations due to the non-availability of
physical and social infrastructure. Developers confessed their
apprehension on the success of standalone housing projects on the
outskirts, and believe that the integrated townships model should be
3. Property Specifications - The cost of affordable housing depends on
the size of the apartment and the specifications used for the product.
The more complex the specifications in terms of materials used for
construction, the higher is the product cost. Therefore, the unit price
can be altered in a big way by moderating the specifications and size
of the product. Most importantly, the product should not consume too
much space for common areas.
4. Cost of construction - The cost of construction related to any type of
residential development is more or less similar. As a factor, the cost of
construction does not impact the price of a product in a big way. In the
Hyderabad market, the cost of construction for a residential project
ranges between Rs.800-1000/sq.ft. depending upon property
specifications.
5. Amenities provided - The opinion of the developers with regard to
the inclusion of amenities is divided. While some believe that all
amenities should be provided with only unit size being varied, others
believe that amenities and affordability cannot go together. They feel
that as more money is spent on luxurious amenities and facilities, the
cost of construction would go up, thus rendering a supposed
affordable housing project to become a high-end product.

Table 40
Select Affordable Housing Projects in Hyderabad
Sr.No Project Name Developer Location May '09 Rate (Rs./sq.ft.) Unit Size Range (sq.ft.)
1 Nile Valley Janapriya Engineers Syndicate Madinaguda 1,600 940-1,350
2 Metropolis Janapriya Engineers Syndicate Moti nagar 2,650 625-1,250
3 Arcadia Janapriya Engineers Syndicate Kaukur 1,895 585-1,500
4 Utopia Janapriya Engineers Syndicate Attapur 2,300 700-1,490
5 Celestia Mantri Gachibowli 2,640 1,000-1,198
6 Rainbow Vistas Ashoka & Cybercity developers Near Hitech city 2,679 1,045-1,515
7 Gulmohar Park II Modi Properties & Investment Pvt Ltd Mallapur 2,000 1,197-1,453
8 May Flower Heights Modi Properties & Investment Pvt Ltd Nacharam 2,300 1,260-1,695
9 Indu Aranya Indu Group LB Nagar 1,850 1,602-1,900
10 Commune Golden gate Kollur 1,800 1,060-1,750
11 Manjeera Smart Homes Manjeera group Qutbullapur 2,100 1,100-1,665
12 Greenwood Residency Modi Properties & Investment Pvt Ltd Kaukur 1,799 1,081-1,462
13 Ushodayam Green Homes Satyavani Group Annojiguda 2,200* 1,100-1,691

* Rates negotiable
Source: Knight Frank Research

47
KnightFrank.com

6. Price of the product - As per the developers, given the earning affordable housing is growing and governments have reduced
propensity of households in Hyderabad, a product in the price range of registration charges for units less than 1200 sq.ft., developers are
Rs.1600 to 2300/ sq.ft., can be termed as affordable. The ongoing redrawing their plans to exploit this opportunity. Due to the economic
rates are as follows. slowdown there has been a market correction, and developers should
introduce the right product mix in the market to cater to end user
a. Within corporation limits the price ranges from Rs.2500-4000/sq.ft.
demand.
b. Within municipal limits the price ranges from Rs.1800-2200/sq.ft.
c. Close to municipal limits the price ranges from Rs.1500-1800/sq.ft. The government authorities and officials from the housing board were
d. Distant locations from the city limits, the price should be around interviewed to understand their initiatives in affordable housing within
Rs.1200-1400/sq.ft. the city. The Hyderabad Metropolitan Development Authority (HMDA),
Greater Hyderabad Municipal Corporation (GHMC), Andhra Pradesh
Officials of public and private banks were also interviewed to
Housing Board (APHB), Andhra Pradesh Rajiv Swagruha Corporation
understand the demand dynamics witnessed by the home loan sector
(APRSC) and Rajiv Gruha Kalpa are the concerned authorities
in the past few years. They feel that the average age of the house buyer
responsible for housing and monitoring of real estate in the city. The
has come down as consumers are now buying for investment purposes
HMDA and GHMC are the permission providers for layouts and
as well.
regulatory authorities for building permissions within the Hyderabad
limits. Further to this initiative by the Central Government in providing
The upswing of the IT/ITES sector in Hyderabad has boosted the city's
the guidelines for National Affordable Housing in Partnership under
real estate market by increasing the propensity to buy amongst
JNNURM, the HMDA is planning to come up with an affordable housing
consumers. Though there is a tendency to buy independent houses,
model for its land banks (catering to a budget segment of Rs.5-15 lakh)
affordability, availability in desired locations and convenience are the
on a partnership basis under this scheme.
major determinants of the same. Also, managing independent houses
can be a cumbersome prospect for nuclear families.
The APHB provides housing on a limited scale for the LIG, MIG and HIG
segments. They either construct on their own or adopt a PPP model
With the economic downturn, companies are resorting to job cuts that
wherein the APHB sources land and the developer has to give back 5%
affect home loan demand due to consequent job insecurity. Demand
of the land to be provided for LIG segment. The price at which APHB will
for home loans was at its peak during the boom period from 2006-07
buy the LIG units is prefixed with the developer and these are marketed
as investment in housing was rampant. The majority of buyers were
by APHB.
people working in software, and the average age of the buyer was
around 30 years. Property prices increased by an average of 200-300% ,
and enquiries and conversion rates soared. The global slowdown in
2008 adversely impacted the residential segment, with the number of
enquiries declining and the conversion rates dropping by around 33%
compared to 2006-07 rates.
The global slowdown
The market for construction loans has lost pace in recent times. Banks
in 2008 adversely
have become cautious and are reluctant to provide construction loans
to developers. The following criteria are considered before a
impacted the
construction loan is approved.
residential segment,
• The feasibility of the project
• The promoter's market reputation
with the number of
• The funding provided to the promoter
• Financial stability
enquiries declining
• Product pricing and the conversion
• Repayment
• Saleability rates dropping by
The recent reduction in home loan interest rates did not translate to around 33% compared
higher demand for houses as the property boom in the last two years
stretched prices to exorbitant levels. Now that the demand for to 2006-07

48
Q2 2009
Affordable
housing
Understanding The Drivers

APRSC has been incorporated to convert the dream of the mid income
group into reality by giving them an 'affordable house' equipped with
Identifying Affordability
all modern facilities at 25% less than the prevailing market rate, on The household survey in Hyderabad carried out in order to determine

behalf of the State Government. In order to make houses affordable, the affordability of the various income groups at the city level revealed

four unit sizes (464, 685, 1100, 1450 sq.ft. plinth area) have been several notable characteristics of the city's housing market. Table 41

incorporated for four income levels (Rs.6,000-10,000, Rs.10,000- depicts in detail the maximum affordable EMI of households in various

15,000, Rs.15,000-20,000 and Rs.20,000-25,000). The Government income levels. This EMI has been estimated from the annual income of

has decided to allot lands wherever it is available and acquire private a household and its spending and saving behavior. The maximum EMI

lands with the consent of the land owners. The corporation issues a has been translated into an affordable house property value based on

notification to invite applications and a tender to fix a contractor. an assumed interest rate, loan tenure and loan to value ratio. The table

Based on the eligibility criteria on the income levels the allotment of also shows the capital rates that the households will have to pay

flat/house is done through lottery. Once allotment is confirmed the keeping in view the preferred house sizes and the affordable house

individual is required to deposit 25% of the cost within three months in property value.

two instalments failing where allotment will be cancelled, forfeiting the

As shown in Table 41, a favourable scenario for the mid-income
EMD. The rest 75% has to be paid in four instalments. Projects under
segment is depicted in Hyderabad. The survey reveals that at present
APRSC are at Chandanagar and Pocharam.
there are a number of locations in the city that cater to the need of the

The Andhra Pradesh State Government has formulated Rajiv Gruha segment. For instance, the households belonging to the income group

Kalpa Scheme to construct a large number of houses in urban areas of Rs.3-5 lakh can afford to purchase a property in locations like

and to increase the availability of housing stock for the poor and lower Madhapur and Uppal, which in recent years have become preferred

income groups. The procedures are similar to the Rajiv Swagruha residential locations owing to IT development there. However, these

Scheme. The projects under Rajiv Gruha Kalpa scheme are at locations are around 13-22 kms away from the city centre of Begumpet

Bachupally, Chandanagar, Lakshmiguda and Mylardevpally.
CBD, and the infrastructure there is not fully developed to support a
population influx. Given their unit size preference of around 700-750
sq.ft., households in the Rs.3-5 lakh income group can afford a
property in the price range of Rs.2200-2700/sq.ft. Premium residential
locations are possible for this group, albeit with a lesser apartment
size.

Table 41
Affordability in Hyderabad
Household income (per annum) Rs. 3 lakh - 5 lakh Rs. 5 lakh - 6 lakh Rs. 6 lakh - 8 lakh Rs. 8 lakh - 10 lakh
Maximum EMI (Rs.) 11,500 - 15,600 16,800 - 21,300 23,300 - 26,200 27,100 - 32,800
Maximum loan eligibility (Rs.) 12,73,000 - 17,37,000 18,66,000 - 23,63,000 25,95,000 - 29,09,000 30,15,000 - 36,40,000
(9% interest rate, 20 year loan tenure)
Buyer's own contribution (Rs.) 2,25,000 - 3,06,000 3,29,000 - 4,17,000 4,58,000 - 5,13,000 5,32,000 - 6,42,000
(Assuming 85% loan)
Affordable house property value (Rs.) 14,98,000 - 20,43,000 21,96,000 - 27,80,000 30,52,000 - 34,22,000 35,47,000 - 42,83,000
Preferred size (sq.ft.) 700 - 750 750 - 800 900 - 1,050 750 - 1,100
Price (Rs./sq.ft.) 2,200 - 2,700 2,800 - 3,500 3,000 - 3,800 3,800 - 4,700

Locations available Secundrabad Gachibowli Gachibowli Srinagar Colony

considering preferred size Madhapur Begumpet Begumpet Gachibowli
and few residential areas Uppal Secundrabad Secundrabad Begumpet
Nacharam Madhapur Madhapur Secundrabad
Kukatpally Uppal Uppal Madhapur
Miyapur Nacharam Nacharam Uppal
Kompally Kukatpally Kukatpally Nacharam
LB Nagar Miyapur Miyapur Kukatpally
Dilsukhnagar Kompally Kompally Miyapur
LB Nagar LB Nagar Kompally
Dilsukhnagar Dilsukhnagar LB Nagar
Source: Knight Frank Research Dilsukhnagar

49
KnightFrank.com

Table 42
Size Preference in Hyderabad - Min-700 sq.ft. Max-1100 sq.ft.
Not Affordable
Affordable House Property in Hyderabad - Min 14.98 lakh Max 42.83 lakh
Locations May '09 Rates Max Size (in sq.ft.) & Total Property Value (in Rs.lakh)
(in Rs./sq.ft.)
500 600 700 800 900 1000 1100 1200
sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft.
Min 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
Jubilee Hills
Max 7,000 35.0 42.0 49.0 56.0 63.0 70.0 77.0 84.0
Min 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0
Banjara Hills
Max 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
Min 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Srinagar Colony
Max 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0
Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
Gachibowli
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
Begumpet
Max 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0
Min 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
Secunderabad
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Min 2,300 11.5 13.8 16.1 18.4 20.7 23.0 25.3 27.6
Madhapur
Max 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
Min 2,000 10.0 12.0 14.0 16.0 18.0 20.0 22.0 24.0
Uppal/Nacharam
Max 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
Min 2,000 10.0 12.0 14.0 16.0 18.0 20.0 22.0 24.0
Kukatpally
Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Min 1,800 9.0 10.8 12.6 14.4 16.2 18.0 19.8 21.6
Miyapur
Max 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
Min 1,800 9.0 10.8 12.6 14.4 16.2 18.0 19.8 21.6
Kompally
Max 2,200 11.0 13.2 15.4 17.6 19.8 22.0 24.2 26.4
Min 1,500 7.5 9.0 10.5 12.0 13.5 15.0 16.5 18.0
LB Nagar
Max 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
Min 1,500 7.5 9.0 10.5 12.0 13.5 15.0 16.5 18.0
Dilsukhnagar
Max 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0

Source: Knight Frank Research

This potential scenario has been represented by Table 42 which
depicts the locations which are affordable to a household willing to
compromise on the unit size. It elucidates the point that given a
compromise on preferred unit sizes, most of the locations in the city
fall within the affordability bracket of the various income groups.
However, it remains to be seen if developers are willing to compromise
on their profit margin and come up with units of smaller sizes.
On an interesting note, it has been observed that the households
belonging to the higher income category of Rs.6-8 lakh have a larger
unit size preference of around 900-1050 sq.ft., as a consequence of
which they shall have to limit their property search to far flung areas
like Kukatpally and Miyapur. Begumpet, with prevailing capital values
between Rs.3000-5000/sq.ft., remains the only central location where
this income group can purchase a property. On the other hand, if they
opt for residential units of smaller sizes, they would be able to afford a
property at up market locations like Banjara Hills, Jubilee Hills and
Srinagar Colony, which have prices ranging from Rs.4000/sq.ft. to
Rs.7000/sq.ft. Thus, with a compromise on the unit size, higher
income categories of Rs.6 lakh and above can purchase a property in
these locations, hitherto beyond their affordability. However, given the
high-end nature of these locations, developers may not offer products
with sizes as presented in the table.
Another feature which came to light has been the conservative
approach of the city's residents towards the budget for a property. It is
evident from the household survey that the income groups of Rs.5 lakh
and above prefer budgets that are much lower than their affordability
as calculated by Knight Frank research. For instance, the income
category of Rs.8-10 lakh has an average preferred budget of Rs.25 lakh,

50
Q2 2009
Affordable
housing
Understanding The Drivers

which would translate into a property rate of Rs.2700/sq.ft., based on
their size preference. In actuality, this income category can afford to
purchase a property in the range of Rs.3800-4700/sq.ft. This
conservatism may largely be attributed to the uncertainty instigated as
a result of the Satyam scam.
demand pans out depends on when consumers are willing to incur the
financial burden of purchasing a house. Figure 36 details the preferred
purchase timelines of rental households surveyed.
Figure 36
Household Purchase Timelines

City Outlook
Hyderabad, which comprises the twin cities of Hyderabad and
0-6 months - 2%
Secundrabad, is now one of the largest metropolises of India after the
6-12 months - 17%
recent inclusion of the 12 municipalities forming Greater Hyderabad. As
1-2 years - 81%
the size of the city has increased, so has its population. Currently,
Hyderabad has a population of over 7 mn. that is growing at an annual
exponential growth rate of 3.4%. Figure 35 specifies the housing
requirement for the middle income segment in Hyderabad in 2009,
2010 and 2011. Source: Knight Frank Research
Figure 35
It is observed that approximately 20% of the tenant households would
Total Housing Unit Requirement for Rs. 3-10 lakh
prefer to purchase a house within the next 0-12 months, while the rest
Income Category
would prefer to invest in a residence within a timeframe of 2 years. Post
230,000 the Satyam and Maytas scandal, most people who had already bought

2,25,555
properties witnessed a drastic fall in prices across the city.
225,000
This, coupled with the general slowdown in the economy has led a
220,000 2,18,138 majority of house buyers in Hyderabad to delay purchasing a house
with the expectation that residential prices will decline further.
215,000
Most affordable housing projects in Hyderabad are well endowed with
2,10,966
210,000 basic utilities and are situated in locations with good socio-economic
infrastructure. Although some of these projects are located in
205,000 peripheral areas like Kollur on the west, Annojiguda on the east and
other areas, have been developed with the idea that the Outer Ring
200,000
Road, which is under construction, will augment their connectivity.
2011
2009

2010

Areas beyond Dilshuknagar, examples being LB Nagar are prime

locations for affordable housing as they feature cheaper land rates and
Previous Years’ Cumulative Requirement Incremental Requirement
healthy basic and socio-economic infrastructure. Kukatpally and
Source: Knight Frank Research
Miyapur are other locations with potential for development due to good
While the total number of households in the city is around 15 lakh, connectivity and adequate public transport, healthcare and
Knight Frank research estimates that the middle income population in educational facilities. It is evident that unless factors like connectivity,
Hyderabad will require approximately 2.26 lakh housing units by 2011, infrastructure, public transport, basic amenities and proximity to work
which assuming an average unit size of 800 sq.ft. translates to are accounted for, the requirement for affordable housing estimated by
approximately 180 mn.sq.ft. of residential space. Approximately 87% us might not yield a concrete demand.
of this total middle income housing requirement will be accounted for
by the Rs.3-5 lakh income segment. In order for this requirement to be
converted to demand, the Rs.3-5 lakh income category would have to
be targeted with houses in the price range of Rs.14-20 lakh.

A very important consideration in assessing the demand for houses in

the middle income segment is the consumers' purchase timelines, as
even if 100% of the requirement translates to demand, how this

51
KnightFrank.com

Kolkata
City Overview
Kolkata, the capital of West Bengal, is the main business and financial hub of eastern India. Its urban
agglomeration comprises the Kolkata Metropolitan Area, the satellite township of Rajarhat, Howrah and parts
of 24 Parganas (North and South). Formerly the capital of India during the British rule, the city is famed for its
rich cultural heritage and distinct socio-political set up. The primary fiscal drivers for Kolkata have
traditionally been the service and manufacturing sector, with various industrial set-ups including engineering
products, leather, steel, automobile and pharmaceutical companies.

Kolkata, with its economic resurgence, has also witnessed a change in its socio-economic structure.
Conventional joint family set-ups have given way to nuclear families while increase in job opportunities has
led to rising aspiration levels amongst the city's residents. While Kolkata has grown radially, the most
pronounced directions of growth are towards the eastern, south-eastern and western parts of the city. The
Eastern Metropolitan Bypass is being increasingly viewed as the Central Avenue of modern Kolkata while
Rajarhat is being promoted as an IT hub in the east of Kolkata.

The city, today, is being acknowledged as one of the fastest growing IT destinations in the country. It has
emerged as an attractive location to many big names in the IT sector, including Tata Consultancy Services,
Cognizant Technologies, PWC, ITC Infotech, Computer Associates, Siemens, IBM and Wipro BPO amongst
others. Large talent pool of skilled and qualified engineers and technical personnel, improving infrastructure,
low attrition rates, low cost of operations and a supportive government with attractive incentive schemes for
IT/ITES are some of the reasons that can be attributed to the rapid development of the IT/ITES sector in the
city.

The advent of the IT/ITES sector in the region has created considerable impact on the real estate scenario of
the city. In the recent past, Kolkata has been attracting a number of real estate investors and developers with
financial muscle. These investors, both foreign and Indian, have identified prime areas for investment while
national level developers such as DLF and Unitech already have projects operational in the city.

Figure 37
Demand Perspective
Distribution of Sample Households According to
Buyer Profile Type of Occupation
As per the tenant household survey, 84% of the prospective home
buyers (tenant households) in Kolkata are nuclear families and the rest
characterized by joint family system. The average household size of the
respondents stands at around 3.6 persons per household which clearly Salaried Govt - 6%
Salaried Private - 78%
depicts the predominance of nuclear structure of families in the city.
Self employed (business) - 14%

Among the tenant households reviewed, 74% represent the migratory Self employed professional - 2%
(doctor, lawyer, CA)
population of the city. Of this, it was observed that a majority of the
households, to the tune of 53%, have migrated to the city for job
purpose while about 16% of the households located to the city after
marriage. Around 9% have migrated to Kolkata in the prospect of Source: Knight Frank Research
better business opportunities. The average number of years the
migrant households have been living in the city is about 4.6 years.

52
Q2 2009
Affordable
housing
Understanding The Drivers

In order to capture occupation-wise variations, the sample potential Table 44

home buyers have been selected from various sectors. The salaried Current Residence Type W.R.T
class engaged in the private sector forms the majority and is Average Size and Rentals
Current Residence type Average Size Average Rental
responsible for 78% of the respondents. Around 14% are self employed
(sq.ft.) (Rs./month)
and the rest are engaged in the government sector.
1 BHK 560 4,250
The survey being restricted to the middle income households within 2 BHK 780 6,250
the bracket of Rs.3-10 lakh annual income, the entire sample is 3 BHK 775 7,800
distributed within this income group. As such, the income category of Independent house 650 4,500
Rs.3-6 lakh constitutes a large portion of these respondents. Row house 700 4,500

Source: Knight Frank Research

Figure 38
Distribution of Sample Households According to
Buyer Preferences
Total Annual Income
A prospective buyer's decision to purchase property in Kolkata is
influenced by a variety of factors like capital values, size of apartments,
location, housing projects and amenities.

Rs. 3-5 lakh - 20%

The preference of respondents in terms of the budget and the area that
Rs. 5-6 lakh - 28%
they would prefer while moving to their owned house were studied. It is
Rs. 6-8 lakh - 30%
Rs. 8-10 lakh - 22% observed that the potential buyers in Kolkata have a budget ranging
between Rs.15 lakh to Rs.23 lakh with preferred sizes varying between
750 sq.ft. to 1000 sq.ft. Not surprisingly, the higher income
households have higher budgets and preference for larger apartment
size.
Source: Knight Frank Research
Table 45

The survey findings reveal that, on an average, majority of the tenant

Average Preferred Budget and Size
Annual Income Average Budget Average Preferred
households have been staying in their current residence for the last
(Rs. lakh) Size (sq.ft.)
3-4 years. While apartments have been the predominant form of
Rs. 3-5 lakh 15 785
residence in most of the households, a number of respondents reside
Rs. 5-6 lakh 19 765
as tenants in row houses as well. Majority of the respondents are
Rs. 6-8 lakh 20 780
accommodated in 1 BHK and 2 BHK units. The average size of a 1 BHK
Rs. 8-10 lakh 23 935
flat is around 560 sq.ft. and it commands an average monthly rental of
around Rs.4,250/month. Source: Knight Frank Research

Kolkata has witnessed considerable change in consumer preference

Table 43 for housing requirement. The demand for modern apartment-style
Percentage Distribution of Current Residence Type living has risen with the creation of more nuclear families in the society.
Based on Annual Income The rising aspiration levels of the city's residents have made them
Annual Income 1 BHK 2 BHK 3 BHK Independent Row locate to newer locations in the city. From the household survey, it is
House found that good connectivity to frequently travelled places and good
Rs. 3-5 lakh 29% 54% 8% 0% 8% potential for development are the two major factors that influence the
Rs. 5-6 lakh 21% 62% 6% 9% 3% choice of locations of potential house buyers. Presence of good
Rs. 6-8 lakh 30% 59% 9% 0% 4% infrastructure is the third most influential factor.
Rs. 8-10 lakh 51% 19% 38% 0% 6%
The congestion in the residential locations in and around the CBD of
Source: Knight Frank Research
the city have pushed the potential buyers towards the outskirts of the
city where the capital values are lower compared to the other prime
locations like Ballygunge, Alipore and Tollygunge.

53
KnightFrank.com

Figure 39 As evident from the table, un-interrupted power supply is the top
Factors Influencing Preference for Location priority for the respondents. Other factors like safety & security, water
Good connectivity to frequently supply and price come a close second in influencing a buyer's decision
39%
travelled places
with respect to the choice of residential project in a particular location.
Good potential for development 28%
It is observed that the prospective buyers may compromise on factors
Good infrastructure 23% like apartment size, developer goodwill, facilities available and

Presence of social circle

7%
(friends, relatives)
Favourable demographics 1%
0% 20% 40%
Source: Knight Frank Research Percentage of Responses
Moreover, the developers are launching new projects with modern
amenities in the outskirts as land is available at cheaper rates.Besides,
the EM Bypass provides good connectivity to these locations.
In terms of the most preferred locations in the peripheral regions of the
city, majority of the households have expressed their preference for
Garia in the south. This could be attributed to the extension of the
metro network to the area, which enables its residents to commute to
the office and other locations within a short period of time. Jadavpur
and locations along EM Bypass are the next preferred locations as they
provide good social infrastructure, proximity to the work places and
education institutes. Proximity to the airport, good connectivity and
good development potential make Rajarhat and Jessore Road preferred
locations as well. Respondents have equally preferred Tollygunge and
Santoshpur because of their existing social infrastructure.
disturbance caused by traffic/noise/congestion.
In today's market, the final price and grade of the property has a direct
bearing on the range of amenities provided within a residential project.
60% Increasing market awareness and exposure to a cosmopolitan life-style
have greatly influenced the nature and number of amenities provided
by the developer.
The survey findings have revealed that a prospective buyer assigns
highest importance to basic amenities like un-interrupted water supply,
power backup and high level of security. Amenities like finishing,
interior fixtures, gymnasium and spa have a moderate demand while
swimming pool, servant quarters, multipurpose hall, crèche do not
have much significant influence.
Figure 40
Preferred Amenities within a Residential Project
Un-interrupted water supply
Power Back-up
High level of security systems
Finishing

The study has captured the factors which influence the decision of a Interior fixtures
buyer in the selection of residential projects in a preferred location.
GymnasiumSpa
Respondents have rated a set of factors on a scale of 1 to 4 (4 being the
most important and 1 the least). Based on the ratings, mean scores are Multipurpose hall
generated for each factor and the one with the highest mean score has
Modular Kitchen
been identified as the most important factor and ranked 1.
Others

Table 46 0 20 40 60 80 100 120

Factors Influencing Choice of Residential Project No. of Responses
Factors Rank Source: Knight Frank Research
Un-interrupted power supply 1
Safety & security 2
Water supply 2 Supply Perspective
Price 2
In recent times, the aspiration levels of the city's residents have risen
Apartment/home size 3
due to the increase in job opportunities and have encouraged them to
Developer goodwill 4 move out of their 'tenant status' to purchase their own home. Pent-up
Facilities available 5 demand for housing units has also led to the surge in residential
Disturbance caused by traffic/noise/congestion 5 development, thereby making the market end-user driven. Besides
Source: Knight Frank Research these end-users, positive economic outlook and transparency in real
estate transactions have also attracted a large number of NRIs to invest
in the city's real estate.

54
Q2 2009
Affordable
housing
Understanding The Drivers

During the period encompassing 2006 to the first quarter of 2008,
residential real estate sector in Kolkata witnessed heightened activity
with large apartment complexes getting announced every month. The
city's skyline is being altered dramatically by a number of high-rise
apartments offering a range of modern amenities. More importantly, a
number of developers are targeting the NRI population and have
planned projects particularly catering to the segment. As a
consequence of the hectic residential development, property rates in
prime locations as well as the suburban locations underwent
significant appreciation in the past two years in the range of 40-60%
while few key projects have witnessed appreciation as high as 80%.
However, the recession has had its impact on the city's real estate
sector and the past year has not taken off well for the sector.
Knight Frank research team carried out primary surveys across major
stakeholders in the sector comprising developers, bankers and
government authorities to understand the supply dynamics. Following
are some of the key take-aways on the affordable housing market,
based on the discussion with the developers:
1. Location of the project - Developers in Kolkata feel that an affordable
housing project is generally feasible in slight peripheral locations of
the city, about 30-35 kms from the city centre. This is because the cost
of land is much lower in those regions.
2. Cost of construction - According to the general opinion of the
developers, in areas where affordable housing projects are feasible,
the cost of land should range between Rs.150-350/sq.ft. In such areas
the total Cost of Construction (COC) will be around Rs.1000-1200/sq.ft.
and such properties can easily sell at a price bracket of Rs.1600-
1800/sq.ft. The COC is also dependent on the shape of the plot.
Developers have greater independence to increase the efficiency of
their projects in a plot of land with large acreage, as well as to develop
more modern structures at a lower COC, as compared to plots that are
smaller in size. Besides, marketing cost, overheads, architectural cost,
etc. are also lower due to economies of scale.
3. Amenities provided - The developers feel that provisioning of
amenities like power backup, uninterrupted water supply, 24 hrs
security, in-house clubs, gyms and swimming pool are important in an
affordable housing project. These amenities do not make a huge
difference in the cost of construction, as the total cost of such services
gets distributed among a large number of units. Also, loading factor is
lower in an affordable housing project as compared to a high end
property.
4. Ticket size - As per the developers, given the earning propensity of
households within Kolkata, a product that can be sold within the range
of Rs.5-25 lakh can be quantified as affordable in the city.

Some locations in Kolkata where such projects are feasible are 5. Price appreciation - In affordable housing projects chances of
a. Narendrapur property appreciation is higher than a high-end project, as it is more
b. Select pockets in Rajarhat end-user driven.
c. DH Road, Behala
While majority of developers have evinced interest to construct
d. Howrah
projects of affordable nature in the Kolkata, certain bottle necks have
e. Kona Express Highway
been observed in the implementation of such plans:
f. Jessore Road
g. Uttarpara
1. Government support - At present, most developers seek
h. Shyam Nagar
infrastructure support from the government in the form of better road
i. Chandan Nagar
network to improve accessibility to areas where affordable housing can
j. Barasat
be developed. Besides, there is also need for socio-economic
k. Madhyamgram
Infrastructure in terms of water, electricity, power, sewerage, etc.
l. BT Road

Table 47
Select Affordable Housing Projects in Kolkata
Sr.No Project Name Developer Location May '09 Rate (Rs./sq.ft.) Unit Size Range (sq.ft.)
1 Srijan Midlands Srijan Realty Jessore Road 1,700 880-1,330
2 Srijan Heritage Park Srijan Realty Off EM Bypass 2,200 950-1,475
3 Sunny Valley Sunny Developers Off EM Bypass 2,200 945-1,290
4 Mayfair Greens Mayfair Group Narendrapur 1,800-1,950 1,220-1,800
5 Eden City Eden Realty Maheshtala 1,380-1,725 796-1,524
6 Sherwood Estate PS Group & Srijan Narendrapur 1,400-2,000 450-1,200

Source: Knight Frank Research

55
KnightFrank.com
In the meantime, developers are themselves endeavouring to improve
accessibility to their projects in the outskirts of the city by introducing
bus services from project sites to central locations of the city or where
major mode of transport is available.
The developers also opine that two major bottlenecks faced by
affordable housing projects need to be scrapped, viz. Urban Land
Ceiling Act and Land Reforms Act. These archaic acts create hurdles in
the development of affordable housing. To overcome such bottlenecks
considerable of cost has to be incurred. Besides the cost incurred, the
holding cost of land and the time of holding is quite high, which the
developers are discontented with.
It is also felt amongst the developers that there should be a single
window clearance for all the formalities and approvals. Only one
authority should facilitate consolidation, mutation and conversion of
land. To manage bigger land parcels developers have to consolidate
land and get it registered. If that land is agricultural then get is
converted for residential use. Generally this entire process takes about
a year and a half, at times even more. In the mean time developers use
a loss of money as capital is blocked. This single window clearance
will speed up the approval process and it can be achieved in close to
2-3 months.
2. Availability of land - A major problem with affordable housing is the
availability of land parcels, which although plentiful in peripheral
areas, are mostly designated as agricultural land and hence cannot be
developed.
Despite the aforementioned bottlenecks faced by the developers, there
are a number of affordable housing projects across the Kolkata
residential market. Table 47 depicts a few such projects.
Officials of public and private banks were also interviewed to
understand the demand dynamics witnessed by the home loan sector
in the past few years. They feel that the average age to buy home has
come down as people buy it for investment purpose at the same time
use it as a tax saving tool.
The upswing of IT/ITES in Kolkata has boosted the real estate market
by increasing the propensity to buy. As per the bankers in the city, due
to the lack of speculative behaviour in Kolkata, demand for home loans
has not seen a drastic dip. As a matter of fact, they believe that there
has been no decline in home loans requirement across Kolkata. Prices
have come down slightly, due to slow conversion rates and limited
enquires, but flats are still selling and people are approaching the
banks for loans.
The banks interviewed were of the opinion that of the total income
earned by a household in the mid-income segment of the city, an
individual can easily utilise 35-40% of his take home salary to service
his home loan EMI. Given the present adverse economic situation, the
banks in the city are more comfortable in offering loans to the end
users rather than the developers, as the risk element in a home loan is
comparatively lower than as compared to a developer loan.
Besides the banks, the government authorities and officials from the
various housing boards operational in Kolkata were interviewed to
understand their initiatives in affordable housing within the city. The
Kolkata Metropolitan Development Authority (KMDA), West Bengal
Housing Board (WBHB) and Housing Infrastructure Development
Corporation (HIDCO) are the concerned authorities responsible for
housing and monitoring of real estate in the city.
HIDCO primarily focuses on the development of New Town, Rajarhat.
It is responsible for township development, comprising an appropriate
mix of residential, commercial, IT and retail projects. Total planned
area to be developed within New Town is about 35.52 sq.km of land.
HIDCO itself does not carry out the construction activity. Instead, land
is provided to reputed developers for development activity. It has
recognised certain developers as major market players and has formed
joint ventures to carry out the development activity. Examples of some
the joint sector companies can be cited as:
1. Bengal Ambuja
2. Bengal Shrachi
3. Bengal DCL
4. Bengal Greenfield
5. Bengal Peerless
6. Bengal Park Chambers.
Land is allocated to these joint venture companies for construction
with a condition that a certain percentage of the total residential units
will be build for the LIG and MIG segment. Most of their projects are
approved to provide a total of 50% of LIG and MIG housing. For the LIG
houses the prices are regulated and are sold at a discounted price. The
MIG houses are sold at a marginal profit or at break even prices. To
make up the forgone profits in the LIG & MIG houses, the developers
are free to decide upon the prices of the HIG houses. No tax benefits or
subsidies on land cost are given to the developers for affordable
housing projects.
For large land plots, HIDCO calls for expression of interest from the
joint venture companies and accordingly land is allocated by a draw of
lottery. Within Rajarhat, the HIDCO Township in JV with Shapoorji
Pallonji Group is an example where there are no HIG units. It is a
township of 20,000 housing units, out of which 12,000 units are LIG
flats and 8,000 units are MIG flats. These houses are allocated by
means of a draw of lots. There is an income constraint on applications
for these flats.
56
Q2 2009
Affordable
housing
Understanding The Drivers

An individual can apply for a LIG flat, who has a monthly income less
than 10,000/month, and for MIG flats income should be less than
Identifying Affordability
Rs. 18,000/month. The land that is provided to the Joint sector The household survey in Kolkata carried out in order to determine the
company is generally a serviced land, with all the required approvals affordability of the various income groups at the city level revealed
and clearances. several notable characteristics of the city. Table 48 depicts in detail the
maximum affordable EMI of households in various income levels. This
KMDA is another housing regulatory authority. Its role has dual
EMI has been estimated from the annual income of household and its
purpose. On one hand they function as providers of socio-economic
spending and saving behavior. The maximum EMI has been translated
infrastructure within the metropolitan area of Kolkata, and on the other
into affordable house property value based on assumed interest rate,
hand, it also participates in housing projects. Since KMDA had huge
loan tenure and loan to value ratio. The table also shows the capital
land banks but had the constraint on funds required for construction, it
rates that the households will have to pay keeping in view the
was quite important to join hands with the private players.
preferred house size and the affordable house property value.

KMDA has a defined model of PPP, separate from that of HIDCO. It

Table 48 depicts a favourable scenario for the mid-income segment in
invites bids for their land parcels and the private developer that places
Kolkata. The survey reveals that at present there are a number of
the highest bid, gets the land parcel. The construction activity is then
locations in the city that caters to the need of the segment. For
carried out by that developer. The profit that is generated out of the
instance, the households belonging to the income group of Rs.3-5 lakh
project is shared in a 50-50% basis between KMDA and the developer.
can afford to purchase a property in locations like Rajarhat and EM

In the PPP model of KMDA, there is no set policy defined for Bypass, which in recent years have become preferred residential

provisioning of a certain ratio for EWS, LIG and MIG houses. However, locations owing to the IT developments in the neighbouring location of

most of the projects have a reasonable mix of 30-40% share reserved Salt Lake Sector V. However, these locations are around 10-20 kms

for LIG and EWS category.
While the developers themselves decide the price of the joint venture
products, there is a central pricing committee headed by the Mayor of
Kolkata to decide upon the prices of projects that KMDA builds on its
own.
away from the city centre of Dalhousie and the infrastructure there,
especially in Rajarhat, is not fully developed to support the influx of
population. Given their unit size preference of around 750-800 sq.ft.,
households in this income group can afford a property in the price
range of Rs.1800-2700/sq.ft.

Table 48
Affordability in Kolkata
Household income (per annum) Rs. 3 lakh - 5 lakh Rs. 5 lakh - 6 lakh Rs. 6 lakh - 8 lakh Rs. 8 lakh - 10 lakh
Maximum EMI (Rs.) 11,000-15,000 15,000-20,000 19,000-24,500 26,500-30,500
Maximum loan eligibility (Rs.)
(9% interest rate, 20 year loan tenure) 12,10,000-16,90,000 16,56,000-22,60,000 21,42,000-27,24,000 29,50,000-34,02,000
Buyer's own contribution (Rs.)
(Assuming 85% loan) 2,14,000-2,98,000 2,92,000-3,98,000 3,78,000-4,80,000 5,20,000-6,00,000
Affordable house property value (Rs.) 14,24,000-19,87,000 19,48,000-26,57,000 25,20,000-32,04,000 34,70,000-40,02,000
Preferred size (sq.ft.) 750-800 750-800 750-900 900-1,000
Price (Rs./sq.ft.) 1,800-2,700 2,600-3,400 3,400-3,700 3,900-4,000

Locations available Jadavpur Jadavpur Salt Lake Salt Lake

considering preferred size EM Bypass EM Bypass Jadavpur Jadavpur
and few residential areas Santoshpur Santoshpur EM Bypass EM Bypass
Tollygunge Tollygunge Santoshpur Santoshpur
Rajarhat Rajarhat Tollygunge Tollygunge
Jessore Road Salt Lake Rajarhat Rajarhat
Behala Gariahat Gariahat Gariahat
Garia Jessore Road Jessore Road Jessore Road
Behala Behala Behala
Garia Garia Garia

Source: Knight Frank Research

57
KnightFrank.com

Table 49
Size Preference in Kolkata - Min-750 sq.ft. Max-1000 sq.ft.
Not Affordable
Affordable House Property in Kolkata - Min 14.24 lakhs Max 40.02 lakhs
Locations May '09 Rates Max Size (in sq.ft.) & Total Property Value (in Rs.lakh)
(in Rs./sq.ft.)
500 600 700 800 900 1000 1100 1200
sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft.
Ballygunge Min 8000 40.0 48.0 56.0 64.0 72.0 80.0 88.0 96.0
Max 12,000 60.0 72.0 84.0 96.0 108.0 120.0 132.0 144.0
Alipore Min 8,000 40.0 48.0 56.0 64.0 72.0 80.0 88.0 96.0
Max 10,000 50.0 60.0 70.0 80.0 90.0 100.0 110.0 120.0
Salt Lake Min 3,250 16.3 19.5 22.8 26.0 29.3 32.5 35.8 39.0
Max 4,500 22.5 27.0 31.5 36.0 40.5 45.0 49.5 54.0
Gariahat Min 2,700 13.5 16.2 18.9 21.6 24.3 27.0 29.7 32.4
Max 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0
Jadavpur Min 1,800 9.0 10.8 12.6 14.4 16.2 18.0 19.8 21.6
Max 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
EM Bypass Min 1,800 9.0 10.8 12.6 14.4 16.2 18.0 19.8 21.6
Max 3,600 18.0 21.6 25.2 28.8 32.4 36.0 39.6 43.2
Santoshpur Min 1,800 9.0 10.8 12.6 14.4 16.2 18.0 19.8 21.6
Max 2,200 11.0 13.2 15.4 17.6 19.8 22.0 24.2 26.4
Tollygunge Min 1,800 9.0 10.8 12.6 14.4 16.2 18.0 19.8 21.6
Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Rajarhat Min 1,700 8.5 10.2 11.9 13.6 15.3 17.0 18.7 20.4
Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Jessore Road Min 1,600 8.0 9.6 11.2 12.8 14.4 16.0 17.6 19.2
Max 2,200 11.0 13.2 15.4 17.6 19.8 22.0 24.2 26.4
Behala Min 1,600 8.0 9.6 11.2 12.8 14.4 16.0 17.6 19.2
Max 2,600 13.0 15.6 18.2 20.8 23.4 26.0 28.6 31.2
Garia Min 1,500 7.5 9.0 10.5 12.0 13.5 15.0 16.5 18.0
Max 2,000 10.0 12.0 14.0 16.0 18.0 20.0 22.0 24.0

Source: Knight Frank Research

Premium residential locations are possible for this group, albeit with a
lesser apartment size. This potential scenario has been represented by
the following table which depicts the locations which are affordable to
a household willing to compromise on the unit size.
Table 49 elucidates the point that given the compromise on the
preferred size of the residential unit, most of the locations in the city
fall within the affordability bracket of the various income groups. It
remains to be seen if developers are willing to compromise on their
profit margin as well and come up with units of smaller sizes.
With smaller unit sizes, it has been observed that even Ballygunge and
Alipore, considered to be the most premium residential addresses in
the city, can be affordable to the income group of Rs.8-10 lakh. These
markets, however, are stagnant in terms of new supply and are
typically characterised by large residential units. Hence, despite the
fact that these locations fall under the affordable factor, they may not
cater to affordable housing in the real sense of the term.
Meanwhile, other preferred locations of Salt Lake and Tollygunge have
a number of projects which can be offered to the mid-income category.
In case of residential property in Salt Lake, which has relatively higher
prices, the income group of Rs.8-10 lakh can afford to purchase a
housing unit at a range of Rs.3250-4500/sq.ft. provided they are
offered smaller sized unit.
The residential developments coming up in the suburban and
peripheral locations have various amenities to lead a modern lifestyle.
These projects, located in Rajarhat, Behala, Jessore Road and EM
Bypass, have prices ranging from Rs.1600-3600/sq.ft., which can be
termed to be affordable by all the income categories in the mid-income
segment.
Another feature which came to light has been the conservative
approach of the city's residents towards the budget for a property.

58
Q2 2009
Affordable
housing
Understanding The Drivers

It is evident from the household survey that the income groups of
Rs.6 lakh and above prefer budgets which are much lower than their
affordability as calculated by Knight Frank Research. For instance, the
income category of Rs.8-10 lakh has an average preferred budget of
Rs.20 lakh, which would translate into a property of Rs.2530/sq.ft., on
the basis of their size preference. In actuality, this income category can
afford to purchase a property in the range of Rs.34-40 lakh which
would translate to an average property value of Rs.4700/sq.ft.
A very important consideration in assessing the demand for houses in
the middle income segment is the consumers' purchase timelines, as
even if 100% of the requirement translates to demand, how this
demand pans out depends on when consumers are willing to incur the
financial burden of purchasing a house. Figure 42 details the preferred
purchase timelines of rental households surveyed.
Figure 42
Household Purchase Timelines

City Outlook
Kolkata, one of the most populous cities of India, has a population of
0-6 months - 15%
approximately 15 mn. that has been growing at the rate of 2.7% per
6-12 months - 39%
annum. Being the commercial hub of the eastern part of the country,
1-2 years - 46%
the city attracts a huge migratory population. In recent years, the
migratory shift into Kolkata has primarily been the result of the rapid
rate of growth of the IT/ITES sector in the city. The growing aspirations
of the city's residents have led to the development of quality
residential developments in various suburban locations. Figure 41 Source: Knight Frank Research
specifies the housing requirement for the middle income segment in
Kolkata, which during the realty boom witnessed a gradual
Kolkata in 2009, 2010 and 2011.
appreciation in residential prices as compared to other metro cities of
Figure 41
the country that witnessed steep price appreciation, has a relatively
Total Housing Unit Requirement for Rs. 3-10 lakh stable residential market even in the prevailing adverse economic
Income Category climate. This is reflected by the purchase timelines of potential buyers.
270,000
While around 39% of the respondents expressed a desire to move
2,65,242
265,000 ahead with purchase decisions in the next 6-12 months, 15% revealed
intentions to purchase as early as within the next 6 months. This
260,000 2,58,269 confidence reflects the affordability of most residential locations
around Kolkata. Besides, various infrastructure projects, an example
255,000 being the extension of the metro railway to suburban locations, have
2,51,479 increased the attractiveness of certain previously peripheral residential
250,000
locations. The 45% of potential buyers that expressed a desire to
purchase anytime within the forthcoming 2 years reflect the caution
245,000
that has gripped the residential market around India in the wake of the
economic slump. Moreover, the deferment of infrastructural
240,000
development in locations like Rajarhat, where a number of residential
2011
2009

2010

developments are coming up, has augmented pessimism amongst a

section of potential buyers awaiting the completion of a number of
Previous Years’ Cumulative Requirement Incremental Requirement
infrastructure projects that have been announced. An example that can
Source: Knight Frank Research be cited is the construction of the road connecting Jessore Road to the
Knight Frank research estimates that the middle income population in Airport Road. Unless the infrastructure in Kolkata's distant suburbs is
Kolkata will require approximately 2.65 lakh housing units by 2011, developed adequately, it will act as a hindrance to demand for
which assuming an average unit size of 800 sq.ft. translates to affordable housing in the city.
approximately 212 mn.sq.ft. of residential space. Approximately 79% of
this total middle income housing requirement will be accounted for by
the Rs.3-5 lakh income segment. In order for this requirement to be
converted to demand, the Rs.3-5 lakh income category would have to
be targeted with houses in the price range of Rs.14-20 lakh.

59
KnightFrank.com

Conclusion
Table 50
Affordable house value for the middle class (in Rs. lakh)
City Income 3-5 lakh 5-6 lakh 6-8 lakh 8-10 lakh
This report, while exploring and encapsulating various aspects of Mumbai 12-15 17-22 25-29 33-38
affordable housing, is primarily focused on the needs of the buyer. The Pune 13-21 20-30 27-31 35-40
overriding questions being delved into pertain to what the customer
NCR 14-19 21-28 25-32 36-39
wants, how best developers can serve these requirements and what
Bengaluru 13-18 19-24 24-28 33-37
the government can do to facilitate the provision of affordable
Chennai 14-21 19-27 28-32 35-45
housing. Several important issues that were highlighted by the
Hyderabad 15-20 22-28 31-34 35-43
findings of this report are worth touching upon.
Kolkata 14-20 19-27 25-32 35-40
On the whole, buyers in the Rs.3-10 lakh income category turned overly Source: Knight Frank Research
cautious in the aftermath of the economic crisis that set in during the
first half of 2008. While their actual affordability is higher than what The results of our surveys of sample households indicate that 'good
they indicated in the surveys, these buyers have undoubtedly been connectivity to frequently traveled places', which primarily denotes
jolted by the uncertain economic environment, job losses and tight good connectivity to work destinations, is the most important factor
credit conditions. However, the willingness to pay for a household in influencing a buyer's decision when selecting a housing location. This
the lower income group of Rs.3-5 lakh is relatively unaffected by events consideration is followed in order of prioritization by considerations
of the past year. While buyers in this income group can afford a pertaining to the availability of good infrastructure and the potential
property value in the range of Rs.12-21 lakh, their budget preference is for future development. Once the buyer identifies the location, the
similar at Rs.14-19 lakh. By contrast, households in the income group most important amenities looked at when choosing a house are
of Rs.8-10 lakh have a preferred budget of Rs.23-31 lakh that is much uninterrupted water supply, power backup and high level security
lower than their actual affordability of Rs.33-45 lakh. This apparent systems. The amenities that were found to not influence the choices of
contradiction can be attributed to the fact that just as during boom a majority of households are pre-fitted interior fixtures, modular
times consumers in higher income groups turn overtly aggressive in kitchens and multipurpose halls.
their spending, during lean periods, these consumers spend very
conservatively, curtailing expenditure on big ticket expenses like Buyers in the Rs.8-10
buying a property.
lakh income group
Mumbai's high cost of living, coupled with the generally higher
maintenance lifestyle of its population, has adversely affected the quoted a more
affordability of households in the city. For instance, middle class
households in Kolkata, Chennai and Hyderabad can afford houses conservative budget
valued at Rs.14-45 lakh, whereas households of a similar stature in
Mumbai can afford houses valued at Rs.12-38 lakh. than those in the
Rs.3-5 lakh group
Figure 43
which reflects the
Distribution of housing units requirement by 2011
for the middle class extremes on which
Mumbai - 20%
higher income group
Pune - 6%
NCR - 26%
consumers operate
Bengaluru - 18%
Chennai - 8%
during boom and
Hyderabad - 11%
Kolkata - 13%
recession periods

Source: Knight Frank Research

60
Q2 2009
Affordable
housing
Understanding The Drivers

The preference regarding unit sizes was found to be positively Table 51

correlated with income, with higher income households desiring larger Market Size of Housing Requirement by 2011
houses. Amongst the Rs.3-10 lakh income group, the unit size City Housing Requirement Area Requirement Market Size
preferences among all the cities range from 550-1200 sq.ft. built up (units) (mn.sq.ft.) (Rs.Bn)
by 2011 by 2011
area. Given the apartment size preference across income groups, most
of the prime residential locations in the cities covered are unaffordable Mumbai 404,673 324 647

for the Rs.3-10 lakh income group. However, if consumers in this Pune 134,264 107 215

income group are willing to compromise on their preferred unit sizes, NCR 547,434 438 876
their options in terms of housing locations increase. Overall, our Bengaluru 327,694 262 524
research revealed that Mumbai, NCR and Bengaluru are the most Chennai 157,471 126 252
unaffordable locations, while Kolkata and Pune offer the maximum Hyderabad 225,555 180 361
number of affordable locations to middle income consumers. Kolkata 265,242 212 424
Total 2,062,333 1,650 3,300

Mumbai's high cost of Source: Knight Frank Research

living and lifestyle Table 52

Income-wise market size break-up of housing requirement
standards are the Annual
Income
Housing Requirement Area Requirement Market Size
(units) (mn.sq.ft.) (Rs.Bn)
reasons behind its miG Rs.3-5 lakh
by 2011
1,671,809
by 2011
1,337 2,675
households having a Rs.5-10 lakh 390,524 312 625
Total 2,062,333 1,650 3,300
lower level of Source: Knight Frank Research

affordability than in Knight Frank research also analysed the supply of affordable housing
in the 7 cities covered. While the area preference among households
cities like Kolkata, ranges from 550-1200 sq.ft., many designated affordable projects in
these cities are offering apartments of sizes above 1200 sq.ft. In such
Chennai and cases, even while prevailing rates in certain locations are affordable as
per Knight Frank research calculations, the large sizes of units on offer
Hyderabad renders them unaffordable.

The housing requirement for the Rs.3-10 lakh income group across the
7 cities is approximately 2.06 million housing units by 2011, which The housing
assuming an average household size of 800 sq.ft. translates to a
requirement of 1,650 million sq.ft. of residential space. Assuming a requirement for the
price of Rs.2,000/sq.ft., which is par for the demand being catered to,
this total space requirement translates to a market size of
Rs.3-10 lakh income
approximately Rs.3,300 billion, or USD 66 billion. Of this total, the
market size constituted by the Rs.3-5 lakh income group is expected to
group is approx. 2.06
be Rs.2,675 billion (USD 53 billion), while the market size contributed million units by 2011,
by the Rs.5-10 lakh income group is expected to be Rs.625 billion (USD
13 billion). The NCR accounts for 26%, the largest share, of this translating to a
requirement. It is evident that the extent to which the total housing
requirement as of 2011 is catered to will depend largely on the extent to market size of Rs.3,300
which the requirements and specifications of the Rs.3-5 lakh income
group are satiated. billion, or USD 66
billion

61
KnightFrank.com
Such is the nature of the demand for affordable housing that even an
undersized unit would struggle to attract significant demand. This is
because empirical evidence suggests that a typical middle class house
buyer in India is a first time home buyer for whom a house purchase is
a lifetime investment, and an undersized unit would be a hindrance to
raising a family.
the Rs.3-6 lakh income
group is the largest
contributor to the
calculated housing
requirement by 2011
The phenomenon of oversized apartments on offer was observed to be
particularly prevalent in projects in NCR and Hyderabad. This is so
because during the property boom, these projects were launched as
luxury apartments with larger sizes.
With the onset of the economic downturn, and the subsequent
reduction in property prices, these projects slowly began being
promoted as affordable housing offerings.
Another possible reason for the larger unit sizes currently on offer
could be the restrictive population density norms in several locations.
Low population density norms restrict the number of tenements that
can be housed on a land parcel, and hence, developers try to maximize
gains by building larger houses. Such restrictive development
regulations are an obstacle to the provision of affordable housing, and
should be modified to align them with pressing contemporary housing
requirements. At the same time, development supporting
infrastructure is essential to support higher densities of tenements.
The primary deterrent to the provision of affordable housing is
prohibitive land prices. While the construction cost has increased
marginally in the last few years, the land cost during the same period
has shot up at a far more rapid pace.
Expectations from the government to provide land to private
developers at subsidised rates have remained largely unfulfilled. The
problem of land cost is particularly relevant to affordable housing
projects, which require large land parcels so that relatively low profit
margins can be compensated by high volumes. The government could
employ other measures to boost affordable housing, examples being
allowing a higher Floor Area Ratio (FAR) for construction in cities with
high population density, and in Mumbai freeing the salt pan lands for
private development. Yet, as is a familiar theme on the affordable
housing front, potential is yet to come close to yielding results.
Given the aforementioned constraints, affordable housing projects
currently predominantly feature in suburban locations, where land
prices are less prohibitive. However, the lack of physical and social
infrastructure in these locations, an example being bad connectivity,
makes it difficult to attract significant demand. Hence, providing good
infrastructure, which at the very basic level would mean providing an
efficient transport system, is critical to the success of affordable
housing projects in peripheral locations.
The government also needs to look at greater financial incentives for
developers and buyers alike. The reintroduction of section 80 IB(10) of
the Income Tax Act, which provides for tax exemption on profits from
affordable housing projects, is a significant step in the right direction.
Similarly, the government's recent institution of a 1% interest subsidy
on loans up to Rs.10 lakh for houses that do not cost more than
Rs.20 lakh will enhance the affordability of loans for middle class
buyers.
If the various roadblocks hindering the development of affordable
housing are not addressed, housing shall remain an unfulfilled dream
for the Indian middle class, which will always be priced out of the high-
end housing segment. As of now, the choice of housing for middle
income buyers across India is governed by a lack of choice. However,
with the government and the developers both taking an active interest
on the subject of affordable housing, steps are being made that slowly
but surely are altering the landscape of the Indian housing market, and
might lead to affordable housing to be within the reach of the
consumers in the near future.
Mumbai, NCR and
Bengaluru are the
most unaffordable
cities, while Kolkata
and Pune offer the
maximum number of
affordable locations
62
Q2 2009
Affordable
housing
Understanding The Drivers
RESEARCH
KnightFrank.com

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