Affordable Housing

Agenda
Introduction to Affordable Housing Affordable v/s Low Cost Housing Low Cost v/s Traditional Housing Market Real State Business in INDIA Demand & Supply Constraints for Affordable Housing Govt. Initiatives for Affordable Housing in INDIA Study of TATA Housing

Affordable Housing : Definition

Affordability, as a concept is very generic and could have different meanings for different people based on differences in income levels. A commonly accepted guideline for affordable housing worldwide is : housing cost < 30% of household's gross income.

If the monthly carrying costs of a home exceed 30 35% of household income, the housing is considered unaffordable for that household .

Contd. . . .
In Indian context, Affordable housing can be defined using three key parameters viz. (i) income level, (ii) size of dwelling unit and (iii) affordability The first two parameters being independent of each other, while the third parameter is correlated income.

Affordable Housing & Low-cost Housing are Different Terms

Affordable and low-cost housing are often interchangeably used, but are quite different from each other.

Traditional Housing v/s Low Cost Housing

Global Liquidity Crisis & Real Estate Business in INDIA

The real estate business in India underwent considerable changes post the global liquidity crisis. Prior to the crisis, developers bought land with part payment and launched projects; and acquired huge land parcels by leveraging their balance sheets, continuing with this practice. With the liquidity crisis, availability of construction finance diminished, consumer demand muted; resulting in very little upfront payments, thereby affecting regular cash inflows for developers.

Real Estate business in India : Pre & Post Global Liquidity Crisis

Current State of Housing in INDIA

Having already crossed the billion mark at the turn of the century, population is further expected to accelerate to 1.35 billion by 2021 with 40% Indians living in urban areas. 26 million homes are projected to be required by 2012, with 99% of these homes required for households in the Economically Weaker Sector (EWS) and Lower Income Group (LIG). Approx. 100 million people are still living in slums and squatter settlements.

 Out of 10,28,503 and 5,12,108 houses sanctioned under Basic Services to the Urban Poor (BSUP) and Integrated Housing and Slum Development Programs (IHSDP) respectively, only 2,44,247 and 96,029 houses have been constructed till October 2010. 3,33,147 and 1,39,957 houses were construction as on 30 September, 2010. under

Contd. . . .

59.7 million people relocated out of Slum conditions since 2000, bringing down slum prevalence from 41.5% in 1990 to 28.1% in 2010.

 Approx. 49,000 slums continue to blight the urban landscape, with 57% of slums coming up on public land, owned mostly by local bodies and state governments. The slum population in Delhi increased from 23.18 lakh in 2001 to 31.63 lakh in 2010. The slum population in Maharashtra alone has already crossed the 1.82 crore mark 2010. Projected slum population in 2011 is expected to go up to 93.06 million from 75.26 million in 2001.

Contd. . . .

Current Housing shortage in INDIA

Affordable Housing : Potential in INDIA

Affordable housing in INDIA is a INR 1,300,000 Crores opportunity.

Contd. . . .
Due to the inherent nature of developments of the real estate and high land costs prevailing in the metropolitan cities, the affordable housing projects are coming up in tier II & III cities like Pune, Surat, Coimbatore, Chandigarh, Jaipur, Nagpur, Faridabad, NOIDA, Bhuwaneshwar and Vishakapatnam. Though many developers have taken an initiative to develop mass (affordable) housing schemes in the tier II & III cities in INDIA, there is still a huge gap visible between the target segment and pricing of these developments.

Contd. . . .
Nearly 12 million households (owned / rented) in the INR 2 10 lacs per annum category.
4 to 5 million of these are in urban areas assuming 34 40% urbanization.

More than 2.1 million houses required in seven major cities alone for LIG and MIG population.
This alone translates into a potential opportunity of close to INR 30000 crores. Including the EWS category, this number more than doubles to INR 75000 crores.

Demand & Supply Constraints for Affordable Housing

The Demand Drivers for Affordable Housing are :
Urbanization : An index of transformation from traditional rural economies to modern industrial one. Absolute number of people in urban cities and towns has gone up substantially in INDIA, and has resulted in pressure on urban infrastructure. Rising Income Levels : The total population under deprived category, declined from 93% of total population in 1985 to 54% in 2005, expected to further decline to 22% by 2025. This decline coupled with rapid economic growth is creating a sizeable layer of middle class.

Contd. . . .

Demand & Supply Constraints for Affordable Housing

The Supply Constraints for Affordable Housing are :
Availability of Land : As per the Town and Country Planning Organizations (TCPO) calculation, presently 84,724 to 120,882 hectares of additional land is required to cater to the demand of EWS and LIG category alone. Financial and Regulatory Support : Current financing mechanism prevalent in the country mostly targets MIG and HIG sections. The households falling under LIG and EWS category find it difficult to secure formal housing finance due to varying income or lack of collateral for loans to ensure repayments.

Government Initiatives for Affordable Housing in INDIA

The Central Governments initiative for Affordable Housing are as follows :
National Urban Housing and Habitat Policy (NUHHP), 2007 Jawaharlal Nehru National Urban Renewal Mission (JNNURM)
Basic Services for the Urban Poor (BSUP) Integrated Housing & Slum Development Program (IHSDP) Interest Subvention Scheme Affordable Housing in Partnership

Rajiv Awas Yojna (RAY)

Some Techniques for Lowering Construction Costs

Rat-trap Bond (in wall construction) :
Laid by placing the bricks on their sides having a cavity of 4 (100 mm), with alternate course of stretchers and headers, staggerd in subsequent layers to give more strength to the walls. The overall saving on cost of materials used for construction compared to the traditional 10 wall is about 26%. Cost is saved as plastering is not necessary except in a few places. Buildings up to two stories can easily be constructed with this technique.

Contd. . . .
Brick arches: The traditional RCC lintels which are costly,
can be replaced by brick arches for small spans and save construction cost up to 3040% over the traditional method of construction. By adopting arches of different shapes blended with brick corbelling, a good architecturally pleasing appearance can be given to the external wall surfaces of the brick masonry.

Contd. . . .
Filler slab (in roof) :
Normal RCC slab where the bottom half (tension) concrete portions are replaced by filler materials such as bricks, tiles, cellular concrete blocks, etc. replacing unwanted and non-functional tension concrete, thus resulting in economy. Are safe, sound and provide aesthetically pleasing pattern ceilings and also need no plaster. Enhances thermal comfort inside the building. Reduces use of concrete and saves cement and steel by about 40% reducing overall cost by 23%.

Contd. . . .
Compressed Earth Block :
Earthen bricks compressed with hand-operated or motorized hydraulic machines using stabilizers such as cement, gypsum, lime, bitumen, etc. during production or on the surface of the bricks. Use of locally available materials lowers transport costs considerably. Uniform building component sizes, which result in faster construction. Modular elements like sheet-metal roofing, and pre-cast concrete door/window frames can be easily integrated into a CEB structure. Good quality blocks having lesser water absorption can safely be used in areas with high rainfall.

Contd. . . .
Some other cost cutting Construction Technologies used are :
Use of Composite Shell (Curved) Structures instead of flat ones provide better strength in structures as well as reduce the material requirements. Use of Honeycombs and Composites for construction of roofs, walls etc. Use of Hexagonal Design structures increase space utilization and are ideal for construction of compact structures.

Study of Tatas Affordable Housing Project

Tata Housing started to look at affordable housing in 2007 before the slowdown hit. Shubh Griha (Low Cost Housing Model) and New Heavens (Affordable Housing Model) are the two projects launched by Tata Housing in Vasind and Boisar (about 80 kms. From suburban Mumbai). New Heavens project consists of Affordable Houses in 2/3 bhk/rk units with Independent Row Houses starting from INR 15 lacs upto INR 35 lacs per unit. Shubha Griha consists of Low Cost Houses in 1/2 bhk/rk units starting from INR 6 lacs upto INR 15 lacs per unit.

Contd. . . .
On visiting the construction sites of New Heavens and Shubha Griha at Vasind and Boisar, I could make the following observations :
The Shubha Griha and the New Heavens sites were situated close to each other, and had separate Entry and Exit points. The sites were located very close to the Highways and had various Industrial Facilities/Units set up in their vicinity. The constructed houses despite of being low cost, had a pleasing external appearance and appealing interiors.

 The houses have been built in the form of G+2/G+3 buildings with a single overhead water storage tank in each building. Unlike New Heavens units, Shubha Griha Units were built totally on no-brick construction model.

Contd. . . .

The flooring of the units had been done using white tiles giving a cleaner look to the floor.
Booking amount for the units have been kept within reasonable limits (INR 50000 only for a 1 rk unit of Shubha Griha) with easy financing options through SBI and HDFC bank. For those with NIPs (No Income Proof) the MFIs (Micro Finance Institutions) were present.

Findings & Conclusions

The biggest cost for the developer is that of Land. In Affordable Housing speedy execution is very important, while most of developers are often used to extending deadlines. Tatas success in the Affordable/Low Cost Housing sector can be attributed to the following :
Being in Manufacturing domain the procurement of construction materials is easy and economic. It has numerous sources of fund for financing of its low profit ventures like Affordable Housing Projects.

Contd. . . .
TATA is a trusted and reliable brand. TATA procures smaller chunks of lands (say 50-65 acres of land at a time) and partners with landowners on revenue share basis with 15-20% of cost of the land paid upfront and the remaining paid out as a percentage of sales. The units under Low Cost/Affordable Housing schemes follow a fixed design and layout of construction throughout INDIA and have no room for customization, hence 4-5% cut in construction costs is achieved. Rooms were designed in such a manner that tiles fitted them without being broken thereby reducing wastage.

Contd. . . .
Expenses are further cut down by employing No-Brick construction technique without compromising on the strength, resulting in lower maintenance costs to the owners. Revenue earned from commercial projects launched prior to the launch of Low Cost and Affordable Housing schemes ensures that TATA have sufficient volume of reserves to meet the excess funding requirements for these later projects. Usage of innovative and efficient marketing vehicles (resorting to adds on local trains and vernacular papers only) brought down the marketing costs for the projects to 1%.

Contd. . . .
Tie-up with SBI for application sale and dealing with consumer queries helped the company further cut down on some unnecessary expenses, application forms fee being sufficient to meet the banks administrative costs. Through its association with Microfinance Institutions, TATA ensured that viable finance options are easily available for the buyers.