The shake-up experienced by the sector has compelled developers to redefine their product portfolio.

But the activity on the ground is limited largely due to apprehensions of low profit margins.

Realtors should realign their strategies across all segments, primarily the residential segment, which poses the greatest challenge. Home buyers with a budget of Rs 30-40 lakh have deferred their plans to buy new houses due to concerns about the economic scenario. To regain the customer attention and meet their requirements developers should offer the right products at the right price and time. Particularly, the support measures by the RBI is a good initiative that would support demand growth in the housing sector. Bringing under priority sector the lending to Housing Finance Institutions to support home loans of up to Rs 20 lakh would help the growth of affordable housing, encourage banks to increase lending to the housing sector and bring down interest rates. Banks now have a safe option to meet their priority sector targets. Housing is a basic need and any restrictions on lending to this sector will have to be done away. The support to refinance through the National Housing Bank is a welcome move, Mr Murali said.

Developers should appreciate the shortage and demand for housing in India, which will exist for at least the next 10 years, and deliver the products which meet the demand at a realistic price.

WHAT's AFFORDABLE HOUSING?

In general,affordable housingis used to describe dwelling units deemed affordable to a group of people within a specified range. It includes value housing, which is the need of every middle class family, as well as low-income housing.

The supply side concentration in a particular segment combined with the slowdown necessitates the shift in development focus from high/mid-end residential apartments to affordable housing for the masses. The eagerness of global institutional players in the Indian real estate market, particularly in the mass housing segment, and the recent introduction of government policies conducive to private participation are making real estate developers eye this opportunity.

The private sector and the government have to work in tandem to provide housing for the middle and lower middle classes

HOUSING SHORTAGE

The Planning Commission estimates the urban housing shortage at 26.53 million units over the next four years up from 24.71 million in March 2007, with the economically weaker sections/lower income group accounting for about 99 per cent of the shortfall. With 26.8 per cent of the poor in the country living in urban areas, there is a need to focus on providing affordable housing in urban areas. The total estimated investment for meeting the housing requirement up to 2012 is estimated at Rs 3,613 crore.

With rapid urbanisation, one of the biggest challenges will be to provideaffordable housing to city dwellers.

PPP CONCEPT

The private sector and the government have to work in tandem towards the common goal of providing housing for the middle class and lower middle class which has not been given enough importance in the last two decades. The demand and supply mismatch has created a great opportunity in the real estate space in Tier I, Tier II and Tier III cities.

Affordable housing should also be made a part of integrated developments such as large-scale townships, SEZs, MRTS corridors and industrial clusters to ensure better connectivity for low earning population, which is critical for such segment.

The profit margins in affordable housing projects are typically low and a strategy to cater to the market has to be based on cost minimisation. The developer can reduce cost by developing a value chain -- oriented strategy of backward integration.

THE CHALLENGES

With the number of families earning more than Rs 2 lakh annually set to double to around 20 million in the next two years, demand for small apartments will mushroom.

High land cost is one of the major obstacles in affordable housing as it constitutes 25-35 per cent of the total project cost, thus reducing potential margins in the business and affecting the viability of affordable housing in existing residential projects.

Large parcels of land are located only on the periphery of the cities and connectivity and infrastructure support are a constraint for

the development of a residential project. Also, such areas call for the conversion of land from agricultural to residential/commercial use and the procedures are cumbersome and time consuming.

BLOCKED LAND BANKS

Substantial amount of land today remains blocked under ownership of port trusts, the Railways, the Ministry of Defence, land acquired under the Urban Land (Ceiling and Regulation) Act, the Airports Authority of India and other government departments. This poses a greater constraint on land supply as they are artificially blocked from the market.

Input costs involving land acquisition, land development and infrastructure development are quite high raising the overall unit costs. This is a big drag in achieving the desired value for affordable housing.

The inadequate institutional financing mechanism for the middle and lower income group and the rising cost of property is another barrier. To achieve success in creating mass affordable housing, it is important to integrate the efforts and resources of local urban bodies, financial institutions, city planners and the private sectors. Developers look forward for the full support of the government to take a big leap.

GOVERNMENT ROLE

The government should address these issues through an allout effort to achieve the socio-economic obligation of providing housing.

The growth will also help the steel and cement sectors, generate skilled and unskilled employment and support small-scale industries.

Tax sops including reintroduction of income-tax benefit to developers under Section 80IB, cuts in duties and levies for the real estate sector reduction/removal of multiplicity of taxes, stamp duties, VAT, service tax, and other duties and levies.

The government should provide special tax incentives for those interested in affordable housing. Building plan approvals should be made easier and simpler.

For projects which have units with built up space of 1,250-1,500 sq.ft, the approval process should be made further simplified.

`Affordable housing' is still at a nascent stage in India. It holds great potential to redefine the contours of Indian real estate. Sustained returns over a long-term horizon will be the major catalyst.