Professional Documents
Culture Documents
"Affordable Housing in Jaipur": A Report On
"Affordable Housing in Jaipur": A Report On
A report on
“Affordable Housing in Jaipur”
Submitted in partial fulfilment of the requirement
For MBA course
By
XYZ
(Reg. No.:12345678)
Declaration
I confirm that this Report truly represent my work undertaken as a part of my course. This
work is not a replication of work done previously by any other person. I also confirm that the
contents of the Report and the views contained therein have been discussed and deliberated
with the Mentor.
Date: 15-01-2019
Contents
1 Introduction 2
2 Research Methodology 15
Statement of problem
Data collection
Sample size.
3 Company Profile 22
Bibliography 42
[Type text]
Chapter 1 Introduction
1.2 Introduction
1.6.1 Demand
1.6.2 Supply
Executive Summary:
The Indian residential real estate market witnessed an unprecedented boom from 2002-2007.
However, the economic downturn of 2008 had a severe impact on the industry. The overall
response to this recession has been characterised by a clear movement from projects targeting
the premium segment to those catering to middle and low income segments of the economy.
An important driver of this movement has been the recently announced government policies
including interest rate rebates and the fiscal stimulus towards urban development.
The established players moved down the customer chain, offering housing units in the range
of Rs. 15-25 lakh. However, there has been an emergence of a whole new set of players who
have launched projects in the range of Rs. 3-7 lakh targeting the “bottom-of-pyramid” low
income segment.
The strategy of these low cost housing developers is fundamentally different from the
traditional industry. This report identifies three operational essentials – treating land as
inventory, partnering with different financial institutions for customer financing, and
innovating through construction technology – which are at the core of the operational
strategies being adopted by these players.
Another important aspect to understand is the broader business frameworks that players in
this segment need to adopt. The two most prevalent frameworks are the Public Private
Partnerships (PPP) and cross-subsidisation. This clearly shows that it may be still some time
before one can see free market mechanisms operating in low cost housing. Low cost housing
is a young market segment and may very well turn out to be an inflection point in the real
estate industry. However, its future depends a lot on the way government regulations shape
up. Some of the major barriers that need to be addressed include availability of cheap land
around urban areas, the restrictions on Floor Space Index (FSI) and the availability of
housing finance for prospective buyers.
[Type text]
Introduction:
Home buyers face challenges while deciding “when” to purchase houses. While favourable
economic conditions lead to higher incomes for home buyers, it also leads to spiralling real
estate prices making it difficult for a buyer to purchase homes even during their higher
incomes. On the other hand, during economic downturns while real estate prices decline,
people become sceptical about their incomes and adopt a more cautious approach to
purchase.
Affordable housing may be a good strategy to this home-buyers dilemma and can help ensure
housing across different sections of society.
Real estate plays a crucial role in the Indian economy. It is the second largest employer after
agriculture and is slated to grow at 30% over the next decade. The Indian real estate market
size is expected to touch $180 billion by 2020.
The housing sector alone contributes to 5-6% of the country’s GDP. Retail, hospitality and
commercial real estate are also growing significantly, providing the much-needed
infrastructure for India’s growing needs.
According to a study by ICRA, the construction industry ranks 3rd among the 14 major
sectors in terms of direct, indirect and induced effects in all sectors of the economy. A unit
increase in construction expenditure generates five times the income, having a multiplier
effect across the board. With backward and forward linkages to over 250 ancillary industries,
the positive effects of real estate growth spread far and wide. Truly, real estate is a growth
engine for India’s economy.
Real Estate:
Real estate or immovable property is a legal term (in some jurisdictions) that encompasses
land along with anything permanently affixed to the land, such as buildings. Real estate is
often considered synonymous with real property (also sometimes called reality), in contrast
with personal property (also called personality). However, in technical terms, real estate
refers to the land and fixtures themselves and real property are used primarily in over real
estate. The term real estate and real property are used primarily in common law, while civil
law jurisdiction refers instead to immovable property. In law, the word real means relating to
a thing as distinguished from a person. Thus the law broadly distinguishes between real
[Type text]
property (land and anything affixed to it) and personal property (everything else e.g. clothing,
furniture, money).
Real Estate Business Includes: With the development of private property ownership, real
estate has become a major area of business. Purchasing real estate requires a significant
investment and each parcel of land has unique characteristics, so real estate industry has
evolved into several distinct fields. Some kind of real estate businesses include-
• Real Estate Marketing – Managing the sale side of the property business
Types of Ownership Interests: Real property (immovable property) can refer to the real estate
itself or to various types of ownership interests in real estate, including:
• Freehold: Provides the owner the right to use the real estate for any lawful purpose and sell
when and to whom the owner wishes.
• Life estate: An interest in real estate which is granted to a life tenant until that person dies.
The interest terminates upon the death of the life tenant.
• Estate for years: Similar to life estate but term are a specified number of years.
• Leasehold: The right to posses and use real estate pursuant to the terms of a use.
• Reversion: The right to posses the free interest in real estate after the expiration of a life
estate, estate for years or leasehold.
• Concurrent or co-tenancy: The ownership of an interest in real property by more than one
party. Rights of any single party may be limited in various ways depending on the jurisdiction
and type of concurrency.
Participants of Real Estate Market: The main participants in the real estate markets are
Owner/User: These people are both owners and tenants. They purchase houses or
commercial property as an investment and also to live in or utilize as a business.
[Type text]
Owner: These people are pure investors. They do not consume but rent out or lease the
property to someone else.
Developers: These people prepare raw land for building which results in new product or the
market.
Facilitators: This includes banks, real estate grocers, lawyers and others that facilitate the
purchase and sale of real estate. The owner/user, owner and renter comprise the demand side
of the market, while the developers and renovators constitute the supply side. In order to
apply the simple demand and supply analysis to real estate markets a number of
modifications need to be made to standard microeconomic assumptions and procedures.
• Commercial
• Residential
• Agricultural
We can invest into all the given areas and can make return by capital appreciation, rental
income, agricultural produce, lease and commercial use.
The following factors influence the price and cost of the real estate:
4. Geographical area
Features of Real Estate Markets: In particular, the unique features of the real estate market
must be accommodated. These include:
• Durability
• Heterogeneous
• Immobility
The Indian real estate sector plays an important role in the country’s economy. Nearly five
percent of the country’s GDP is contributed by the real estate sector. It is comprised of two
main categories – residential (80% of real estate space) and commercial (20%). This report
primarily focuses on the residential category. Some of the prominent players in this space
include Tata Housing, DLF and Unitech.
This sector had seen an unprecedented boom in the last decade. It has witnessed some of the
biggest IPOs such as DLF (~Rs 9,600 crore) (DLF sets IPO, 2007) and Unitech (~$360
million through LSE IPO) (Unitech LSE IPO, 2006). During the first five years of the just
concluded decade, Indian residential real estate prices had nearly doubled. The residential
prices continued to rise at an average increase of 16% year-on-year which was well above the
average increase in income until 2008. This growth was fuelled by India’s 8-9% GDP
growth, low interest rates and opening up of real estate for Foreign Direct Investment (FDI)
in 2005.
Much of the growth in the real estate market was due to the premium customer segment
which viewed real estate housing as an asset for investment. A growing economy, increasing
remittances to India, low interest rates and excessive liquidity in both Indian and global
markets, strong investor sentiment and rising real estate prices were some of the factors that
made housing investment lucrative.
Demand
Demand refers to people’s willingness and ability to buy or rent a given property. In part
demand stems from a market area’s base. In most real estate markets, the source of buying
power comes from jobs. Property values follow an upward path when employment is
increasing. The real estate market in India has seen remarkable changes in the past few years.
The rapid expansions of information technology, especially BPOs, spurt in the middle class
income and 8% growth in GDP are the potential key factors for the growth. India is the 4 th
[Type text]
largest economy in the world, and has the 2nd highest GDP among the developing countries
based on purchasing power parity. IT and IT enable services sector in India is still in its
growing stage due to increasing demand for business processing units in India and is
estimated to grow by 107% to $583 million in revenue. This could lead to a space
requirement of 20-25 million sq. ft. per annum, according to a Merrill Lynch report. Taking
this factor into consideration, the Total value of real estate created by the IT and ITES sector
in the next three years will be Rs.1,32,000 crore.
Supply Analysis
Supply analysis means sizing up the competition. Nobody wants to pay more for a property
than the price they can pay for competing property. An integral part of value analysis requires
identifying sources of potential competition and then inventorying them by price and
features. An analysis of supply should not limit potential competitors to geographically and
physically similar properties. In some markets, for example, low priced single family houses
might compete with condominium units, manufactured homes and even with rental
apartments.
Rising income levels leading to a sizeable middle class segment. The past few years have
been tremendous economic growth in the country and one of the implementation of one of
[Type text]
the most successful anti-poverty programmes in the country’s history. While 93 percent of
the total population in 1985 was under deprived category, this declined to 54 percent of total
population in 2005 and is expected to further decline to 22 percent by 2025. The economic
growth is also expected to dramatically change India’s income pyramid by creating a sizeable
layer of middle class. This middle class segment is expected to be the primary driver for
affordable housing.
India income class and population dynamics – Moving towards a sizeable middle class
Source: The “Bird of Gold”: The Rise of Indian Consumer Market, 2007
• Most of the clients of Housing Finance Institutions/banks under retail home loans belong to
MIG/HIG categories and housing loan finance still remains unaffordable in a large way to the
EWS/LIG sections.
• Only 0.2% of housing loans extended by HFCs are of value less than Rs 50000 and about
7% of housing loans is of value between Rs 50000–100000.
• More than 73% of housing loans extended by HFCs is of value exceeding Rs 3 lakh and
about 93% of value exceeding Rs 1 lakh.
• This highlights the need to evolve a system or a scheme for financing housing loans on a
large scale for the lower income groups whose affordability for housing loans falls in the
[Type text]
range below Rs 3 lakh, as over 90% of the housing shortage is on account of EWS/LIG.
multiple counting and resale of properties, in the sense that cross-funding/bulk borrowing is
involved among the various institutions. It is, therefore, assumed that the net flow of funds to
the housing sector from formal sector institutions would be 50% of the gross flow of funds
for construction of new houses. This comes to approximately Rs 2.90 lakh crore, which is
80% of the total investment requirements for urban housing for the Eleventh Plan.
Affordable Housing:
Affordable Housing as a concept is very generic and could have different meanings for
different people based on differences in income levels.
It refers to any housing that meets some low cost criterion. Different countries have defined
affordable housing to present the economic potential of an individual buying a house.
Defining affordable housing in India is a difficult task giving that at every square kilometre
of the country, the dynamics of the market are different. At KPMG and The Confederation of
Real Estate Developers' Associations of India (CREDAI), we have therefore broadly defined
affordable housing in India for Tier I, II and III cities based on two key parameters:
Affordable housing can be defined using two key parameters viz. income level and size of
dwelling unit. These parameters are independent of each other. While the above definition is
a generic representation at an all India level, the actual definition of affordable housing may
vary with regions and income levels.
Affordable and low-cost housing are often interchangeably used, but are quite different from
each other. Low-cost housing is generally meant for EWS category and comprises bare
minimum housing facilities while affordable housing is mostly meant for LIG and MIG and
includes basic amenities like school, hospitals and other community facilities and services.
[Type text]
While the real estate industry across developed countries went through one of its worst
downturns, the Indian real estate industry, which was considered “shock-proof”, was also
badly hit. The tremors of the global liquidity crises led to price corrections in the domestic
real estate industry leaving developers with land parcels acquired at peak prices and with
considerable stress on their balance sheet.
Source: Bloomberg
The Indian economy witnessed a gradual deceleration in its growth post March 2008 till
March 2009 with a similar impact on the money supply (M3) growth. This led to some
serious funding problems for real estate developers as traditional banking channels became
more cautious in providing credit and consumer demand witnessed a slump due to the
uncertain economic environment.
• Nearly 12 million households (owned / rented) in the INR 0.2 – 1.0 million per annum
category, 4 – 5 million of these are in urban areas assuming 34 – 40 percent urbanization rate
• 2.1 million houses required in seven major cities alone for LIG and MIG population
• Including the EWS category, this number more than doubles to INR 7.5 trillion
Availability of land: One of the biggest questions that India needs to answer going forward
is with respect to adequate supply of land for housing purpose. The Government’s vision of
“affordable Housing for All” will require acquisition / supply of large land parcels on a
regular basis. As per 2001 census, the country’s urban land mass (2.4 percent of total land
mass) houses approximately 28 percent of the country’s population, excluding people who
live on the streets. According to calculations made by the Town and Country Planning
Organization (TCPO), to cater to the demand of EWS and LIG category alone would require
84,724 to 1,20,882 hectares of additional land.
Land Cost: Land cost is another crucial factor affecting supply of land. Given limited
availability of land in urban areas, it becomes unavailable for developers to provide
affordable housing without Government support. On the other hand, the Government holds
substantial amount of urban land and 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.
Financial and Regulatory Support: Financial and regulatory constraints have plagued the
housing sector in India. Current financing mechanism prevalent in the country mostly targets
MIG and HIG sections of the society while the households falling under LIG and EWS
category find it difficult to secure formal housing finance. Commercial banks and traditional
means of housing finance typically do not serve low-income groups, whose income may be
vary with crop seasons, or below the ‘viable’ threshold to ensure repayment, or who cannot
provide collateral for loans. Microfinance institutions are considered to be the next best
[Type text]
alternative to for financing the EWS and LIG category. However, there are challenges faced
by microfinance institutions which prevent them from extending housing loans. Challenges
faced are primarily due to the longer period of housing loans (typically between five to seven
years minimum, if not more) and due to the larger amount of loan compared to typical loans
extended by MFs. Typically, a house, particularly in urban areas, will be about INR 1 lakh,
whereas when microfinance institutions give for livelihood financing, they give INR 10,000
to maximum INR 35,000. If they have to lend to a significant numbers of people, the amount
to be loaned goes into crores of rupees which can be a problem for microfinance institutions.
Another problem with microfinance institutions is of refinance.
While National Housing Bank (NBH) provides refinancing facility, interest rates are not
fixed but reviewed periodically. Lack of developed debt market places considerable
challenges for microfinance companies depriving them of long-term affordable money and
what they currently have is a maximum of three to four year money available at a cost of 15-
17 percent, making it difficult o lend for mortgages.
Even if they are willing, the rate will be some 18-19 percent which, while it may be way
cheaper than what a money lender would ask for, doesn’t really help the cause. According to
CREDAI, real estate also faces multiplicity of taxes at different points of housing transactions
and average to a little over 25 percent of the property rate.
2.5.2 Methodology
2.6 Questionnarie
[Type text]
4. To find out the different parameters that affects the demand for affordable housing in
Jaipur.
The study on the demand for construction of affordable housing covers multiple avenues of
learning.
1. It then deals with the budget estimates of the project i.e. the cost of the project.
2. It also estimates the quantity of the apartments to be produced for a predefined
amount of sales generation.
[Type text]
Research Methodology:
Market Research
Marketing research has become most important tool for decision making in the field
of finance due to the following reasons.
• Business environment is changes very rapidly which needs to continuous
modification and improvement.
• It provides correct and reliable information about customer, competitors and one’s
own activities to the manager, so that the huge amount spent on marketing
activities to be utilized properly.
• Since modern business is customer oriented, it (MR) provides the producer a
systematic and analytical approach based on assessment on customer
requirements, which helps the producer in maximization of net profit by
producing such products that fulfill the customer’s utmost level of satisfaction.
Thus, the study is a systematic gathering, recording and analysis of data about the problem
facing the company. It helps the marketing manager to develop and analyze new information,
which is further helpful in developing marketing strategy. Now it can be said that marketing
research covers a very wide variety of activities ranging from analysis of financial potential
and market share to studies of customers satisfaction and purchase intention.
Methodology:
The data for the study has been collected from both the primary source and the secondary
source.
Primary source:
In case of the above study primary source of data was collected with the survey done by
using a suitable questionnaire. The primary data includes the data collected from different
parts of Jaipur city. On geographical basis city is divided into five zones i.e. north, south,
east, west and central. A total of 125 households were interviewed in order to know the
demand for housing in general and analysing them on the basis of their affordability.
Secondary source:
These data are generally the data which support the primary data and hold an important
position in the analysis of the study. The secondary data includes information from the
[Type text]
internet, CREDAI, and documents from Purvanchal Group. To get more idea and information
related to the real estate industry, various journals and websites were used.
Research Approach:
Quantitative approach i.e. use of statistical tools for quantifying the data and analyzing the
data pattern. The basic needs of any research are data and method of collecting it. Data is an
information on the basis of which inference are drawn, therefore, data become a very
important and vital factor in research study. The main purpose behind framing a methodology
is to desirable the research procedure which includes data sources, data collection method,
research instructions.
Contact Methods:
The respondents were contacted directly (Personal Interviewing). It is the most versatile
method. The interview was of intercept type in which respondents were asked to answer the
questions on the spot. For this purpose questionnaires were prepared in such that all
necessary data would be collected.
Sample Description:
Sample size: 125
Sampling Frame: Jaipur
Sampling Elements: Households
[Type text]
1. Name, gender and age group of all household members (including children) to occupy
the dwelling
Age Group
Household member Name Male/Female 0-15 16-24 25-60 60+
1
2
3
4
5
6
7
8
Owners
Rental
Others
Least Very
Disinterested Neutral Interested
Interested interested
Self owned
Rented
Others
7. If you rent a property, how much per month is your household able to pay? (Please
tick)
<3000
3000 - 5000
5000 - 10000
10000 - 15000
15000 - 20000
>20000
8. If buying a property, how much in monthly mortgage payment is your household able
to pay? (Please tick)
7000 - 12000
12000 - 16000
16000 - 20000
20000 - 25000
25000 - 30000
. >30000
Years Months
11. What is the households’ total annual gross income? (Please tick)
<180000
180000 - 215000
215000 - 250000
250000 - 350000
350000 - 450000
450000 - 600000
>600000
12. Does your household require separate accommodation for existing residents within
your household?
Yes No
13. Do you or any other household members already have a mortgage, own a property or
have you recently sold a property?
Yes No
16. How many bedrooms do you require / wish to build? (Please tick)
1
2
3
4
5
[Type text]
17. If you have a specific site or property which you would like to occupy in mind, please
give the site / property name and address below:
3.3 Capabilities
3.4 Certificates
[Type text]
Company Profile:
Established in 1994, Purvanchal Group is one of the leading real estate development and
construction company in Delhi & NCR. Construction business is one area that has seen
geometrical growth in the recent past where several new players have entered the market.
Amongst the established and reliable names, Purvanchal Group stands proud with years of
experience in serving clients throughout the nation.
Company Overview:
Purvanchal Group started construction in Delhi 1994 and rapidly rose to be a premier
construction company due to its uncompromising commitment to the highest level of quality
construction as well as its consistency in delivery schedules. Several years standing in the
construction business paved way for the Purvanchal Group. It is a renowned real estate
building construction company in Delhi & NCR.
Purvanchal Group the leading real estate company in Delhi & NCR an ISO 9001-2008
certification has got for their brand “Purvanchal” which stands for quality, commitment and
value for money.
The Purvanchal Group has always completed to achieve a goal of 100% satisfied customer
base. Our purpose is to plan and construct large scale state of the art housing complexes and
undertake real estate development, translating into the very best in terms of comfort,
durability, security, luxury and style. It is dedicated to deliver the finest large scale
complexes and home at par with global standard for the customer. Within a decade it has
grown from a turnover of INR 0.88 crore to approx 200 crore. This is a counterpart of its
growing strength and competitor in the industry.
[Type text]
With an excellent track record of delivering numerous housing projects of the highest quality,
it has been consistent in its performance. Purvanchal Group style of construction is instantly
distinguished for its most modern, state-of-the art design, inclusion of luxurious amenities,
excellent planning of usable space, and finished interiors. Its achievements are demonstrated
by their highly successful projects - some of them are completed while others are under
construction or nearing to completion.
As a mark of excellence, our clients have invested more than INR 500 crore in the past
decade in housing projects. Most of the development took place in the areas of New Delhi,
Noida& Greater Noida through Purvanchal Group. Since their inception, it has delivered over
three thousand five hundred flats in various housing complexes.
It’s Capabilities:
With strategic focus on each department, it has developed wide expertise and strengths in the
sector of mass housing. It has the capability to incorporate the complexities, comforts as well
as the convenience in their world-class multiplex housing projects. From three-storied
apartments to multi-storeyed, it can design and develop projects of every size and
complexity. Its strong capabilities are reflected in the 50 projects that it has completed in and
around Delhi.
Certificates:
Company has acquired the ISO 9001: 2008 on 20th march, 2009 and all our construction and
project related activities conform to the ISO standards.
[Type text]
For the purpose of our study we will consider three stakeholders viz. government, Real Estate
Development and Financial Institutions.
Key initiatives:
• One percent subsidy on loan up to INR one million for purchase of house costing less
than INR two million
• Harayana and Tamil Nadu Government have announced increase in FSI for housing
projects targeting lower and middle income groups
• Tamil Nadu has announced 50 percent extra FSI for projects targeting EWS in
Chennai Metropolitan Area(CMA)
• Tamil Nadu has further announced 30 percent extra FSI for projects targeting MIG
Resumption of 80 IB
• Profits from housing projects approved between April 01, 2007 and March 31, 2008
will be tax free if they are completed by March 31, 2012
PPP Measure
[Type text]
Policies
• Private developers have been aggressively pursuing affordable housing post the
economic slump of 2008
• Developers have realized the opportunity and need of affordable housing and have
taken several steps to tap the same
• Developers have on an average reduced the prices by 30 percent in last one year and
are willing to operate at a lower margins
• Players like Tata Housing, DLF, Unitech, etc. have multi-city, plan
• Tata Housing has taken the lead by launching an affordable housing project in Boisar
- Phase I will be allotted to LIG families – one room kitchen and one bed room hall
kitchen(BHK) flats up to INR 0.7 million
- Phase II to MIG families – 2/2 BHK apartments at INR 1.2 million and above
• Banks are willing to fund suitable projects, provided that adequate checks are in
place to monitor credit risk
• MFIs have expressed interest in funding EWS dwelling units up to INR 0.5
million
Stakeholders Concern:
[Type text]
* Volume off-take
* Profitability
Real Estate * Availability of cheap land
Developers * Hassles in land acquisition
* Delay due to regulatory approvals
* Restrictive density norms
• Land parcels currently in possession can be used for development, thereby reducing
the cost of land
• Government can enter into joint ventures with developers with land as equity
Land Banking
Cross Subsidization
• Joint development of MIG, LIG and EWS flats – MIG to Subsidize others
• Built- up space covering LIG and EWS to be sold / rented by Government agency;
developer can be allowed to sell MIG flats at market rates
Redevelopment / Rehabilitation
• Subsidy to developers for R&D in new low cost materials and technologies
Integrated Townships
• Mumbai and NCR have successfully developed satellite towns, which other cities can
emulate
[Type text]
• Increase in income tax ceiling on housing loans will reduce post tax cost of capital for
borrowed
• Increase current limits in interest subsidies from INR 2 million to INR 4 million
• Extension of 80 IB benefits for housing finance companies lending to LIG and EWS
lenders
Interpretation:
40% of the respondents belong to the rental and others category. So there is a high probability
that they would be interested in buying a residential property. Also some of the respondents
belonging to the owner’s category have shown their interest in buying a new residential
property.
Interpretation:
Interpretation:
Maximum number of repondents are interested in buying a property rather than stayin in a
rental accomodation.
[Type text]
Interpretation:
Maximum percentage of the respondents dont prefer to indulge in paying anything above Rs.
5000 as rent. It shows that most of the respondents are looking for low or moderate standard
accomodation.
Interpretation:
Most of the respondents fall under the bracket of Rs. 12000 to 16000 EMI per month which
signifies the value of property people are interested in, is in direct relation to the EMI they
can afford.
Hypothesis testing:
Null hypothesis (Hѳ): Most households in Jaipur do not want to buy a residential property
Alternate Hypothesis (Hα): Most households in Jaipur want to buy a residential property
Hѳ≥3
Hα≤3
Level of Significance (α) = 0.05
Sample Size (n) = 125
Based on data collected:
µ (Mean) = 3.712
Standard Deviation (σ) = 15.273
By substituting value and calculating Z
z is given by
z = [x - µ] / σ
[Type text]
SPSS Analysis
Correlations
Model Summary
Coefficientsa
Standardized
Unstandardized Coefficients Coefficients
N %
Excludeda 95 76.0
Item Statistics
Coefficientsa
Standardized
Unstandardized Coefficients Coefficients
PATH AHEAD
• Earmark funds in the field of R&D for identification of appropriate and alternate materials
to reduce the cost of construction.
The three operational essentials identified above for pursuing affordable housing projects
involve significant challenges. It is important for companies to align these three operational
essentials with the overall organizational strategy and direction for succeeding in the long
term. They must not view these affordable housing ventures as a just another investment
opportunity. For example, financing with MFIs may conflict with existing long term
agreements with banks.
Also, most responses that have been observed so far did not involve established players in
real estate sector such as DLF and Unitech. It is not clear if this is a wait-and-watch strategy
or if they really do not have plans for this segment. It may be possible that the operating
structure being pursued by the low cost housing players will be difficult to straddle for these
established players. In other words, the business practices, operating model and cost
structures of low cost housing players might be difficult to emulate for the established
players. How their response will shape up will be an interesting phenomenon to be observed
in the coming years.
The reluctance of established players to enter affordable housing market may not imply the
failure of market mechanisms in this segment. It may only imply that these companies have
other, more profitable, avenues to invest in. Therefore, this does not preclude the entry of
new players in this category. The strategy of new entrants like Reliance (Reliance to venture,
[Type text]
2009) should also be closely watched by analysts and it may very well define the industry
trends in the coming years
Two business frameworks – PPP & Cross Subsidization are prevalent in the given economic
and social context. However, companies need not restrict to these two frameworks since
given the large volumes of this market segment, purely free market approaches may also be
viable.
CONCLUSION:
This low cost housing trend could be an inflection point in the real estate industry. One is
tempted to compare it with the focus shift in the telecom industry in the middle of the last
decade when Reliance Communications targeted the masses by cutting down both – the entry
barriers in the market as well as the call rates. However, whether the industry becomes
another success story like telecom or fails like the organized retail industry would hinge a lot
on the regulatory framework. Supportive government policies addressing the barriers
discussed above would be critical in ensuring that this strategy succeeds through free-market
mechanics.
Differentiating projects into different categories like affordable and non affordable is
subjective and involves discretion of people involved.
[Type text]
Bibliography
3. Cuchman Wakefield
4. KPMG
5. Bloomberg
7. Purvanchal Group
8. CREDAI