Improved Affordability

Delhi, India (PressExposure) August 25, 2009 -- Housing requirement in affordable [] section across seven cities in the country will be approximately 2.06 million units by 2011, according to a study. Prabhakar Sinha writes

With fall in interest rates in the last eight months, affordability factor of house buyers has improved substantially. During the period, interest rates on home loans up to Rs 30 lakh have declined by around three percentage points to 9%, from 12%.

This sharp decline in rate has improved the capacity of borrowers. For instance, at 12%, the EMI on Rs 10 lakh loan to be repaid in 20 years is Rs 11,010. But, with interest rate at 9%, a person can borrow Rs 12,30,000 with the same EMI. That means, now he can buy a house that is almost of 20% higher value than what he could have done in 2008.

In the meantime, since January, prices of residential units have also fallen by up to 30%. Together, these two factors have led to an increase in construction activities in the country. This has also brought housing within the reach of a large number of buyers. According to a study conducted by Knight Frank Research, there will be an additional demand for 45,000 affordable housing units in the next two year in the National Capital Region. However, the cumulative demand in the region would be around 5.45 lakh units.

The total housing requirement in affordable [] section across seven cities — Mumbai, National Capital Region (NCR), Chennai, Bangalore, Hyderabad, Kolkata and Pune — is approximately 2.06 million units by 2011, according to the report. With the average housing unit size pegged at 800 sq ft, this translates to a requirement of 1,650 million sq ft of residential space. Assuming a price of Rs 2,000/sq ft, this total space requirement translates to a market size of approximately Rs 3,30,000 crore.

While the Rs 3 lakh to Rs 10 lakh income group would drive this demand, the research findings further indicate that the largest contributor to this market size is expected to be the group earning Rs 3 lakh to Rs 6 lakh annual income.

As per the Housing Development Finance Corporation [] Limited (HDFC), the largest lender in the housing loan market in India, the maximum affordability of a household has been computed to be 5.1 times its annual income. In other words, for a household earning Rs 3 lakh a year, an affordable house should cost at most Rs 15 lakh. The report of a high level task force under the chairmanship of Deepak Parekh, chairman of HDFC, delves into the various aspects of providing affordable housing and has recommended a similar definition of affordability.

In fact, it has been seen that if one buys a house within these limits, the chances of default go down substantially. A prospective buyer’s purchase decision is influenced by a host of factors ranging from price points to location. Due to the growing awareness among consumers, choice of facilities and amenities are also found to be important determinants.

Uninterrupted power supply, water supply and safety and security are the other three important factors influencing a buyers decision with respect to residential project in a preferred location []. The potential buyers are not much concerned about developers brand and goodwill.

The survey has brought out factors influencing preferences of potential buyers pertaining to locations, projects and amenities within the projects. In the NCR, the average budget of buyers varies between Rs 19 lakh and Rs 31 lakh.

Keeping in mind factors influencing choice of location, 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. NH-24, Raj Nagar Extension and Crossings Republik also emerge as preferred locations for affordable houses.

Similarly, 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. While the unit size preference amongst most households is 550-1,200 sq ft, many of the so-called affordable projects are offering apartments with an area of 1,200 sq ft and above. 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. Higher cost of living and lifestyle have adversely impacted affordability of households in Mumbai and Bangalore, 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 status in Mumbai can only 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 construction cost has increased marginally in the last few years, land cost in contrast has gone up several times.

Courtesy:- TOI dt:- 22-08-09

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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.

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Press Release Submitted On: August 25, 2009 at 6:50 am
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