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Affordable housing in India is not sub-prime
Thanks to a variety of witty presentations explaining financial woes afflicting the US via e-mails, everyone today is an “expert” on sub-prime; everyone is risk-averse and everyone who is not affluent is seen as “high risk” and deemed by most as “sub-prime.”
But, there are fundamental differences, both in the economic situation and the customer segment that constituted “sub-prime” in the US and the segment that needs affordable housing in India.
In the US, the housing market was booming and moving only one way — up. With easy and plenty of cheap money available, lenders were increasingly tempted to offer home loans to persons with poor and tarnished credit histories.
They could charge these customers higher interest rates and fees than they would have been able to charge other consumers. Given the rising prices of property, a tidy profit was in store anyway. The idea became popular and large numbers of loans were made to customers who were likely to have problems servicing regular loans even at low rates.
While the sun shone, everyone was happy. Then, things changed.
These customers had no way of meeting their repayments and started defaulting on the loans, which led to foreclosures and home sales. As the numbers snowballed, property prices also gave way. Creatively-packaged debt, that was sold as good credit risk, started turning bad. The crisis had begun.
The Indian scenario is not really comparable. True, we’ve had a real estate boom too; but that boom has been limited to the middle and upper income residential and the commercial property market. If we were to use the standard banking benchmark of home loan entitlements being equal to 3.5 times annual salary, this effectively means that over 80% of the Indian population that earns less than Rs 11,000 per month cannot even dream of owning a house, since there has been no supply at all.
The segment earning between Rs 7,000-Rs 15,000 has never been considered significant for home loan offerings. While the prospects of getting a home loan for the formal sector employee do exist, chances for informal sector employees and the self-employed like drivers, NGO staff, small caterers and others are bleak. This is despite the fact that they have marketable skills, steady jobs/incomes and employer/customer recommendations.
These people have the capability and willingness to make a 20%-25% down payment on houses costing between Rs 4 lakh-5 lakh and are happy and able to take on a 15-year loan obligation, at market rates, in order to realise their dream home. Given that in these small-sized homes, the land cost represents a small percentage of the overall cost, the speculative risk is low, with a very low probability of a drop in these property prices.
Thus, labelling the entire segment as sub-prime would be a misnomer. The higher- and middle-income market has already been tapped and it may now be a good time to take a fresh look at the lower middle class. It could represent a new horizon for growth, diversification and de-risking. Some rough arithmetic suggests that the housing market for the Rs 7,000-Rs 15,000 segment translates into a market size of over Rs 5,00,000 crore!
And then there is the huge multiplier benefit — a strong growth in this market will yield a positive spin-off effect on employment generation (the residential housing sector hires a relatively high percentage of low-skilled daily wage workers as opposed to infrastructure projects) and uptake in consumption of commodities, including cement and steel. Needless to add, lives of millions of Indians and our urban landscapes will be transformed.
The handful of niche players that currently service this customer group, are clearly not enough. The question is will the financial sector rise to the challenge and develop this market quickly enough. The real estate players are already sniffing at the opportunity and a positive signal from banks may be just the trigger they need to take off. And, therefore, ironically, the housing segment which was the cause of all ills in the US may just be the answer to all our problems in India.
(Source- THE ECONOMIC TIMES )
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Rate cuts, interest subsidies likely by the weekend
The high-powered committee on economic crisis headed by Prime Minister Manmohan Singh met on Tuesday to finalise a package to boost the economy. A special infrastructure fund, interest subsidy for housing and export-dependent sectors like textiles, handicrafts and leather and monetary measures, such as interest rate cuts, are likely to be part of the package expected to be unveiled by Saturday.
A separate meeting of the secretaries of finance and commerce will be held on Wednesday under the cabinet secretary’s chairmanship to work out details of the package.
“The meeting took stock of the credit offtake and overall liquidity scenario in the country and measures needed to boost credit offtake,” a government source privy to the discussions said, and added the central bank will take a call on the options that include a cut in the repo and reverse repo rates.
Repo is the rate at which RBI lends to commercial banks, and reverse repo is the rate at which RBI accepts deposits from banks.
The meeting was attended by Planning Commission deputy chairman Montek Singh Ahluwalia and RBI governor D Subbarao. Home minister P Chidambaram was a special invitee. It is learnt that ministers discussed the possibility of reducing the repo rate by 150 basis points, a 200 basis-point cut in the reverse repo rate and a 150 basis-point cut in cash reserve ratio. However, suitable action on this front has been left to RBI.
Currently, the repo rate stands at 7.5%, the reverse repo is at 6% while CRR (the ratio of bank deposits that commercial banks are required to keep with the central bank) is at 5.5%.
“There are expectations that RBI would reduce the CRR by anot her 150 basis points, infusing Rs 60,000 crore into the system,” said the source.
Recently, there have been numerous claims from industry about the tight credit flow from banks. In fact, the then finance minister P Chidamabaram had also asked public sector banks to submit a fortnightly report on credit offtake to the ministry in order to let policy-makers study the sector-wise credit flow.
Other likely measures include increased spending on infrastructure, special credit window for select sectors like power and roads and enhanced credit period and insurance cover for exporters.
Infrastructure is the thrust area of the government and the prime minister himself has said several times that the government would ensure smooth flow of funds to the sector.
The government is also looking at making available credit lines for sectors like textiles, leather, automobiles and handicrafts, which are the worst-hit.
Other components of the package where the RBI’s inputs are vital include providing funds to the National Housing Bank to finance small housing and to non-banking financial corporations to finance projects, especially in the infrastructure sector.
A proposal to provide interest rate subvention for housing loans is also being considered, in a move to provide impetus to the real estate sector. Also, import duty cuts to protect domestic industry — especially the auto and engineering sectors — from cheap imports, might be announced.
(Source- THE ECONOMIC TIMES )
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Foundation stone laid for first elevated road (Barapullah elevated road project)
After delays and controversies galore, foundation stone of the elevated road over Barapullah Nullah was finally laid on Sunday. The road which will cost an estimated Rs 498 crore, will connect Sarai Kale Khan and Jawaharlal Nehru Stadium.
During the function, chief minister Sheila Dikshit said that the 3.7-km-long dual carriageway elevated road with three lanes each would be the city’s first elevated road. Dikshit described the elevated road as an important infrastructural project, which would go a long way in making Delhi a world-class city.
It will serve as a dedicated corridor for the movement of 10,000 athletes during Commonwealth Games 2010. It is, in fact, the first project in the country involving construction of seven long span balanced cantilever bridges within a stretch of just 4 km.
Apart from being a Games corridor, the road will also ease traffic congestion on Ring Road at Ashram, on Mathura Road and other arterial roads.
The road project had been mired in controversy from the very beginning with the original proposal of constructing a tunnel road for transportation of athletes being dropped after stiff opposition from DUAC and ASI on the ground that such a road could end up damaging several historical monuments that lie along the proposed route.
It was only after a longdrawn effort on the part of state government to push the tunnel road failed that a GoM was formed to resolve the matter. That is where the proposal to construct an elevated road over Barapullah Nullah originated.
The government has instructed the PWD to execute all infrastructural projects related to Commonwealth Games on a war-footing. According to a statement issued here, uninterrupted power supply and water will be ensured during the Games.
(Source- TIMES NEWS NETWORK )
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Development in Manesar
| The large expanse of industrial belt in Manesar was expected to create a big demand for residential units in adjoining areas. Sighting this demand HSIDC is also developing residential complexes catering to executive working in the industrial township. The HSIDC has acquired land across the national highway, which is being developed to accommodate the residential units. HSIDC has allocated 250 acres for residential developments in Sector 1 with 550 residential plots and 50 group-housing societies. HSIDC is also planning to develop service apartments in the area. A flyover is being planned to connect the residential unit with the industrial sectors, thereby avoiding congestion on the NH. |
Upcoming areas in residential property
Bhiwadi, in the State of Rajasthan is closest to Delhi. The Rajasthan government has taken a number of measures to develop industrial centers in and around Bhiwadi- Neemrana, Dharuhera, KushKhera, Chopanki etc. This has created heavy demand for residential, commercial and retail real estate properties in the region.
Though Bhiwadi is only around 70 km away from Delhi, it cannot serve the residential needs of those working in the National Capital. But, with plans to develop it as an industrial town, Bhiwadi will have a huge requirement for residential real estate for people who are working in the industries located in the area. A number of auto-ancillary industries for auto majors like Honda, Tata, Mahindra and Mahindra are planning to open their units in the area.
Though out of reach for Delhi workforce, Bhiwadi is likely to be developed as a residential center for those working in Gurgaon, Manesar and Dharudhera. Analyst feel that this region will come up as a modern city in the region, attracting the middle class, for whom the real estate prices in Gurgaon and Manesar have already gone beyond their means. In fact, the area has a huge locational advantage, being connected to National Highway-8. Not only is it attracting investments from Delhi, but has caught the attention of industrialists from Punjab and other parts of India as well.
With the current pace in industrial growth and development, Bhiwadi is on track to becoming the next Gurgaon. A Special Economic Zone (SEZ), spanning 500 acres, has been approved in KushKhera. Mahindra Motors has bought 450 acres for its second plant, while GM has recently acquired 500 acres there. Thousands of job will be generated by all these industries/plants/SEZs and people working in these areas will look for residential options near-by, which will in turn script a boom in real estate.
Ashiana Group has already launched seven residential projects in the area, which are running successfully. Also, there are flats built by Rajasthan Housing Board and Urban Improvement Trust (UIT). Current Residential values for 2BHK 3 BHK partrment is around Rs 2000/sq ft. Land prices in Bhiwadi have also witnessed a rise from Rs 2000/sq metre in 2004 to Rs 9000/sq metre today. Rajasthan Housing Board is also planning and executing new housing projects to meet the future demand.
Other developers in residential segment are STAR RAISON LANDMARK, Trehan Developers, BDI (Bhaskar Group), Pal Group, Kajaria Group, M-Tech, M2K, Parsvnath, R Tech, Accent Genesis and Arundev Builders.
As the land prices are still within the purchasing capacity of the middle class people, many of them are buying up properties. At the same times, it is providing them good opportunities to invest, as well. As the demands are likely to increase over the next three to five years, the prices of real estate is likely to improve substantially. Improvement in the infrastructure in the region will also play a role in it.
There is a proposal for a 6-Lane expressway on the highway (Dharuhera to Palwal) – this will increase connectivity to Bhiwadi from nearby places and will directly lead to real estate development. Industrial growth has already started.
Four malls, which have already been launched are – Ashiana Village Mall, Parsvnath Mall, Capital Mall and BB Mall. All these will be ready in the next two years and this will result in a huge retail revolution. This will also provide the residents a quality life.
All in all, Bhiwadi is one of the upcoming and developing cities of the future. It is a place to look out for.
Townships are also coming up in Kundli (projects by Ansai, TDI) and Dharuhera (eg Parsvnath City, projects by M Tech & Dwarka Dheesh) on the Chandigarh and Jaipur highways. These projects capitalize on the improved accessibility to Delhi and many residential projects are in pipeline. These will serve as suburbs in the near future.
As a result of this growth in real estate across segments, the year 2006 was marked by some of the country’s biggest land deals Development is expected to drive the next round of realty boom. Research and rating agency Liases Foras has unveiled India’s first real estate sensitivity index – Ressex. According to the report, Sahara Infrastructure & Housing has acquired 200 acres in the heart of Rajarhat for its Rs 2,200 crore City Home project. The company will invest Rs 1,000 crore in residential projects and Rs 1,200 crore on its commercial development. |
Retail follows residential
When residents come, can retail be far behind? Reliance is planning to buy land ranging from 3,000 sq ft to 30,000 sq ft at destinations across the country. At the same time it is also targeting a minimum of five acres, totaling 1,600 acres of land for its agriculture distribution centres. The big malls in metros will be spread over 100,000 sq ft each. The move would have a cascading impact on land in the vicinity of the Reliance properties. It has already happened in Ahmedabad where Reliance purchases land. The land hunt has pushed up stock prices of certain corporate houses that hold land banks within cities. Last week, the stock price of GCT Industries shot 33 percent on rumors that Reliance may buy its 13 acres of land in a Mumbai suburb for over Rs 1,000 crore. The company’s plan to acquire a land bank of 15 million sq ft just for supermarkets and convenience stores in urban areas is far ahead of that of its competitors.
According to Indian Brand Equity Foundation report June 2007, by 2010, the IT sector alone is expected to require 150 million sq ft of space across major cities. It estimated by IBEF that in the residential sector there is a housing shortage of 19.4 million units out of which 6.7 million are in urban India. The increase in purchasing power and exposure to organized retail formats has redefined the consumption pattern. As a result, retail projects have been mushrooming across even smaller cities.
Little wonder then that India has emerged as the most attractive destination for retailers in 2007. According to the latest AT Kearney study, for the third year in a row, India leads the annual list |
Rs 10 Billion Honda Plan in Bhiwadi
Japanese Automobile giant Honda is setting up its second car manufacturing unit in Rajasthan at an investment of Rs 10 billion with a capacity to produce 60,000 units in the first phase.
“We are setting up our second plant in Bhiwadi. The unit will have an investment of around Rs 10 billion,” said Masahiro Takedagawa, President and Chief Executive of the company’s India unit, Honda Siel Cars. “It will be operational by 2009 and have a capacity of 60,000 units in the first phase,” Takedagawa said at a seminar co-hosted by the state government and the Federation of Indian Chambers of Commerce and Industry (FICCI).
Officials said the company chose Rajasthan because it can conveniently cater to India’s largest market. The northern and eastern regions account for almost 50 percent of the country’s car sales.
Honda officials said company would bring the same corporate culture to Rajasthan that the Japanese giant follows globally. It would also seek to generate as much employment in the state as possible by tapping local talent.
Suppliers’ park
Apart from the manufacturing facility, Honda is also planning a suppliers’ park. Which will host and help in the development of a host of ancillary units, which will cater to the needs of the company.
Honda which set up its India operations in 1995 and sells the “City”, “Civic” and “Accord” sedans and the “CR-V” sport utility vehicle-is also doubling the capacity at its Greater Noida plant on the outskirts of the national capital.
“That plant is reaching its maximum capacity. It will produce 100,000 units by January.” Takedagawa said.
According to officials of the Rajasthan State Industrial Development and Investment Corp, a host of automobile ancillary units were already operational in the state with an investment of around Rs 7 billion.
Source: News Article taken from The Economic Times
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Disclaimer: The news and information given on this page of the website has been collected from the newspapers/ magazines and other sources. Company does not hold any responsibility for the inaccuracy of these reports
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