The Hindu : Tamil Nadu / Chennai News : Low-cost housing set to worsen in Chennai

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Monday, Dec 24, 2007
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Tamil Nadu

Tamil Nadu - Chennai

Low-cost housing set to worsen in Chennai

Paul Comrie

CHENNAI: The future of Chennai’s low-cost housing is set to worsen for the time being, as developers say the margins are too narrow.

With easy access to funding and bank loans for the domestic high income demographic (HID) segments, developers are focussing their efforts everywhere but the poorer sectors.

Returns on commercial markets are high. Banks and private equity groups are willing to lend huge sums because their investment is secure. And even in the unlikely event that a commercial project fails, investors aren’t overly concerned as they keep the land. In 2006, a plot (2.400 square feet) was valued at Rs. 75 lakh. Today the same plot would be worth double that sum, at Rs. 1.5 crore.

Besides, the current margins in the HID sectors are a remarkable 45 per cent. And while the demand remains strong, developers have no need to look elsewhere. The margins for low-cost housing are less than half the HID sectors at roughly 20 per cent. Take into account the added risk of the already indebted individuals, or those with poor credit ratings, and the situation is dire.

Another issue is infrastructure. As a rule, the only land available to developers is outside the city limits, where they have to assume the added costs of sewage, power and water, not to mention roads and amenities. Those monumental costs can be added in when dealing with the HID sectors, but so with the lower spectrums. Also of note, the LIDs need to live close to their places of work, and public transport must be readily accessible.

Given the rising land prices, 94 per cent of households prefer to rent, falling further out of the market each year. This new urban contingent is referred to as ‘house poor’ by the latest U.N. report.

According to the 2007 Chennai Metropolitan Area census , 3,49,000 low-cost housing units have been built in the past 10 years. Of these, the plan estimates that 34,900 units have been added to the low-cost sector in the past year. Any dwelling between Rs. 600 and Rs. 1,200 a square foot is considered low-cost housing.

But the census also reveals other statistics. The latest index shows that during 1991-2001, the annual rate of growth in households was 3.69 per cent while the total annual growth in housing units was merely 2.63 per cent. That leaves an entire 1.06 per cent of Chennai’s residents without viable homes each year.

“The government must give concessions to builders. That’s the only way forward for this situation, as the needs can only be addressed if they are run like a business,” says M. Murali, Managing Director of Shriram Properties Ltd., a Bangalore-based company.

But many specialists contend that the government is already helping with issues of low- cost housing. Even so, all parties agree that growth must become inclusive if it is to be sustainable in the long-term.

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