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Tuesday, May 27, 2008
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Tamil Nadu

Tamil Nadu

So, can you afford a house today?

Low-cost housing has become unattractive for private developers even as land prices and construction costs touch new highs. Shyam Ranganathan on Chennai’s housing scenario

Photo: r. ragu

High cost housing Higher margin for builders.

With land and construction costs touching new highs, low and middle income families are unable to buy a home of their own. As returns from projects for these groups and economically weaker sections (EWS) dip, builders are beginning to believe that on ly the top segment of the market will yield profits.

Real estate developers have managed to carve out margins greater than 25 per cent by catering to High Income Groups (HIG). “With the recent spurt in prices of construction materials, construction costs (for quality housing) have become as much as Rs. 1,200 per square foot. This cuts into our margins,” says Venkatesh, a real estate developer from East Tambaram.

Higher construction costs have squeezed the business of low-cost housing, , which has typically operated with relatively low profit margins. As the private sector accounts for about 80 per cent of all housing development in the country, the shortage in urban housing has increased from 10.4 million units in 1991 to 15.5 million units in 2001.

A technical group formed by the government has estimated that this will rise to 24.7 million units by the end of the 10th Five Year Plan. Of this, 99 per cent will pertain to EWS and LIG segments. To ease the pressure on the LIGs and MIGs, the Tamil Nadu Housing Board (TNHB) has decided to construct inexpensive flats at Nerkundram, MKB Nagar and other places, says Chairman and Managing Director Rama Mohan Rao.

The 2008-2009 Tamil Nadu budget provides Rs. 2,000 crore for 22,000 houses to be built for these groups. Simultaneously, there are plans to construct houses for the EWS under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) and other schemes.

“Affordable housing can be effectively provided by these schemes because the major cost in housing — land — is not a factor in government schemes,” says Dr. Rao. “The government can use the land it has acquired over a long period to ease housing problems.”

However, rising construction and labour costs still pose a big problem, he adds. Builders’ Association of India (Southern Centre) Chairman M.K. Sundaram says that rising costs will make it unviable for the poorer sections to avail of housing facilities. He says that the cost of all construction material has increased by 40-50 per cent and labour costs by about 50 per cent over the past few years. The rise has been especially steep in the last six months, accounting for the sluggish demand for new housing.

In this scenario, he feels that the government and the TNHB would do well to acquire land in the suburbs and develop infrastructure such as roads and schools, leaving housing development to private players. Once the major hurdles in terms of land acquisition and infrastructure facilities are removed, he believes housing will become affordable even for the EWS and LIG segments.

Big players in the market tend to drive up prices to maximise profits, some argue. But G.R.K. Reddy, Managing Director of MARG Group Limited, says that affordable housing is possible in the private sector because of the economies of scale. He suggests building huge housing complexes with short turn-around times. The use of modern technology such as mass-concreting and pre-fabricated structures would help ease the pressure on housing.

Though many cities are extending outward, there should be proper planning in developing peri-urban areas in the next few years. Infrastructure development in the form of public transport, better roads, schools and relocation of industries needs to take place in areas surrounding Chennai, according to an expert on urban planning.

However, there is little consensus on which regions the government should focus on. From the immediate perspective, such a move will also provide housing facilities for the hitherto neglected sections of society.

But this will mean greater burden on the poorer segments who cannot afford to spend too much on transport. The formation of slums and low-cost housing areas near industrial areas is often caused by the fact that the poor need to live near their workplaces to save on other costs.

The government will, therefore, have to invest in public transport as well as on development facilities before the poor can really benefit from affordable housing schemes. Hence a massive project in the near future for developing Greater Chennai might be the only viable solution to the housing problems faced by Chennai’s poorer sections.

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