pankaj agarwal

An Alternative Urban Vision for India – Affordable Housing

I recently attended the First Habitat Summit, a joint initiative by India Habitat Centre and Urban Habitats Forum. Although most of the sessions of the 3 day Summit were policy oriented and away from business applications, therefore less relevant to NextBillion’s theme, there were some of the discussions which I feel qualify as a good read for the BoP community. One of them was the topic of Affordable Housing.

This engaging session was chaired by Ashish Karamchandani from Monitor Group and the discussion leaders’ cohort consisted of Nachiket Shelgikar, Director Micro Housing Financing Corporation (MHFC), Nehal Shah, MD, Foliage Developers which went from one extreme of constructing the most high end houses in the city of Ahmedabad to developing ultra low cost housing facilities (within the range of Rs 275,000 ($5,500) to Rs 700,000 ($14,000)), Rahul Todi, MD, Bengal Shrachi Housing Development, Srinath S, MD of Sorenson Housing Opportunity Fund, and VS Radhakrishnan, COO of Janalakshmi.

Just before the talk and after the introduction of chairs and the speakers, there was a screening of a documentary showing the current housing facilities in Mumbai and the residents’ problems and/or comments/experiences on the conditions that they have to suffer everyday. Common problems/situations faced by the 5 families, which really came out during the documentary are include unhygienic sanitation facilities, inaffordability of anything but a slum, lack of necessary amenities like electricity, water etc. The documentary gave a very straight expression to the audience of the current situation and thus acted as a very to-the-point introduction of the scheduled discussion thereof.

Ashish Karamchandani started the discussion by pin-pointing the need to which affordable housing paradigm shift needs to occur in the coming few years. Stating the rule of thumb – One can spend 40 times of his/her monthly income for housing expenditure, gave everybody the general trend involved behind the housing investment. Focusing on the affordable housing aspect, he expressed that poor might not have money but they have taste. The statement indicates that there is a huge market demand by the marginalized communities for low cost liveable housing facilities. After listening to the anecdotes shared by the respected speakers, the brief of the discussion was that there exist huge untapped potential markets in the low cost housing sector which, after a careful economic analysis, seem to provide pretty enticing profit margins for developers to jump in.

On the other hand, the existing problems, as pointed by Mr. Shelgikar, that set back this sector is the financing on both the sides which is not that easy to get as it is for expenditure in other sectors. Apart from that, it takes a rigorous process of physical verification for the approval-stamp on the loan (a micro finance approach) as the consumers usually don’t have tax returns or salary slips. Another serious issue that crops up is the increased possibility of the constructed houses being bought by investors (and not end-users) hunting for further investment opportunities. To tackle this problem, MHFC’s loan officers are appointed at the site where the transaction between the developer and the customer is taking place to make sure that the operation is carried according to the agreed terms. Also if the transaction is intended as an investment rather than a desperate need, higher interest rates are charged by the firm for the same operation.

On being asked about the incentives that made Foliage Developers take such an extreme leap, Nehal Shah talked about the scale of returns that he realized he will be getting after doing an intensive analysis of the sector based on demand and other trends, and which he never expected to get when he was approached by his colleague to take a jump into low cost housing. Also, on being questioned about the most crucial cost in developing the affordable housing facilities, he made a one liner, “We focus on getting cheap land!” Government is also showing its interest in this sector by providing cheap land for the developers engaging in constructing low cost housing facilities.

This talk was an eye opener for me discussing the status quo situations and work done/should be done in that scenario. The affordable housing does provide big opportunities with even bigger returns for the developers. This investment also provides fringe benefits in the form of better access to facilities, higher standard of living, and better environmental aesthetics. But still the sector lacks the necessary investment and attention due for the high scale impact it is capable of making. Mr. Karamchandani ended the discussion stating – The solutions exist, but the will is lacking.