Journey through India’s Affordable Housing, Part I

Published: Saturday, December 8th, 2012 by Daniel Rozas

Changes are afoot in the low cost housing market in India. Over the last two years, dozens of commercially-built projects targeted at the lower middle class have been going up in cities across the country. In the past six months, many of these projects have begun opening their doors to the new residents we visited – the first to live in fully private, commercially developed affordable projects in India.

Our brief journey took us from Mumbai’s downtown chawls to its outer suburbs, from urbanizing rural towns outside Pune to the outer environs of Bangalore’s famed Electronic City. In each place, rickshaw drivers, railway workers, factory hands, small business owners, technicians, retirees, teachers, men, women and, yes, the ubiquitous school-age cricketers spoke to us about their moves to these new developments, their motivations, and most importantly, their stories.

An advertising placard shows the target family for Janaadhar Shubha, completed buildings in background

What is low cost, anyway? The Monitor Inclusive Markets group’s 2009-10 studies define lowcost housing as Rs. 3-10 lakhs (Rs. 300,000-1,000,000 or US$5,500-$18,000) in price, targeting households with monthly incomes of Rs. 7,500-25,000 ($136-$455). Monitor estimated that 20 million households in urban India fit this profile – one quarter of all urban households. Units in the three projects we visited priced within this target window with starting prices of one bedroom (1BHK) units from Rs. 3.25 lakhs (Rs. 325,000 or US$6,500) in Pune to Rs. 7 lakhs (Rs. 700,000 or $12,000) in Mumbai.

Still, unit cost is but one part of affordability. Affordable, accessible credit is another story. Only one elderly couple had purchased their flat with cash using savings – a dream waiting to be fulfilled for 30 years! The rest all relied on mortgage finance, without which the projects would’ve been inaccessible, regardless of the low cost. As one recent homeowner and worker at a spice factory outside of Pune put it: “I never dreamed of being able to afford my own home. But after visiting the MHFC (Micro Housing Finance Corp) stall, I became very happy – I might be able to manage this flat!”

Meeting mortgage payments is no small accomplishment either. Mortgage payments, not including the down payment, were often double the previous rent. In one extreme case, a client went from a rental costing Rs. 3,500/mo ($63) to a mortgage payment of Rs. 11,500/mo ($209), a more than three-fold increase.

“I never dreamed of being able to afford my own home. But after visiting the MHFC stall, I became very happy – I might be able to manage this flat!”- Anandgram resident oustide Pune

Why sacrifice for the dream of homeownership? Despite the low cost of the homes and affordable mortgage financing, these financial sacrifices highlight how strong the dream of homeownership is. What would motivate families to dramatically increase their spending on housing in this way?

The wide-open courtyard at Anandgram

Some buyers admit it’s a hot market and a good investment. At the oldest project – Vaishnavi Sai – prices had already doubled over the past year. Residents also speak well of the quality of construction, building managers and their neighbors, not to mention fresh air and open space.

Indians’ homeownership dream also has a push factor. In rental housing, residents have suffered with dysfunctional arrangements with landlords, frequent rent increases and unreliable services. The often stressful multi-generational family compound has driven some to a new family co-habitation, for example, the two brothers previously living together in the same house who bought adjoining flats – close but separate. Purchasing a home can be an assertion of freedom as much as financial capacity.

At Janaadhar Shubha outside Bangalore, clients were less comfortable with the project’s location – an entirely residential community far from markets and commerce. When we asked two women directly if they would have moved there if these had been rental flats charging the same rent they were paying before, instead of purchasing these homes? The answers were both unequivocal: no. One rickshaw driver spent every other night with relatives in Bangalore rather than go home because of the transport time and expense. Their response: “We have to bear some suffering to have our own home!”

What Clients Want: Affordability – Fresh Air & Open Space – Access to Rail/Roads – Local Markets/Schools – Community

Beyond affordability: what clients want. Homeownership may be worthy of sacrifice, but it comes with minimum requirements. After low cost, the single most frequently cited reason for buying into these projects was fresh air and open space. For some, escaping India’s hot, crowded cities is an important attraction even if lengthy commutes are an obstacle. Yet, for developers, building in distant suburbs is done out of economic necessity – cheaper land with plots that are larger and easier to acquire and assemble. Government incentives would be necessary to change this reality.

All the projects we visited were designed with large courtyards and good ventilation, another perspective on the escape theme. One spice factory worker noted: “Before, the air in my flat was stifling, so when I came back from work, I had to go sleep outside. Here I can sleep in my own flat.”

Accessibility to urban centers is an issue but one whose dimensions are changing with the growth of railroad suburbs. All three projects featured a rail station nearby – an advantage emphasized by many interviewees. Even so, residents often work nearby and don’t need a regular connection to the center, a result of India’s dispersed urban development.

Markets and schools are a bigger issue. At one project, the closest markets’ location a few kilometers away was mentioned repeatedly as an inconvenience. Although a school bus and regular shuttle bus to the suburban center helped mitigate this issue, buyers don’t appreciate suburban isolation. Even with commercial space on-site for shops, a school and a small clinic, it’s no replacement for a town center.

Friends at one flat at Vaishnavi Sai

The sense of community appeared surprisingly strong given urban designers’ fear of sterile, isolated, suburban slums. At Vaishnavi Sai, with 2 years of history, children and teenagers wander from one flat to another as if they owned both. Even at barely 1-month old Janaadhar Shubha, children appeared at one teacher’s flat in the morning to remind her that it was time for school. Mothers spoke nearly unanimously of the sense of community, much as they might have said of a chawl or a slum in the city.

This divergence between expectations and actual experience is important, yet it is difficult for developers to sell community with marketing materials. At one Mumbai chawl, elderly residents similarly praised their community, the celebration of festivals as neighbors and help to those who fall sick. Their dim view of new suburban communities? “The doors are closed.” As more communities are developed, perceptions will change. Proactive marketing – videos or visits to settled communities – may help.

Homeowner or investor? Investors had bought into all three projects but were most visible at Anandgram (Pune), where they owned as many as 50% of the units. The concern is that empty units held as assets can drive up prices, undermine the sense of community, and contribute to a speculative bubble.

At Anandgram, we met two such investors who were long-term buyers: one with two adjoining units, with plans to rent one and keep the other as a weekend home. The second bought a unit to rent. It’s difficult to predict how successful a rental strategy will be with so many units for rent, especially with the project unfinished. Current residents knew only a handful of tenants, with most investor units remaining empty.

Extrapolating from earlier projects, Vaishnavi Sai outside Mumbai was nearly fully occupied with investors owning a quarter of the flats. The community didn’t seem to suffer as a result of their presence. With 50% investor-ownership at Anandgram, the impact may well be problematic.

Next steps in this journey. Low income families place housing among their top concerns. The topic deserves more additional attention, especially from the perspective of buyers. In coming weeks and months, we’ll publish more detailed findings from our visits and examine other aspects of this broad and complex subject.

Follow these projects and developers on DSC:
Janaadhar ConstructionsJanaadhar Shubha
Vastushodh Properties
Anandgram Talegaon-Dhamdhere and Anandgram Yavat

About the Authors: Daniel Rozas is an independent housing- and micro-finance consultant based in Brussels, Belgium. He began his career at the US mortgage investment company, Fannie Mae, where he spent eight years in various roles. Since 2008, he has been working with many of the leading institutions in the microfinance sector, including CGAP, Financial Access Initiative, Accion’s Center for Financial Inclusion, the Smart Campaign, and several others. Most of this work has been focused on applied research on a broad spectrum of issues, ranging from risk management to business strategy to client protection and much else in between. While Daniel continues to make important contributions in the microfinance sector, he recently started moving back to the field of affordable housing finance, seeking to merge his two areas of expertise in a way that can help the sector shift into new ground. You can check out more of Daniel’s work on his blog. Vikash Kumar is the Founder and Managing Director of Microfinance Focus, a leading niche media site in the microfinance space. He is a visiting faculty to several universities including the Autonomous University of Madrid (Spain). He has also conducted several consulting assignments in the BOP segment.

This article is part of a series aimed at understanding what’s happening in India’s affordable housing sector, especially through the eyes of its pioneer residents. This series is based on interviews with residents of three low-cost housing projects: Shubh-Aangan Realty’s Vaishnavi Sai Complex in Virar outside Mumbai, Vastushodh Projects‘ Anandgram outside Pune, and Janaadhar Constructions‘ Janaadhar Shubha outside Bangalore. The interviews were conducted during May-June 2012.

Thanks to Microfinance Focus for its permission to edit and republish this article. Read the full article here. Please visit this site for more microfinance insights and for more work by this author.