Narendra Modi's party sells voters low-cost housing dream

May 14 2014, 04:37 IST
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'Definitely anything would be better than doing nothing which has been the case so far' (AP) 'Definitely anything would be better than doing nothing which has been the case so far' (AP)
SummaryNarendra Modi's Bharatiya Janata Party, promised in its election manifesto to adopt a low-cost housing policy.

A low-cost housing project in Boisar, a satellite town outside Mumbai, offers a taste of how hard it will be for Narendra Modi to fulfil a pledge to provide affordable homes for every Indian family if, as expected, his party wins India's election.

India needs about 19 million low-cost homes - roughly defined as costing a million rupees ($16,700) and below - to shelter an urban population expected to nearly double to 600 million by 2030 from 2011.

Consultants Monitor Deloitte estimated that the low cost housing segment represented a $150 billion business opportunity, but the challenge for developers lies in earning sufficient margin returns.

At Boisar, a modest industrial town 100 kilometres (60 miles) north of Mumbai, Tata Housing is close to completing the construction of 1,200 cheap homes. But faced with disappointing profit margins the developer has been forced to raise prices, redefining the notion of what is "affordable".

"It is a tough model," said Brotin Banerjee, CEO of Tata Housing, which has invested up to 40 billion rupees ($666 million) in low-cost homes, with about 20,000 units built or under construction across the country.

Market prices for Tata's low-cost apartments in Boisar have more than doubled to 1.8 million rupees ($30,000) since off-plan sales began in 2009 when the developer sold most homes.

But, Tata has failed to generate margins of more than 20 percent it had sought and now expects to earn 15 to 16 percent, far below the margins of 30 to 50 percent that mid-tier and premium housing projects earn developers.

The Bharatiya Janata Party (BJP), led by prime ministerial front-runner Narendra Modi, promised in its election manifesto to adopt a low-cost housing policy that would ensure every family in Asia's third-largest economy has a home by 2022.

While details are scarce, it aims to make land more easily available to developers, and to provide them with incentives to build cheaper homes.

In India, housing is a state and not a federal subject, and it is unclear who will foot the bill in a country where government finances are stretched, and land prices are under almost constant upward pressure in overcrowded megacities like Delhi and Mumbai.

Tata Housing's Banerjee said costs rose and margins shrank in Boisar because project approvals were delayed, and the company had had to bring in basic infrastructure like roads, water and electricity - services it had expected the government to provide.

"I would be pleasantly surprised if this government or

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