(un)Affordable Housing In India

'Nothing is expensive. It's all about affordability.'

'Affordability is not only about money. It is also about the readiness of mind to acquire.'

Until recent, Affordable Housing in India was treated like Amol Palekar, the yesteryear actor of Bollywood. The demand, importance, utility, and capability was unquestionable but the glamour, stardom, glitz was either not accorded to or missing.

Cut to year 2020, Affordable Housing in India has a new brand ambassador in Bollywood. Nawazuddin Siddiqui. But unlike Amol Palekar's era, Nawazuddin is not only the toast of Tinsel Town but also the darling of media. Naturally, glamour and glitz follows him everywhere.

A few years ago, Affordable Housing in India was the second class citizen, neither attracting big realty brands nor the government's attention.

But in the last couple of years, the big boys of Real Estate industry have taken keen interest as a part of their business strategy, giving the much required recognition to the 'poor country cousin' of realty space. Obviously, it caught the attention of the government too. Soon it found it's way into election manifesto of many political parties. From 5 Star Hotel conferences to corridors of power, none could afford to ignore 'Nawazuddin Siddiqui' of Real Estate Industry.

Within Affordable Housing there is LIG, MIG and HIG, depending on the demographic dynamics. This indicates the mammoth size and expanse of the market. With 1.3 billion population, and still growing fast, the Affordable Housing is the FMCG of Real Estate industry.

The glamorous Affordable Housing in India has not only suitors from within the Industry but also from other sectors of economy. No wonder, the product has been evolving constantly and consistently. From an ordinary G+2 structure to sky scrapers, from a dingy one room tenement to multi BHK apartments, from 'room to road' concept to lifestyle townships, the product has attained stardom of unimaginable proportions. In fact, there are affordable housing townships having amenities that can put to shame some of the most popular addresses in the upmarket.

While the segment name has continued to retain its 'Affordable' adjective, the cost of acquisition for the home buyers hasn't been reflective of it. I'm sure Bollywood producers are experiencing the same with the counterpart of Affordable Housing in Bollywood.

How truly affordable is AFFORDABLE HOUSING in India?

Ever since the unwelcomed arrival of Covid-19, the cost of steel, cement, ready mix concrete and sand, have gone up by 30%-50%. The labour intensive Real Estate industry has had a double whammy, ever since the deadly virus invaded the human lung space. The cost of labour has gone up by almost 100% in the last 12 months. The consistently increasing transportation cost due to ever increasing fuel prices have pushed up the cost of every other raw material by atleast 10%-20%. The quest to match, if not out-do the competition brick by brick and amenity by amenity, has only added to the final cost of production of the supposedly Affordable Housing.

How profitable is AFFORDABLE HOUSING in India?

Unlike luxury housing, one of the biggest eater of profit in this sector, is the fixed cost. Affordable Housing is a volume game. Due to its sheer operation size, the fixed overheads are far higher than a stand-alone luxury building having similar total revenue.

While a standalone luxury building will have less number of men and machinery employed, the Affordable Housing operations team is like a 'jumbo cabinet' of a coalition government. Therefore, the variable cost is also significantly higher than its luxury counterpart. Disproportionately high fixed cost and high variable cost is the biggest dampener for the Affordable Housing, making it least profitable.

Is it (un)AFFORDABLE HOUSING?

The limitations and constraints mentioned in the above paragraphs have forced the developers to come up with their own version of Affordable Housing. If you read the first two lines of this blog once again, you will find that the developers have found the way to get around the minds of prospective customers by promptly and aptly modifying the very definition of Affordable Housing.

If the PRICE of an Affordable House prompts the mind of prospective customer to acquire it, the size of that house might completely mismatch his aspirations. Similarly, if the SIZE of an Affordable House prompts the mind of prospective customers to acquire it, the price may not suit his pocket at all. The industry is telling the customer that 'you can't have your cake and eat it too'. If PRICE is affordable, the SIZE isn't and vice a versa.

This leads my thoughts to the dreaded question. Is Affordable Housing in India sustainable?

The very cyclical nature of Real Estate business calls for caution. The government policy decisions or lack of them, makes it very vulnerable to frequent implosions. The skyrocketing raw material prices further fuelled by illogical fuel prices, makes this segment a 'cliffhanger'. The 'shock and awe' economic events caused by the sudden announcements by the government, leaves the industry in a mess. The pandemic of COVID-19 has brought with it untold misery to the developer and customer.

The ultimate result is the thinning of 'wafer-thin' margins of Affordable Housing sector. From the outside, it looks as beautiful as 'Lays' packet. But, the 'wafers' inside, know it all!

Stakeholders of this all important segment of Real Estate can 'ill-afford' a collapse that will affect the socio-economic balance of the country. They will do well to take timely action before it's too late.