Playing on the simple economics of low margins-high volume, realty majors are now adding low-cost residential projects to their portfolio. Omaxe, DLF, Ansal API, Parsvnath, BPTP, et al are setting their eyes on the small and mid-income home buyer segment and lining up projects which will meet the aam aadmi’s need.

Sample this: Omaxe will be investing Rs 5,000 crore to develop low cost or affordable houses in tier II and III cities. “The price of these houses will be around Rs 20 lakh. The time has come for developers to foray into affordable housing segment where the demand is significant,” said Omaxe CMD Rohtas Goel. The company is yet to acquire land for these projects.

BPTP that recently bagged the largest land deal in Noida, will also be introducing residential projects in Faridabad which will have an `affordable’ price tag of Rs 40-50 lakh. BPTP has a 1,400 acre land bank in Faridabad and says volumes can be created according to the price.

“Once connectivity improves, Faridabad will be a preferred and an affordable destination for home buyers,” said BPTP MD Kabul Chawla. India’s largest real estate developer, DLF has also launched a number of affordable housing projects in different cities that will cater to lower and medium income groups.

Chennai, Bangalore, Indore, Manesar and Cochin are some of the markets where the realtor will come up with residential projects. While a 3 BHK in Chennai will be in the price range of Rs 35-50 lakh, projects in New Gurgaon and Manesar will cost Rs 45 lakh and upwards.

As per global real estate consultancy Cushman & Wakefield, in the next five years, demand for residential real estate across the seven major cities will be about 1,400 million sq ft. Last year witnessed a lot of residential and premium segment projects being announced by developers, but a gradual shift towards the low-cost housing is only now being witnessed.

Agreeing with the trend, of developers foraying in the affordable segment, Ansal API’s VP-marketing Kunal Banerjee says, ”Market for luxury homes is limited while there is a big market for low cost and mid-segment housing. However, developers will have to compete with unorganised players present in this segment.”

Adds COO of Parsvnath Dr BP Dhaka, ”Only 5% of the home buyers can actually afford a luxury or a top-end house.” For Parsvnath while 10-15% of it’s sales account for luxury projects, around 70% cater to middle class and balance for ‘low cost’ housing.

But is it the low margins which have kept developers away from low cost projects till now? Says DLF group executive director Rajeev Talwar, “Even if the margins are less, the volume will more than make up especially as the bulk of demand comes from this segment. It’s a huge market and will prove to be profitable if one has bought land at affordable price.”

Though the buzz is about affordable, the debate regarding how affordable is affordable continues. Points out Dhaka, ”Affordable is a function of location and income. In a tier II city a three bedroom apartment between Rs 10-25 lakh can be termed as affordable whereas in metros (excluding the prime locations of course) and suburbs anything up to Rs 50 lakh could fall in the category.”

MMRDA auction bids signal realty correction ahead

The Mumbai Metropolitan Region Development Authority (MMRDA) on Tuesday auctioned three plots in city’s Bandra-Kurla Complex (BKC) for Rs 1,322 crore.

It’s a far cry from the Rs 2,790 crore the authority earned just three months ago for a similar transaction, confirming what every real estate player has dreaded so far, the slowdown in Mumbai’s property market is finally real.

The slump in the real estate market is also being attributed to the turbulence in the equities market and a slowdown in Indian industrial production figures on concerns that the recession in the US and financial liquidity problems may adversely impact India. It could be for the first time since 1995 that the MMRDA is getting a poor response to its land auction.

The MMRDA had put five plots on auction in the G-Block of Bandra-Kurla Complex, two commercial, two residential and a club house. However, it did not open the bids for one of the commercial plots, while there were no bidders for the club house property.

MMRDA officials said the authority sold the three plots, two residential and one commercial, to pharma tycoon Ajay Piramal-promoted Starlight Systems and Jet Airways, respectively. Starlight quoted Rs 248 crore each for the two residential plots measuring 7,050 sq m.

Jet Airways offered Rs 826 crore for the commercial plot spread out over 28,000 sq m of developable area. The fall in prices is evident from the comparative prices. While Jet’s bid on Tuesday for the commercial plot was Rs 32,000 per sq ft, Wadhwa Builders had offered Rs 46,000 per sq feet in November.

Interestingly, Jet Airways was the sole bidder for the commercial plot in BKC, considered to be Mumbai’s emerging financial hub. No other corporate house or developer participated in the bid, said MMRDA executives.

“The poor response for commercial property indicates that the real estate market in India is witnessing a slowdown,” said international property consultant DTZ director Amber Maheshwari. “What happened in BKC today is a reflection of what has been happening in the Mumbai property market over the past 4-6 months. Prices could correct further... however, when it will happen is yet to be seen.”

Starlight Systems, which bagged the residential plots, is an associate company of Piramal Suntech Realty, a joint venture between Ajay Piramal and the Mumbai-based Suntech Group.

“Acquisition of these two plots makes good business proposition as this land is adjacent to Signature Island, a residential complex being developed by Piramal Suntech. So, this would give additional space for further expansion of the project,” said Suntech MD Kamal Khetan.

The proximity of the plots prompted Starlight to pay a 200% premium to the reserve price of Rs 1.2 lakh per sq m. ONGC, the next immediate bidder for the residential plots, quoted around Rs 22,000 per sq ft, which is Rs 10,000 less than Starlight’s bid, another first in the land auction space.

Other realty players like Peninsula Land, Akruti City, Neelkanth and K Raheja Corp were other bidders for the residential plots. The bidders were expecting a hike in the floor space index to 4 compared to the existing 2. However, MMRDA did not make any changes in the FSI.