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Affordable Housing in ChennaiCalibrating the ticket size
Affordable Housing - Chennai
Executive Summary Chennais residential market can be segmented into six different micro-marketspremium, central, off-central and the northern, southern and western suburbs. According to the 2001 findings of the Census of India, the overall population of Chennai Metropolitan Area (CMA) grew by 1.93% per annum between 1991 and 001. The population, which is currently at about 7 million, is likely to touch 1.5 million by 06. The percentage of the working population in Chennai was about 35% as per the census in 001. We estimate this percentage to have increased to more than 40% in recent times, with the number of migrant working population in Chennai on the rise. Most of the housing demand arose from workers in the services industry such as IT/ITES. Close to 48% of the total non-working population in Chennai falls under the age bracket of 1559. We foresee a large proportion of this nonworking population to graduate and commence working. This will lead to an increase in the number of double income no kids (DINK) families in Chennai and will result in a rise in housing demand over the same period. Indias Rising Disposable Income at CAGR of 17% gets dwarfed when compared to a whopping rise in residential capital values at 40% CAGR in Chennai in the period 005 to 008.
A sharp rise in property prices in Chennai has led to a steep decline in affordability. Today, the affordability quotient of end-users in the annual salary bracket of INR 38 lakhs is in the range of INR 1,700,600 per sq ft. Pragmatic approaches such as the reduction in unit sizes, investment on amenities like libraries instead of club houses and schools instead of swimming pools and focus on maximising efficiency of the carpet area to the built-up area will help optimise project costs. Reserve Bank of Indias (RBI) move to give priority sector status to home loans less than INR 0 lakhs will help drive demand for homes in Chennai. Government initiatives such as speedy project approvals can reduce project costs and maximise internal rate of returns (IRRs). Cross subsidies in the form of optimal floor space index (FSI) provision or transfer of development rights (TDRs) will act as growth pills for the affordable housing sector Value engineering (VE) with optimal construction cost and enhanced quality will make homes technologically affordable. All three stakeholdersdevelopers, regulatory authorities and the governmentmust come together and develop a common agenda to make the dream of owning an affordable home a reality.
Affordable Housing - Chennai 3
Introduction Over the years, Chennai City has geographically expanded, and developers have contributed to the growth of the city to a large extent. The residential landscape that was restricted to the Chennai metropolitan limits underwent a rapid expansion phase and now includes suburban areas towards the periphery of the city. The city map in Table 1 details Chennais residential market landscape along with its micro-market definitions. Chennais residential market can be segmented into six different micro-markets - premium, central, off-central and the northern, southern and western suburbs. All these residential micro-markets have witnessed tremendous demand and growth in the past three years. Since 005, each of these micro-markets has more than doubled in terms of capital values. Table 1: Chennai Residential Market Segmentation Key Locations by Micro-MarketPremium Central Boat Club, Poes Garden, Chetpet, Nungambakkam Abhiramapuram, Adyar, Alwarpet, Anna Nagar, Besant Nagar, Egmore, Kilpauk, Kotturpuram, Mandaveli, MRC Nagar, Mylapore, Nandanam, Poonamallee High Road, RA Puram, Santhome, Shenoy nagar, T Nagar, Kodambakkam, Thiruvanmiyur, West Mambalam, KK Nagar, Velachery, Kodambakkam, Rangarajapuram, Ashok Nagar, Vadapalani, Triplicane, Koyembedu, Virugambakkam, Nelson Manickam Road, Purasaivakkam Adambakkam, Chrompet, East Coast Road, GST Road, Jamin Pallavaram, Kelambakkam, Madipakkam, Medavakkam, Nanganallur, Navalur, Neelankarai, Old Mahbalipuram Road (OMR), Oragadam, Pallikaranai, Selaiyur, Sholinganallur, Siruseri, Tambaram, Thiruporur, Thoraipakkam, Urapakkam. Ambattur, Avadi, Chennai Bangalore Highway (NH4), Kattupakkam, Kolapakkam, Korattur, Madhuravoyal, Mogappair, Mugalivakkam, Nolambur, Padi, Porur, Ramapuram, Sriperumbudur, Thirumangalam, Valasaravakkam, Vanagaram Ayanavaram, Kolathur, Madhavaram, Perambur, Puzhal, Redhills, Royapuram, Sembium, Thiruvattriyur, Tondiarpet, Villivakkam
Off-Central
Southern Suburbs
Western Suburbs
Northern Suburbs
Source: Real Estate Intelligence Service, Jones Lang LaSalle Meghraj Research
The Chennai residential market during 3Q08 witnessed the approval of the second master plan for Chennai Metropolitan Area (CMA) by the Tamil Nadu government. With a focus on Vision 06, the Chennai Metropolitan Development Authority (CMDA) has devised a strategy around the second master plan to develop the metro as a more liveable, economically vibrant and environmentally sustainable place. Key salient features of the plan that have direct impacts on the residential sector include the following:
Allowing a 0.25 additional floor space index (FSI) to private promoters developing housing projects for low-income groups (LIG) and economically weaker sections (EWS) by providing for 10% reservation of land where the site exceeds 1 ha. The above-mentioned provision also includes the development of LIG/EWS housing with flat size not exceeding 484 sq ft (45 sqm) each, either within the site or on a separate site within a radius of km.
4 Affordable Housing - Chennai
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Sankara NetralayaGREAMS S ROAD
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AN
SA NA
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RO AD
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Chepauk
Chidambaram Stadium Chepauk
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Madras Medical Mission
EN KILPAUK GARD
4TH AVENUE
Sundaram Medical Foundation
Shenoy NagarKu va m
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ROAD
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Chennai Egmore
PERIYA
SALAI R EVR
Chennai FortFL
JI SA
Fort
LAI
ROAD
MUTHUSW AM
Jayalalitha Nagar
2ND AVENUE
Chennai Central G H ROAD
IR
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H PURASAVAKKAM HIG
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MINT STRE
Anna Nagar East
AD RO
ET
Anna Nagar
Central6TH AVENUE
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Off CentralBRICK
PULIANT
SIN
VALL UR
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ROAD
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Royapuram
ROAD
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Buck ing
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Madanankuppam
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GR
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Banu Nagar
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TR U
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Northern SuburbsPozhall Lake (Red Hills Lake)
PARTHSARATHY
TTUR HIG H RO AMBA AD
Pozhal
Madhavaram Milk Colony
Indian Organic Chemicals
CHENNAIUT SO HM A ROAD ADBA SIN
STRE ET
RO AD
ER
RIN
Madhavaram
CHENNAISelaivayal
GRAM AN
GR
SattangaduNO RE
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Mottur
INN
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ROAD
Kadirvedu
OA
D
RO AD
-5
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I ST REET
N
H
Jambuli
MANALI HIGH ROAD
NK
RO
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R V Nagar
D
HOPE HIGH OAD
George Town
Institute of Mental Health
Purasavakkam
OtteriAbirami
Jawahar Lal Nehru StadiumRAJA
NE
TAJ
SowcarpetI SU BA SH
CHANDRA BOSE ROAD
Choolaimedu
AI
G
N
TY ET CH
AD RO
AVVAI SHANMUGAM SALA I
Light House
Premium
Chola Sheraton
RADHA
KRISHNAN SA LA
I
Light House
Mylapore
Central
Greenways Road
Adyar River
U MO
NT
RO
AD
Anna University CLRI Raj Bhawan
Kasturba NagarKasturba Nagar
Theosophical SocietyBESA NT AV ENUE
LA A SA
IGuindy
Malar
Cancer Institute
SARDAR PATEL ROADRukmani Nagar2ND MAIN ROADS
Race Course
Guindy
Adyar
5TH
AV
EN
UE
BAY OF BENGAL
RA
M
Palavakkam CHENNAI MRTS ROUTE PLANEXISTING ROUTE COMPLETED BY END 2005 STATIONS PROPOSED STATIONSANNA SALA
Seevaram
B
C
D
D
CM ARA DHAV MAD OA H R HIGAN W RIZ RO
Odeonmani
1
DH ILL S RO AD
AD
MADH AM AVAR
ANNA STREET
H HIG AD RO
L ROAD MEENAMBA
ROAD MAIN KKU KARU
M AD AM PP KU AN AN
MADHAD AVARAM HIG H RO
E
SO RK H PA UT RE ST
KK A ERU
ET
NC HE RIH H IGAD S RO MILL
ROAD
2
VOC ROAD (WALL TAX ROAD) D
Mannady
Chennai BeachChennai Beach
A RO
Chennai Port
NEW AVADI ROA D
THRUVALLUVAR ROAD
MUTH AIAH ROADBH
ATHI SALAI AR
AG
Riv er
DR NA IR RO AD
F AF ST
Ku va m
HAT G MA AND HI SALAI
er Riv
TIRU VAL L UR
3
CHE
BAY
NNA
I
OF
RA L
RO AD
BENGAL
AR AN AY
USMA SOUTH
A RO AD
ROAD
N ROAD
KAMA
KANCHIPURAM
4
RAJ
CHENNAIKARUNEEKAR STREET
I SALA
CANA L BA NK RO AD (W EST)
5
IN RO U MA
D 3R IN MA AD RO
AD
I PERIYAR SALA
N
Jones Lang LaSalle Meghraj
MAP NOT TO SCALE
I
Copyright. All rights reserved. No part of the map may be reproduced or copied without written permission from Jones Lang LaSalle Meghraj.
Affordable Housing - Chennai 5
Demographic Overview Chennai, the capital of Tamil Nadu that was once only the home of Tamils, has taken a paradigm shift to gain a cosmopolitan outlook through the increasing migrant population over the years. According to the census of India survey in 001, the overall population of CMA has grown by 1.93% per annum between 1991 and 001, and it is likely to touch 1.5 million by 06. Against the overall CMA, Chennai Citys population has grown by 1.3% per annum between 1991 and 001. The population of the city was estimated to be at 4.3 million during 001 and is likely to touch 5.851 million by 06. The primary growth drivers of Chennais residential market have been the IT/ITES and the banking, financial, services and insurance (BFSI) sectors. Chennais working population was about 35% of the total population of India as per the census in 001. Recent reports estimate that the total population in Chennai has increased to about 8.3 million as of September 008 from about 7 million in 001. This can be mainly attributed to the rise in migrant population that is attracted by the growth in the services industry. The migrant population can be mainly categorised as working population in the age bracket of 345. Thus, we estimate the percentage of working population in Chennai to have increased from 35% as per the census in 001 to more than 40% in recent times. Demand for housing can be attributed to the rise
in the working population of Chennai, especially in the last five to six years. Figure 1 shows Chennais population by age group and worker/non-worker. While 100% of the working population falls under the age bracket of 1559, close to 48% of the non-working population also falls under the same age bracket. This nonworking population comprises students and nonworking homemakers, of which a larger proportion makes up the students. Over the next decade, this student population will start working and have families. Therefore, we foresee the demand for homes in Chennai to rise over the next 1015 years. Also, most of this demand will arise from workers in the services industry such as IT/ITES, where family members will be working. Such a phenomenon is not new to India as the number of double income no kids (DINKS) families is on the rise throughout the country. Figure 1: Chennais Population by age group and worker/non-worker.3,000,000 ,500,000 ,000,000 1,500,000 1,000,000 500,000 0 Full Time Workers Part Time Workers Non Workers Age Group 0 to 4 5 to 14 15 to 59 > 60
Source: Census of India, 001
1
Volume I, Vision, Strategies and Action Plans, Second Master Plan for Chennai Metropolitan Area, 06, September 008
6 Affordable Housing - Chennai
Is Chennai Affordable Today? Indias Rising Disposable Income at a CAGR of 17% was dwarfed when compared with the rising residential capital values in Chennai in 20052008. Over the last five to six years, the disposable income in India has been registering a double-digit growth of about 15% y-o-y. In the last three to four years, it registered a CAGR of about 17%, as shown in Figure . This surge in Indias disposable income has been primarily driven by the services industry, especially IT/ITES. In this paper, we have assumed that disposable income in Chennai has grown at the same rate as that of India. However, the growth in disposable income was dwarfed when compared with the rapid growth of capital values in the residential sector in Chennai between 005 and 008, as shown in Figure 3. The disposable income in India has been growing at a CAGR of 17% against a whopping
capital value growth across all micro-markets at a CAGR of 40%. The sustained rise in property prices throughout 005008, coupled with rising mortgage interest rates, has made housing unaffordable for the common households. Figure 3 clearly shows the capital value growth by micro-markets as of 3Q08 and the average CAGR for capital values for the overall market against the CAGR in disposable income in 005008. Home buyers in the last three to four years have had to spend a higher proportion of their annual income or savings to purchase their house. Individuals or households aspiring to purchase their residential house saw prices grow by an average CAGR of 40% across all micro-markets in the last three to four years compared with their income level rise of an average CAGR of 17% within the same period. This made houses increasingly unaffordable year after year.
Figure : Indias Rising Disposable IncomePersonal disposable income(INRbn)
60,000 50,000 40,000 30,000 0,000 10,000 0 003
CAGR 05-08 is 17%Personal disposable income(INRbn)
004
005
006
007
008
Source: Census of India, 001
Affordable Housing - Chennai 7
Figure 3: Growth in Disposable Income Vs Residential Capital Values in Chennai 005 00860.00% 50.00% CAGR(%) 40.00% 30.00%Southern Suburbs
Average Capital Value Growth between 005 -008
0.00%Disposable Income Central
10.00% 0.00%
Source: Real Estate Intelligence Service, Jones Lang LaSalle Meghraj Research
After the global financial crisis and the slowdown in the off take of high-end residential projects (greater than INR 50 lakhs), Chennais residential market has started witnessing a new buzz phrase called affordable housing. Although the city has started attracting investor class in recent times, traditionally, the Chennai residential market was predominantly driven by end-users. Apart from an individuals aspiration or need to buy a house, key drivers of demand for housing earlier in the decade included low home-loan interest rates and affordable price per square foot of a housing unit. The macroeconomic pressure stemming from surging inflation and rising home-loan interest rates in the past few quarters had a negative effect on selected micro-markets at varied levels during 3Q08. Demand for housing in Chennai is believed to be alive, but only within realistic price points. Chennai developers have already started evaluating the viability of developing affordable housing projects. What is Affordable in Chennai? Land prices, government subsidies, construction costs and improved efficacies such as approvals can impact the base price per square foot of a housing unit. A developers margin is another component that is added to the base price to arrive at the selling price of a dwelling unit. Each of these parameters is in direct correlation with the affordability of a house. The land prices constitute close to 50% to 60% of the selling price of an apartment depending on the location of the
project. According to CII, current land prices in the central micro-market of Chennai is in the range of INR 5500 to INR 6600 per sq ft and the those in the suburbs of Chennai is between INR 1000 INR 100 per sq ft. Figure 4 shows various factors that impact the base price per square foot of a housing unit. Figure 4: Factors impacting price of a residential unit
Effective Construction Tecnologies Affordable Housing in Real(i)ty Land Prices
Government Subsidies
Source: Jones Lang LaSalle Meghraj Research
Affordable Housing Developer Perspective To understand the concept of affordable housing from a developers standpoint, in-depth interviews were conducted with prominent developers. The objective of the study was to understand various construction technologies to minimise construction costs and developers expectations in terms of subsidies and incentives from the government and finally, to know about their ongoing affordable housing projects in Chennai, if any.
Northern Suburbs
Western Suburbs
Off-Central
Premium
Improved Efficacies
8 Affordable Housing - Chennai
Some of the key findings of the in-depth interviews with the developers in the city include the following: More efficient and quick regulatory approval process to ensure timely commencement and completion of the project. This would reduce developers holding cost and in turn improves project Internal Rate of Return (IRR). Subsidies on service tax, registration charges, stamp duty, and VAT Provision of additional FSI for building affordable homes Use of more effective construction technologies by use of pre-cast construction techniques to reduce construction time. Developers are actively considering reducing the unit sizes to increase affordability Infrastructure initiatives such as road connectivity, water, electricity by the Government to support housing projects. Apart from the above inferences, majority of the developers interviewed also offered to curtail their margins by a moderate percentage upon the governments attention to their proposals.
Affordable Housing End-User Perspective Affordable housing has always been on top of any home buyers priority list. In order to delve deep into the mind of customers and identify their aspirations of buying a home, an online survey was conducted by Jones Lang LaSalle Meghraj. With the increasing number of nuclear families and the DINK population against the overall population in Chennai, there has been a paradigm shift in home-buying behaviour in terms of preferences, amenities, locations etc. A questionnaire was designed to be used as a market research tool to analyse the home-buying scenario in Chennai. The following factors were considered: Apartment Type (one-BHK / two-BHK / threeBHK or more) Size of the unit Location Amenities Budget Salary bracket
Figure 5: End User Preference - Unit Size Vs Salary Bracket
1% 13% 33% 4% 5% 67% 100%one-BHK
>three-BHK
6% 37%
Salary Bracket (INR)
8 lakhs can afford a three-BHK house up to INR ,533 per sq ft
The figure below shows that average prices across all micro-markets in Chennai fall outside the affordability price band. Chennai today seems unaffordable.8500 7500 Capital Value (INR per sq ft) 6500 5500 4500 3500 500 1500 500 Micro Markets Source: Real Estate Intelligence Service, Homebay Residential, Jones Lang LaSalle Meghraj Northern Suburbs Southern Suburbs Western Suburbs Affordable Off-Central Central Avarage Capital Values
Affordable Housing - Chennai 11
Home Buyers Affordability Quotient Analysis Case : Calculating the affordability quotient after reducing unit sizes Unit sizes one-BHK unit is 550 sq ft, two-BHK unit is 850 sq ft and three-BHK unit is 1,150 sq ft.Annual Salary Monthly Gross salary 300,000 5,000 400,000 33,333 9,333 500,000 41,667 13,750 600,000 50,000 18,000 700,000 58,333 4,500 800,000 66,667 8,667 900,000 75,000 36,000 1,000,000 83,333 41,667
Monthly Maximum Diposable 5,750 Income after taxes and basic household expenses* Max. EMI Affordability Max. Loan eligibility at 11.5% interest rate for a 0 year loan plan EMI for the loan amount mentioned above Size of a typical three-BHK Affordable price of a house per sq ft Size of a typical two-BHK Affordable price of a house per sq ft Size of a typical one-BHK Affordable price of a house per sq ft ~5700 500,000 5,404 1150 435 850 588 550 909
~9300 850,000 9,187 1150 739 850 1,000 550 1,545
~13500 1,50,000 13,511 1150 1,087 850 1,471 550 ,73
~17000 1,500,000 16,13 1150 1,304 850 1,765 550 ,77
~3000 ,100,000 ,698 1150 1,86 850 ,471 550 3,818
~8000 ,500,000 7,0 1150 ,174 850 ,941 550 4,545
~36000 3,300,000 35,669 1150 ,870 850 3,88 550 6,000
~41000 3,800,000 41,073 1150 3,304 850 4,471 550 6,909
* Grocery 4%; Investment 19%; Taxes 10-30%; Misc expenses 5-10%. All unit sizes are in sq ft and prices are in INR End users of salary band INR 3-5 lakhs can afford a one-BHK house up to INR ,73 per sq ft End users of salary band INR 6-8 lakhs can afford a two-BHK house up to INR ,941 per sq ft End users of salary band INR > 8 lakhs can afford a three-BHK house up to INR 3,304 per sq ft
The figure below shows that average prices across the suburban micro-markets in Chennai fall inside the affordability price band.8500 7500 Capital Value (INR per sq ft) 6500 5500 4500 3500 500 1500 500 Micro Markets Source: Real Estate Intelligence Service, Homebay Residential, Jones Lang LaSalle Meghraj Northern Suburbs Southern Suburbs Western Suburbs Affordable Off-Central Central Avarage Capital Values
1 Affordable Housing - Chennai
Home Buyers Affordability Quotient Analysis : Key Inferences Table : Affordability Quotient Scenarios Salary Bracket (INR Lakhs) 3 to 5 5 to 8 8 to 10 Apartment Type one-BHK two-BHK three-BHK Case 1* Unit Price INR per sq ft 1,786 ,500 ,533 Affordable Budget (INR Lakhs) 11.6 - 13.4 3.75 - 6.5 36.7 - 37.3 Case ** Unit Price INR per sq ft ,73 ,941 3,304 Affordable Budget (INR Lakhs) 11.3 - 13.6 3.5 - 6.5 36.3 - 39.6
*one-BHK - 650 sq ft to 750 sq ft; two-BHK - 950 sq ft - 1050 sq ft; three-BHK - 1450 - 1550 sq ft **one-BHK - 500 sq ft to 600 sq ft; two-BHK - 800 - 900 sq ft; three-BHK - 1100 sq ft - 100 sq ft Source: Real Estate Intelligence Service, Jones Lang LaSalle Meghraj Table shows that the affordability levels of home buyers between different salary brackets increase upon reduction in unit sizes. Reduction in units sizes leads to an increase in affordability by as low as 17% to as high as 30% (depending on the apartment type) to own a house. With such configurations as mentioned above, even the LIG (Lower Income Group) and EWS (Economically Weaker Section) dwellers get motivated to afford a house. It also encourages people who are in the rented accommodations to come out of their unaffordable mind set to aim at owning homes. Additionally, based on the end-user survey conducted by Jones Lang LaSalle Meghraj, respondents with a salary of above INR 8 lakhs expressed interest in purchasing a two-BHK house on a better location at a higher price compared with a three-BHK house on an inferior location at a lower price. Other than the reduction in unit sizes in housing projects as shown in Case , the increase in income levels in the future and the softening of home-loan interest rates for budget homes will increase the affordability price band and will likely cause a spurt in housing demand. Few of the developers have been proactive during the current challenging market conditions and have initiated projects that are strategically priced in order to target home buyers within different salary brackets. These projects are affordable because of the fact that they are competitively priced lower than the prevailing average price in their respective micro-markets. Table 3 gives a snapshot of a few affordable projects as of December 008. Table 3: Key On-going Projects in Chennai within Affordability Bracket Project Developer Location Number of Units Unit Sizes (sq ft) Unit Type Rate per sq ft Sreshta Retreat Sumanth Constructions Avadi 118 985, 105, 145, 1450 two-BHK, two-BHK+Study INR ,300 Dugar Homes Dugar MME OMR Kanagapattu 500 489, 683, 777, 91, 1000 one-BHK, two-BHK, three-BHK INR ,150 Hansa Courtyard Hansa Estates Thiruvottriyur 68 511 1000 one-BHK, two-BHK, three-BHK INR ,450 Metro Nest True Value Homes Sriperumbudur TBA 565, 665, 885, 1085 one-BHK, two-BHK, two-BHK+Study INR ,400
Source: Homebay Residential, Jones Lang LaSalle Meghraj Research
One Indiabulls Centre, Lower Parel, Mumbai
Affordable Housing - Chennai 13
Mortgage Finance Market Dynamics As part of this paper, we spoke to two private banks to understand the change in mortgage finance market in the last 9-12 months. Some of the key findings of the interview with the private banks reveal the following: The overall loan disbursements in 3Q08 onwards have been substantially lower than the ones in the previous six to eight quarters; The first two quarters of 2008 were positive and saw an equal number of loan disbursements compared with that in the same time last year; The percentage of loan disbursements less than INR 30 lakhs and below has increased from about 50% in 1H08 to above 70% in 3Q08. Recently, the Reserve Bank of India (RBI) announced the priority sector status for home loans less than INR 0 lakhs, which is subject to a ceiling of 5% of any housing finance companys total priority sector target. This move of RBI is expected to increase the flow of funds into the housing sector and will also drive the demand from the middle-income group (MIG). Public sector banks are brainstorming to come up with a package for borrowers or home buyers. They are likely to classify home buyers based on their buying capacity (e.g. for loans of up to INR 5 lakhs and between INR 5 lakhs and INR 0 lakhs). This will, to a large extent, motivate home buyers in the LIG as well as in the EWS. Recommendations Government Initiatives Speedy Approvals to Make Housing More Affordable The governments efforts to ensure faster approvals of affordable housing developments will help reduce a projects gestation time and holding costs. This will in turn help control costs, which can escalate due to delays in formal approvals from regulators. Such an initiative will not only make affordable housing an attractive project in terms of viability from a developers perspective,
but also cater to the rising demand for inexpensive housing. The time to get approvals for projects affect the completion time of the project, which is in turn directly linked to project costs and IRRs. A consortium of government-certified or government-approved architects can be appointed by private developers to ensure timely approvals of project plans. This is similar to certified professional chartered accounts that prepare and advise clients on their income tax returns and issues. Public Private Partnership Win-Win Situation A joint venture or a public-private partnership (PPP) could also be a lucrative option for both the government and developers. Apart from partnerships, initiatives in the form of waivers or subsidies on sales tax, registration and VAT and stamp duty could help bring down the total unit cost by nearly 1015%. The government could facilitate partnering with public sector banks to provide mortgage products at lower interest rates to the weaker classes. Such moves will lead to a win-win situation from the perspective of both the government and private players. Developers could leverage this public-private partnership advantage and pass on the benefit to end-users and hence become successful in selling affordable homes in reality. Provision of Optimal Floor Space Index (FSI) with Requisite Infrastructure Initiatives To promote affordable housing, the provision of optimal FSI by the regulatory authorities for such projects could help developers in building more homes in the allocated land. Efforts like proper infrastructure developments such as road connectivity, water supply, power etc will encourage customers to migrate to newer and farther locations that are away from the city centre. On the other hand such improved infrastructure would also motivate the developers to come up with affordable projects at far off locations from the city center.
14 Affordable Housing - Chennai
Cross Subsidy Model - Growth Driver to Affordable Housing Sector From the governments side, as an initiative to promote affordable housing in Chennai, crosssubsidies could be given to developers to attract them to build affordable housing projects. Crosssubsidies can be in the form of additional FSI or transfer of development rights (TDR), which can be used elsewhere for the development of any other type of project. The slum rehabilitation programme in Mumbai is a classic case of cross-subsidisation in India. According to this programme, the government will allow private developments on land occupied by slums. In exchange for the lands development rights, developers are invited for a private-public partnership to provide new housing to existing slum dwellers, while the remainder of the site is made available to developers for them to develop, sell and profit from. Developer Initiatives Effective Scheduling and Execution of Project Developing affordable homes depends a lot on effective planning and scheduling of various project timelines along with a prompt delivery. As the rates of raw materials such as steel, cement and other building materials like tiles and fit-outs continue to fluctuate depending on the demand supply situation in the commodities market and the overall macroeconomic weather; these can impact the delivery schedule of projects. Therefore, it is highly imperative for developers to ensure adherence of schedule to control costs. Making Houses Technologically Affordable The cost structure of the construction industry is dominated by raw material and subcontracting costs. Raw material cost, which is the major cost, accounts for 4050% of the total cost. Meanwhile, subcontracting cost accounts for about 040%. Major raw materials consumed by the construction industry mainly include cement
and steel. The unprecedented rise in the price of these two raw materials during 1H08 has a direct impact on the cost of projects and in turn on the margins of construction companies. Incorporating the best practices across the globe to minimise construction costs will facilitate developers to offer more lucrative housing deals to end-users. Some of the commonly used best practices include the use of pre-fabricated structures to build high-rise buildings, optimal flooring using ceramic tiles instead of glossy vitrified tiles, cellular light weight concrete (CLC) etc. Value Engineering to Ensure Optimal Cost with Enhanced Quality The objective of value engineering (VE), apart from reducing cost is also to enhance the design, operations and maintenance. VE is carried out during all stages in a project, especially during the design, procurement and construction stages. VE can be achieved by practicing the following: effective usage of locally available materials including marginal and industrial waste for the reduction of cost, yet maintaining the functional requirements of end-users; rainwater harvesting, low-cost sanitation, waste-water management, and landscaping with recycled water solar-operated street lights; main electrical equipment to be located together, which helps in further cost reduction; trenches for electrical, data etc and cabling to take the shortest route possible; passive cooling, providing adequate natural ventilation systems to avoid forced ventilation/ pressurisation systems; avoiding lifts and fire protection systems by keeping the lesser height of the buildings; cement concrete pavement roads are at par with the conventional pavement; they are lower than the conventional flexible pavement if maintenance cost is also considered and whose bitumen top is to be renewed every five years.
Affordable Housing - Chennai 15
Prudent Positioning Keeping in mind the real demand for housing from varied income levels of end-users, developers can adopt a need-based pragmatic approach to minimise the gap between the aspiration of home buyers and the current market offerings. Developers could build affordable homes by ensuring smaller unit sizes, investing on amenities like libraries instead of club houses and schools instead of swimming pools, which will lead to much easier maintenance. Developers can also focus on maximising efficiencies of the carpet area to the built-up area to offer cost-effective housing in reality.
Congruence an Affordable Consensus Is Chennai all set for the historical congruence of developers, regulatory authorities, government and home buyers? The answer to this question is Yes! Having identified the affordability bracket for home buying in Chennai for home buyers with an income range of INR 310 lakhs per annum, it is time for authorities and developers to streamline their offerings to arrive at an affordable consensus. Chennai government, regulatory authorities and developers must come together to reach a common agenda to make affordable housing in Chennai to become a reality and facilitate end-users to own their dream home at an affordable cost.
AuthorsHariharan Ganesan Senior Analyst, Research & REIS Jones Lang LaSalle Meghraj [email protected] tel +91 44 4993061 Hariharan Ganesan joined the Jones Lang LaSalle Meghraj Research team in April 008 and is responsible for the Indian Real Estate Intelligence Service (REIS) publications. Based in Chennai, he contributes to research deliverables on industrial, commercial, retail and residential real estate markets in the country. Prior to joining the Firm, Hariharan worked on research in different fields for two years in India. He holds a dual degree from Bits Pilani and an MBA from IIPM, Delhi.
Abhishek Kiran Gupta Associate Director, Research & REIS [email protected] tel +91 66581000 Abhishek Kiran Gupta leads the Jones Lang LaSalle Meghraj India Research team and is based in Mumbai. He manages research operations on a Pan-India level and is responsible for the teams outputs, including research reports such as topical white papers, property market digests and bespoke research projects based on specific client requirements. Prior to joining Jones Lang LaSalle, he had seven years of experience in market research, business analysis and market strategy consulting, servicing diversified industries including pharmaceutical, software publishing and insurance.
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Acknowledgements We would like to acknowledge the contributions of our Homebay Residential team based in Chennai for sharing their knowledge and expertise. www.jllm.co.inCOPYRIGHT JONES LANG LASALLE MEGHRAJ 008 All rights reserved. No part of this publication may be published without prior written permission from Jones Lang LaSalle Meghraj. The information in this publication should be regarded solely as a general guide. Whilst care has been taken in its preparation no representation is made or responsibility accepted for the accuracy of the whole or any part. We stress that forecasting is a problematical exercise which at best should be regarded as an indicative assessment of possibilities rather than absolute certainties. The process of making forward projections involves assumptions regarding numerous variables which are acutely sensitive to changing conditions, variations in any one of which may significantly affect the outcome, and we draw your attention to this factor.
