18538351 affordable housing understanding the drivers
TRANSCRIPT
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
1. Executive Summary. . . . . . . . . . . . . . . . . . . . . . 1
2. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. National Capital Region (NCR) . . . . . . . . . . . . . . 6
4. Mumbai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5. Pune. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6. Bengaluru. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7. Chennai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8. Hyderabad . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9. Kolkata. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
10. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
table of contents
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
1. Executive Summary. . . . . . . . . . . . . . . . . . . . . . 1
2. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. National Capital Region (NCR) . . . . . . . . . . . . . . 6
4. Mumbai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5. Pune. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6. Bengaluru. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7. Chennai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8. Hyderabad . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9. Kolkata. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
10. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
table of contents
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
02
INtroductionFrom 2005 till the first half of 2008, the Indian real estate sector
enjoyed almost three years of boom and unprecedented growth.
During this period, demand for various asset classes remained
buoyant, leading to a sharp rise in real estate prices. Simultaneously,
supply across certain asset classes like the commercial and luxury
residential sectors also increased markedly.
In a country like India, which comprises a population of over 1 billion, a
key concern among policymakers is catering to the pressing
requirement for housing. In order for this to happen, a convergence of
house prices and household incomes is essential. The growth in
household incomes, which soared during the boom as GDP growth
rose to 9%, still lagged behind the growth in property prices during the
same period. Till the first half of 2008, end-users were very insistent on
purchasing houses. Easy credit availability and rising income levels
resulted in higher aspirations that were well beyond the means and
actual affordability of many individuals. This led to a continuous flow
of transactions for developers and a spiraling of house prices.
According to the National Housing Bank (NHB)) Residex, which is the
only housing market index in the country, house prices have registered
a year-on-year rise of 20-40% in cities like Mumbai, Delhi and Kolkata
between 2007 and 2008.
During the second half of 2008, the onset of the economic slowdown
led both buyers as well as developers to sit up and take stock of the
real estate scenario. In the residential sector, end-users became
apprehensive about taking up long term loan obligations due to job
market uncertainties. Moreover, they adopted a 'wait and watch' policy
to take advantage of consistent price declines. On the supply side,
developers became concerned about increasingly limited funding
options and a substantial decline in aggregate demand. To mitigate
the adverse consequences of this declining demand, developers
started showing a keen interest in asset classes that are yet to be
tapped into. While several developers are evolving their product
portfolios to focus more on healthcare infrastructure, integrated
townships, logistics and warehousing and education infrastructure,
the market for affordable housing is attracting great attention.
Affordable housing and low cost housing are the most talked about
issues in the real estate sector these days. However, there is a distinct
difference between the two concepts. In the absence of an institutional
rental market in India, affordable and low cost housing denotes
ownership and not rental housing.
What is 'affordable housing' and 'low
cost housing'?
Low cost housing generally refers to cost effective housing that relies
on 'low cost technology' that ensures similar quality and durability as
compared to more commonly used technologies. In India, low cost
housing is primarily aimed at Economically Weaker Sections (EWS) and
Low Income Groups (LIG), and the intervention and involvement of
government authorities is likely to be prominent. As per the latest 1available literatures , households having an annual income of less
than Rs.1.5 lakh are termed as LIG, and hence, households belonging
to EWS will be further down in terms of income classification. The
concept of affordable housing, in contrast to that of low cost housing,
is applicable across all income categories. The affordability of a
household in a given location is an interactive outcome of the house
price, household income, spending and saving behavior and other
demographic factors like size of the household. It is recognized that
affordability is relative to geographical area, time and income
category. Thus, defining affordable housing continues to be a
challenge for major players of the real estate sector in India.
1) In many developed countries like the US, a frequently used norm for
affordability is a residential unit costing 30% or less of a household's
gross annual income. Recently, research by a US non-profit body that
looks at housing issues concluded that an affordable house should be
defined as one that costs about three years' salary, assuming 10%
down payment on the house and 28% of the salary going towards the
mortgage payment.
2) The Housing Development Finance Corporation Limited (HDFC), the
largest lender in the housing loan market in India, considers 5.1 times
annual income as the maximum affordability of a household. In other
words, for a household earning Rs.3 lakh a year, an affordable house
should cost at most Rs.15 lakh. The report of the High Level Task Force
under the chairmanship of Mr. Deepak Parekh, Chairman of HDFC,
delves into the various aspects of providing affordable housing and
has recommended a similar definition of affordability.
Some Affordability Definitions
1The Next Urban Frontier: Twenty Cities to Watch, National Council of Applied Economic Research and Future Capital Research, 2008. This publication has categorized households as Low Income
Group (LIG), Aspirants, Middle Income Group (MIG) and High Income Group (HIG).
Although household
income had a dream
run with the GDP
growth crossing 9%,
it still lagged behind
the growth in
property values
executive summaryKnight Frank Research presents its study on 'Affordable Housing' for
the Indian middle class (household income Rs.3-10 lakh per annum) in
the 7 cities of Mumbai, National Capital Region (NCR), Chennai,
Bengaluru, Hyderabad, Kolkata and Pune. The research encapsulates
the requirements and expectations of prospective buyers through a
comprehensive survey of 1400 households, and provides the industry's
view through discussions with builders, government development
agencies and financial institutions. The report covers analysis on
prospective buyer's preferences, actual affordability, supply
perspective, stakeholder challenges and housing need assessment.
The following are the key highlights of the findings of the report:
• Households in the income groups of Rs.3-10 lakh has turned overly
cautious after the economic crisis which set in during the first half
2008. While the affordability calculated by Knight Frank research is
higher than their own perception of affordability, the uncertain
economic environment, job losses and tight credit conditions have
adversely impacted their willingness to spend on a house property.
• The research findings indicate that 'good connectivity to frequently
travelled places', conforming primarily to work places, is the most
important factor influencing buyers' decision in selecting the location
of their residence. This is followed by 'good infrastructure' and 'good
potential for future development' as the other important influential
factors.
• While most modern residential projects offer a number of amenities,
the most preferred ones that play a vital role in choosing a project over
another are basic amenities like 'uninterrupted water supply', 'power
backup' and 'high level security systems'.
• Given the apartment size preference across income groups in the
cities studied, most of the prime residential locations prove to be
unaffordable for the Rs.3-10 lakh income group. However, a balance
can be brought about if there is some amount of conciliation from both
the developers and the buyers' sides. Reduced expectations on the
end user's side and readiness for price negotiation on the developer's
front can lead to meeting the housing demand in the mid-income
segment to a large extent.
• While the unit size preference amongst most households is
550-1200 sq.ft., many of the so-called affordable projects are offering
apartments with area of 1200 sq.ft. and beyond. In such cases even
though a project is affordable on the basis of rate per sq.ft. as
calculated by Knight Frank research, the larger size of the apartments
make them unaffordable.
• The housing requirement for the Rs.3-10 lakh income group across
the 7 cities is approximately 2.06 million housing units by 2011, which
assuming an average household size of 800 sq.ft. translates to a
requirement of 1,650 million sq.ft. of residential space. Assuming a
price of Rs.2,000/sq.ft., which is par for the demand being catered to,
this total space requirement translates to a market size of
approximately Rs.3,300 billion, or USD 66 billion.
• Higher cost of living and lifestyle has adversely impacted the
affordability of households in Mumbai and Bengaluru compared to
cities like Kolkata and Hyderabad. For instance, middle class
households in Kolkata, Chennai and Hyderabad can afford houses
valued at Rs.14-45 lakh, whereas households of a similar stature in
Mumbai can afford houses valued at Rs.12-38 lakh.
• The primary deterrent in providing affordable housing in cities is the
high land cost involved in developing such projects. While the
construction cost has increased marginally in the last few years, the
land cost in contrast has gone up several times.
• Although a number of affordable housing projects have been
announced in the seven cities studied, most of them are located in the
distant suburbs which do not have the adequate social infrastructure
in order to support residential settlement. These issues would have to
be addressed with utmost importance for the proper development and
successful implementation of affordable housing.
01
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
02
INtroductionFrom 2005 till the first half of 2008, the Indian real estate sector
enjoyed almost three years of boom and unprecedented growth.
During this period, demand for various asset classes remained
buoyant, leading to a sharp rise in real estate prices. Simultaneously,
supply across certain asset classes like the commercial and luxury
residential sectors also increased markedly.
In a country like India, which comprises a population of over 1 billion, a
key concern among policymakers is catering to the pressing
requirement for housing. In order for this to happen, a convergence of
house prices and household incomes is essential. The growth in
household incomes, which soared during the boom as GDP growth
rose to 9%, still lagged behind the growth in property prices during the
same period. Till the first half of 2008, end-users were very insistent on
purchasing houses. Easy credit availability and rising income levels
resulted in higher aspirations that were well beyond the means and
actual affordability of many individuals. This led to a continuous flow
of transactions for developers and a spiraling of house prices.
According to the National Housing Bank (NHB)) Residex, which is the
only housing market index in the country, house prices have registered
a year-on-year rise of 20-40% in cities like Mumbai, Delhi and Kolkata
between 2007 and 2008.
During the second half of 2008, the onset of the economic slowdown
led both buyers as well as developers to sit up and take stock of the
real estate scenario. In the residential sector, end-users became
apprehensive about taking up long term loan obligations due to job
market uncertainties. Moreover, they adopted a 'wait and watch' policy
to take advantage of consistent price declines. On the supply side,
developers became concerned about increasingly limited funding
options and a substantial decline in aggregate demand. To mitigate
the adverse consequences of this declining demand, developers
started showing a keen interest in asset classes that are yet to be
tapped into. While several developers are evolving their product
portfolios to focus more on healthcare infrastructure, integrated
townships, logistics and warehousing and education infrastructure,
the market for affordable housing is attracting great attention.
Affordable housing and low cost housing are the most talked about
issues in the real estate sector these days. However, there is a distinct
difference between the two concepts. In the absence of an institutional
rental market in India, affordable and low cost housing denotes
ownership and not rental housing.
What is 'affordable housing' and 'low
cost housing'?
Low cost housing generally refers to cost effective housing that relies
on 'low cost technology' that ensures similar quality and durability as
compared to more commonly used technologies. In India, low cost
housing is primarily aimed at Economically Weaker Sections (EWS) and
Low Income Groups (LIG), and the intervention and involvement of
government authorities is likely to be prominent. As per the latest 1available literatures , households having an annual income of less
than Rs.1.5 lakh are termed as LIG, and hence, households belonging
to EWS will be further down in terms of income classification. The
concept of affordable housing, in contrast to that of low cost housing,
is applicable across all income categories. The affordability of a
household in a given location is an interactive outcome of the house
price, household income, spending and saving behavior and other
demographic factors like size of the household. It is recognized that
affordability is relative to geographical area, time and income
category. Thus, defining affordable housing continues to be a
challenge for major players of the real estate sector in India.
1) In many developed countries like the US, a frequently used norm for
affordability is a residential unit costing 30% or less of a household's
gross annual income. Recently, research by a US non-profit body that
looks at housing issues concluded that an affordable house should be
defined as one that costs about three years' salary, assuming 10%
down payment on the house and 28% of the salary going towards the
mortgage payment.
2) The Housing Development Finance Corporation Limited (HDFC), the
largest lender in the housing loan market in India, considers 5.1 times
annual income as the maximum affordability of a household. In other
words, for a household earning Rs.3 lakh a year, an affordable house
should cost at most Rs.15 lakh. The report of the High Level Task Force
under the chairmanship of Mr. Deepak Parekh, Chairman of HDFC,
delves into the various aspects of providing affordable housing and
has recommended a similar definition of affordability.
Some Affordability Definitions
1The Next Urban Frontier: Twenty Cities to Watch, National Council of Applied Economic Research and Future Capital Research, 2008. This publication has categorized households as Low Income
Group (LIG), Aspirants, Middle Income Group (MIG) and High Income Group (HIG).
Although household
income had a dream
run with the GDP
growth crossing 9%,
it still lagged behind
the growth in
property values
executive summaryKnight Frank Research presents its study on 'Affordable Housing' for
the Indian middle class (household income Rs.3-10 lakh per annum) in
the 7 cities of Mumbai, National Capital Region (NCR), Chennai,
Bengaluru, Hyderabad, Kolkata and Pune. The research encapsulates
the requirements and expectations of prospective buyers through a
comprehensive survey of 1400 households, and provides the industry's
view through discussions with builders, government development
agencies and financial institutions. The report covers analysis on
prospective buyer's preferences, actual affordability, supply
perspective, stakeholder challenges and housing need assessment.
The following are the key highlights of the findings of the report:
• Households in the income groups of Rs.3-10 lakh has turned overly
cautious after the economic crisis which set in during the first half
2008. While the affordability calculated by Knight Frank research is
higher than their own perception of affordability, the uncertain
economic environment, job losses and tight credit conditions have
adversely impacted their willingness to spend on a house property.
• The research findings indicate that 'good connectivity to frequently
travelled places', conforming primarily to work places, is the most
important factor influencing buyers' decision in selecting the location
of their residence. This is followed by 'good infrastructure' and 'good
potential for future development' as the other important influential
factors.
• While most modern residential projects offer a number of amenities,
the most preferred ones that play a vital role in choosing a project over
another are basic amenities like 'uninterrupted water supply', 'power
backup' and 'high level security systems'.
• Given the apartment size preference across income groups in the
cities studied, most of the prime residential locations prove to be
unaffordable for the Rs.3-10 lakh income group. However, a balance
can be brought about if there is some amount of conciliation from both
the developers and the buyers' sides. Reduced expectations on the
end user's side and readiness for price negotiation on the developer's
front can lead to meeting the housing demand in the mid-income
segment to a large extent.
• While the unit size preference amongst most households is
550-1200 sq.ft., many of the so-called affordable projects are offering
apartments with area of 1200 sq.ft. and beyond. In such cases even
though a project is affordable on the basis of rate per sq.ft. as
calculated by Knight Frank research, the larger size of the apartments
make them unaffordable.
• The housing requirement for the Rs.3-10 lakh income group across
the 7 cities is approximately 2.06 million housing units by 2011, which
assuming an average household size of 800 sq.ft. translates to a
requirement of 1,650 million sq.ft. of residential space. Assuming a
price of Rs.2,000/sq.ft., which is par for the demand being catered to,
this total space requirement translates to a market size of
approximately Rs.3,300 billion, or USD 66 billion.
• Higher cost of living and lifestyle has adversely impacted the
affordability of households in Mumbai and Bengaluru compared to
cities like Kolkata and Hyderabad. For instance, middle class
households in Kolkata, Chennai and Hyderabad can afford houses
valued at Rs.14-45 lakh, whereas households of a similar stature in
Mumbai can afford houses valued at Rs.12-38 lakh.
• The primary deterrent in providing affordable housing in cities is the
high land cost involved in developing such projects. While the
construction cost has increased marginally in the last few years, the
land cost in contrast has gone up several times.
• Although a number of affordable housing projects have been
announced in the seven cities studied, most of them are located in the
distant suburbs which do not have the adequate social infrastructure
in order to support residential settlement. These issues would have to
be addressed with utmost importance for the proper development and
successful implementation of affordable housing.
01
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Approach
Sample Selection
Survey Framework
In order to capture the demand perspective, Knight Frank research
conducted a field survey of sample MIG households in the seven cities
in collaboration with a market research company. It is assumed that a
majority of tenant households in the annual income category of
Rs.3 lakh to Rs.10 lakh have the end-user motive for purchasing a
house, and a very small proportion of the owner households in this
income category residing in metros and mini-metros can afford to own
a second house. Hence, it is inferred that tenant households would
constitute the majority of prospective home buyers in the Rs.3-10 lakh
income category, and the sample households for the purpose of the
survey were all selected from tenant households.
Across the seven cities, 1400 households in total were surveyed based
on a structured questionnaire. Based on Knight Frank's market
knowledge, locations in each city were selected in such a way so as to
predominantly feature MIG households. Lists of panel households in
these locations were procured from the market research company, and
the final selection of households to be surveyed was made based on
the following criteria:
• All selected households had to be in the annual income category of
Rs.3-10 lakh.
• The households needed to be tenant households, but not tenant
households whose tenancy fell within the regulations of the Rent
Control Act.
• All respondents/decision-makers had to be up to 50 years of age.
• All respondents/decision-makers had to have a strong intention of
purchasing a house within the next 2 yrs.
• Households fulfilling the above criteria were included in the sample
to be surveyed. It should be mentioned at the outset that the sample
has not been extrapolated with any coefficient to cover the population.
Hence, results obtained depict only the behavior of the sample.
However, efforts have been made to make the sample as
representative of the universe as possible.
The major focus of the survey of prospective buyers was to capture
their budgets, willingness to pay for a house and preferences
pertaining to locations, projects and amenities within such projects.
In addition to this, the survey also touched upon the spending and
saving behavior of households, a factor that ultimately can hugely
impact purchasing power and decisions.
04
The survey focussed
on the prospective
buyers’ income,
spending and saving
behaviour, their
preferences and
willingness to pay for
a house
Besides the household survey, Knight Frank research also carried out
primary surveys of other major stakeholders in the housing sector,
namely developers, bankers and government authorities, in order to
understand the supply side dynamics. These surveys were also
intended to gauge the industry's opinion on the scope, emerging
opportunities and constraints with respect to affordable housing
across the seven cities. Based on discussions with various developers,
some of the key aspects of affordable housing market dynamics,
specifically pertaining to location of the project, property
specifications, cost of construction, amenities provided and price,
were identified. A number of bottlenecks faced by developers also
came to light, viz. high land cost, external and internal development
charges payable to the government, permissible ground coverage and
restrictive density norms.
03
3) Ernst & Young Survey Realty Pulse, 2008, has assessed the concept
of affordable housing taking into account the views of more than 100
developers and institutional investors in India. The survey results have
brought to the fore the realistic price points that Indian developers
attach to affordable housing. A majority of developers believe that
depending on city, location and product offering, the price of an
affordable house should range between Rs.10 lakh and Rs.25 lakh.
Further, a large number of developers have opined that there has to be
a differentiation between low cost/EWS housing and affordable
housing.
Even though there is no concurrence on any standard affordability
norm, the fact that there is a pressing need to identify the affordability
of various income groups in different cities is acknowledged by major
stakeholders in India's real estate industry. Given that between 1991
and 2001, 79% of the new jobs were generated in urban areas, and the
urban population in India is growing at a brisk pace, the focus of
affordable housing is expected to be more urban centric.
The changing role of the government from that of a provider to a
facilitator of housing has been well documented in various National
Housing Policies. As a consequence of this changing role, the share of
public investment in housing in total investment in the economy has
declined significantly over the last couple of Plan Periods. However,
with regard to the EWS and LIG groups, the government has continued
to act as a provider of houses either directly or in joint venture with
private developers. This initiative has formed an important part of the
state and central governments' social and political mandates. The
problem with the government's stance is that it left the households
belonging to the MIG and the HIG categories exposed to market forces,
and a majority of private developers targeted upper MIG and HIG
consumers due to their high purchasing power and the profit margins
attainable. Hence, although the MIG is technically considered as
financially secure, this segment has borne the major brunt of the
widening gap between growth in real income and spiraling house
prices, particularly in the metros and the mini-metros where the
general cost of living is high and the cosmopolitan lifestyle leads to a
higher propensity to spend.
While there is an ongoing debate relating to the inadequacy of the
number of projects that are initiated or implemented relative to the
large number of households belonging to EWS and LIG categories,
currently, both at the central and state government levels, various
schemes are in operation. These schemes focus on providing
affordable housing to the urban poor and improving the affordability of
the economically weaker sections of society through proper capital or
interest subsidies.
Which income groups should be the
focus of the affordability analysis?
This strategy will help tackle the housing problem through a more
comprehensive strategy that is both well managed and efficient.
However, MIG categories with an annual income of more than Rs.3 lakh
but not exceeding Rs.10 lakh have relatively different expectations and
preferences as compared to the EWS and LIG.
In view of the above, Knight Frank research has attempted to identify a
suitable price band for the affordable housing product for the MIG
segment (households in the annual income bracket of Rs.3 lakh to
Rs.10 lakh) residing in seven cities, viz., Mumbai, National Capital
Region (NCR), Chennai, Kolkata, Bangalore, Hyderabad and Pune.
This research report includes demand side assessment and analysis
and an overview of the supply side perspective. It should be noted that
our demand side assessment does not cover certain segments of the
mid-income group whose housing decisions are dependent on several
other factors besides affordability. Examples of such consumers are
those who are provided housing accommodation by their respective
companies, as well as those who are residing in township
developments next to IT parks and SEZs who may prefer proximity to
work.
although the MIG is
technically
considered as
financially secure,
this segment has
borne the major
brunt of the widening
gap between growth
in real income and
spiraling house prices,
particularly in the
metros and the mini-
metros
Senior officials of public and private banks were also interviewed in
order to understand the demand dynamics witnessed by the home loan
sector in the past few years. The bankers admitted that demand for
home loans, which peaked from mid 2006 to late 2007, became
sluggish with the onset of the economic difficulties at the start of
2008. The market for construction loans has also lost momentum in
recent times. Government authorities and officials from the housing
board in different cities were also interviewed in order to learn more
about the government's initiatives and support in building a successful
affordable housing model. The roles and structures of regulatory
bodies have been discussed in detail in this report.
Even though the concept of affordable housing has gained immense
prominence in the Indian real estate scenario, not much literature that
defines the boundaries of affordability is available. Knight Frank
research has taken a comprehensive approach to estimate the
maximum affordability of MIG households.
Identifying Affordability
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Approach
Sample Selection
Survey Framework
In order to capture the demand perspective, Knight Frank research
conducted a field survey of sample MIG households in the seven cities
in collaboration with a market research company. It is assumed that a
majority of tenant households in the annual income category of
Rs.3 lakh to Rs.10 lakh have the end-user motive for purchasing a
house, and a very small proportion of the owner households in this
income category residing in metros and mini-metros can afford to own
a second house. Hence, it is inferred that tenant households would
constitute the majority of prospective home buyers in the Rs.3-10 lakh
income category, and the sample households for the purpose of the
survey were all selected from tenant households.
Across the seven cities, 1400 households in total were surveyed based
on a structured questionnaire. Based on Knight Frank's market
knowledge, locations in each city were selected in such a way so as to
predominantly feature MIG households. Lists of panel households in
these locations were procured from the market research company, and
the final selection of households to be surveyed was made based on
the following criteria:
• All selected households had to be in the annual income category of
Rs.3-10 lakh.
• The households needed to be tenant households, but not tenant
households whose tenancy fell within the regulations of the Rent
Control Act.
• All respondents/decision-makers had to be up to 50 years of age.
• All respondents/decision-makers had to have a strong intention of
purchasing a house within the next 2 yrs.
• Households fulfilling the above criteria were included in the sample
to be surveyed. It should be mentioned at the outset that the sample
has not been extrapolated with any coefficient to cover the population.
Hence, results obtained depict only the behavior of the sample.
However, efforts have been made to make the sample as
representative of the universe as possible.
The major focus of the survey of prospective buyers was to capture
their budgets, willingness to pay for a house and preferences
pertaining to locations, projects and amenities within such projects.
In addition to this, the survey also touched upon the spending and
saving behavior of households, a factor that ultimately can hugely
impact purchasing power and decisions.
04
The survey focussed
on the prospective
buyers’ income,
spending and saving
behaviour, their
preferences and
willingness to pay for
a house
Besides the household survey, Knight Frank research also carried out
primary surveys of other major stakeholders in the housing sector,
namely developers, bankers and government authorities, in order to
understand the supply side dynamics. These surveys were also
intended to gauge the industry's opinion on the scope, emerging
opportunities and constraints with respect to affordable housing
across the seven cities. Based on discussions with various developers,
some of the key aspects of affordable housing market dynamics,
specifically pertaining to location of the project, property
specifications, cost of construction, amenities provided and price,
were identified. A number of bottlenecks faced by developers also
came to light, viz. high land cost, external and internal development
charges payable to the government, permissible ground coverage and
restrictive density norms.
03
3) Ernst & Young Survey Realty Pulse, 2008, has assessed the concept
of affordable housing taking into account the views of more than 100
developers and institutional investors in India. The survey results have
brought to the fore the realistic price points that Indian developers
attach to affordable housing. A majority of developers believe that
depending on city, location and product offering, the price of an
affordable house should range between Rs.10 lakh and Rs.25 lakh.
Further, a large number of developers have opined that there has to be
a differentiation between low cost/EWS housing and affordable
housing.
Even though there is no concurrence on any standard affordability
norm, the fact that there is a pressing need to identify the affordability
of various income groups in different cities is acknowledged by major
stakeholders in India's real estate industry. Given that between 1991
and 2001, 79% of the new jobs were generated in urban areas, and the
urban population in India is growing at a brisk pace, the focus of
affordable housing is expected to be more urban centric.
The changing role of the government from that of a provider to a
facilitator of housing has been well documented in various National
Housing Policies. As a consequence of this changing role, the share of
public investment in housing in total investment in the economy has
declined significantly over the last couple of Plan Periods. However,
with regard to the EWS and LIG groups, the government has continued
to act as a provider of houses either directly or in joint venture with
private developers. This initiative has formed an important part of the
state and central governments' social and political mandates. The
problem with the government's stance is that it left the households
belonging to the MIG and the HIG categories exposed to market forces,
and a majority of private developers targeted upper MIG and HIG
consumers due to their high purchasing power and the profit margins
attainable. Hence, although the MIG is technically considered as
financially secure, this segment has borne the major brunt of the
widening gap between growth in real income and spiraling house
prices, particularly in the metros and the mini-metros where the
general cost of living is high and the cosmopolitan lifestyle leads to a
higher propensity to spend.
While there is an ongoing debate relating to the inadequacy of the
number of projects that are initiated or implemented relative to the
large number of households belonging to EWS and LIG categories,
currently, both at the central and state government levels, various
schemes are in operation. These schemes focus on providing
affordable housing to the urban poor and improving the affordability of
the economically weaker sections of society through proper capital or
interest subsidies.
Which income groups should be the
focus of the affordability analysis?
This strategy will help tackle the housing problem through a more
comprehensive strategy that is both well managed and efficient.
However, MIG categories with an annual income of more than Rs.3 lakh
but not exceeding Rs.10 lakh have relatively different expectations and
preferences as compared to the EWS and LIG.
In view of the above, Knight Frank research has attempted to identify a
suitable price band for the affordable housing product for the MIG
segment (households in the annual income bracket of Rs.3 lakh to
Rs.10 lakh) residing in seven cities, viz., Mumbai, National Capital
Region (NCR), Chennai, Kolkata, Bangalore, Hyderabad and Pune.
This research report includes demand side assessment and analysis
and an overview of the supply side perspective. It should be noted that
our demand side assessment does not cover certain segments of the
mid-income group whose housing decisions are dependent on several
other factors besides affordability. Examples of such consumers are
those who are provided housing accommodation by their respective
companies, as well as those who are residing in township
developments next to IT parks and SEZs who may prefer proximity to
work.
although the MIG is
technically
considered as
financially secure,
this segment has
borne the major
brunt of the widening
gap between growth
in real income and
spiraling house prices,
particularly in the
metros and the mini-
metros
Senior officials of public and private banks were also interviewed in
order to understand the demand dynamics witnessed by the home loan
sector in the past few years. The bankers admitted that demand for
home loans, which peaked from mid 2006 to late 2007, became
sluggish with the onset of the economic difficulties at the start of
2008. The market for construction loans has also lost momentum in
recent times. Government authorities and officials from the housing
board in different cities were also interviewed in order to learn more
about the government's initiatives and support in building a successful
affordable housing model. The roles and structures of regulatory
bodies have been discussed in detail in this report.
Even though the concept of affordable housing has gained immense
prominence in the Indian real estate scenario, not much literature that
defines the boundaries of affordability is available. Knight Frank
research has taken a comprehensive approach to estimate the
maximum affordability of MIG households.
Identifying Affordability
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
The National Capital Region (NCR) spreads across an area of 33,578 sq.km, covering the states of Haryana,
Rajasthan, Uttar Pradesh and the National Capital Territory of Delhi. The concept of formation of the NCR was
introduced in the master plan of 1962. The aim of the concept was to develop a metropolitan area around
Delhi, so as to divert increasing pressure of population from the region. The concept was essential in order to
protect Delhi's infrastructure from excessive pressure and for a planned development of the region.
For the past 2-3 decades the focus of the regional authorities has been an integrated growth of the region by
means of a well developed and wide spread network of road, rail and air infrastructure. Connectivity to the
region has been strengthened by means of the national highways leading to the region. The NH 2, NH 8 & NH
24 form the core of Inter-State road connectivity, supported by a well planned network of expressways. The
partly operational and fast growing network of the Delhi Metro project is the most rapid and cost effective
means of communication within the region. Presence of a strong socio-economic infrastructure is an added
advantage to the region. A perfect mix of public and private owned school & colleges and professional
institutes provide the talent pool required in the fast growing industrial and services sectors in the NCR.
Sectors like the IT/ITeS, Automobile, Telecommunications, Medicine, Banking and Finance are the main
economic drivers.
In the last decade the Indian GDP has grown with a CAGR of about 7.8% per annum. Healthy economic
conditions have lead to an employment growth rate of 4.80% per annum in the NCR. A diversified talent pool
of professionals and a high literacy rate of about 79% have been the prime reasons behind employment
growth in the NCR. The average per capita income for NCR is around Rs.60,000 per annum.
Ever since the year 2000, Gurgaon and Noida have witnessed substantial growth as these regions were
identified by global companies, as suitable locations, to set up operational base in northern India. This
growth is mainly attributed to the off-shoring business, including high-end technology consulting, call
centers and software businesses. Ghaziabad and Faridabad on the other hand have predominantly been the
industrial town within the NCR. It has always been the manufacturing sector which has been the economic
driver for these locations. But in recent times, with the growing volume of retail business in NCR, a number of
national developers have explored Ghaziabad and Faridabad for retail developments. High-end
multi-brand malls, supported by a kitty of standalone stores and high street markets, have strengthened the
retail base in the region.
NATIONAL CAPITAL REGION (NCR)
The survey of tenant households, who are considered to be the most
potential buyers of residential property, has revealed certain
household characteristics. It has been observed that 83% of the
sample households are nuclear in nature with the rest belonging to the
joint family type. The average household size is 3.86. Another issue
worth mentioning is that a quarter of the respondents are females and
it highlights active participation of females in the decision making
process of house purchase. Among the households surveyed, 51%
represents the migratory population of the region. Of this, nearly 89%
of the households have migrated to the NCR for jobs and about 11%
after their marriage. The average number of years for which a migrant
household has been living in the region is about 5 years.
City Overview
Demand PerspectiveBuyer Profile
Figure 1
Distribution of Sample Households According to
Type of Occupation
Source: Knight Frank Research
Salaried Govt - 13%
Salaried Private - 70%
Self employed (business) - 11%
Self employed professional - 6%
(doctor, lawyer, CA)
06
The identification of affordability, given buyers' incomes and spending
and saving patterns, is a critical aspect of this report.
While the household surveys directly obtained data pertaining to the
income, expenditure and savings patterns of the households across
different income categories in Mumbai, NCR, Chennai, Kolkata,
Bangalore, Hyderabad and Pune, the maximum amount that
households can commit to purchasing a house has been derived using
certain norms. These norms, calculated from the survey findings, are
aimed at identifying the different heads of routine and non-routine
expenditure that households could forego to fund the purchase of a
house. It should be noted though that due to the size and prevalence
of the 'parallel economy' in India, the income and expenditure
disclosures of households might not be entirely reflective of their
actual purchasing power.
Cutting back on certain discretionary expenses could enhance the
affordability of households. It must be noted that this enhanced
affordability calculated is the maximum amount that an average
household can commit towards buying a house without exerting
unbearable strain on its finances. The survey results indicate that there
is a willingness among tenant households to slash expenses in order
to back house purchase decisions. Certain routine expenses, examples
being those on durables, clothing and transport, and non routine
expenses, examples being those on leisure travel, ceremonies and
entertainment, can be contained and diverted to support the purchase
of a house. Hence, the maximum amount that an average household
can pay towards buying a house has been estimated assuming an
interest rate of 9% fixed for a 20-year tenure and an 85% loan to value
ratio. While the future earning potential of a buyer would assist in
obtaining a housing loan, the 15% of the property value not funded by
lending institutions is assumed to constitute accumulated savings or
other informal sources of funding from friends and relatives.
As this report is based on the premise that affordable housing is the
need of the hour in India, Knight Frank research formulated an
accounting model to forecast the requirement for such housing
amongst consumers in the Rs.3-10 lakh annual income category in the
seven cities covered in this report. The model is based on the
assumption that the housing requirement comprises existing tenant
households that wish to own a home as well as fresh owner
households, the quantities of which have been projected until 2011
based on Indicus 2007 Housing Skyline Data. Firstly, 2007 population
data for each city was used to project population for each year until
2011 using population growth rate data.
Based on average number of people per household, a figure that was
obtained from household surveys conducted, the population data for
Need Assessment
Note
1 million = 10 lakh
LIG = Low Income Group
MIG = Middle Income Group
HIG = Higher Income Group
BHK = Bedroom, Hall, Kitchen
EMI = Equated Monthly Instalment
each city was used to project total number of households. Using norms
regarding the percentage of total households in the Rs.3-10 lakh
income category and the percentage of rental and owner households in
total households, owner and rental households in the Rs.3-10 lakh
income category was forecasted until 2011.
The number of tenanted households in the Rs.3-10 lakh category for
each year was discounted to reflect the percentage of such households
who per the household survey did not express an interest in owning a
home in the near future. The resulting figure denotes the requirement
for housing from tenanted households, and to this figure was added
the requirement constituted by the incremental number of owner
households each year.
The congestion factor also has to be taken into account, and to this
extent our model incorporated the potential requirement emanating
from owner households with greater than 6 members. The final
requirement figure arrived at for each year simply denotes the housing
requirement assuming that desire translates to concrete demand in the
time periods covered. It must be noted that the extent to which this
assumption proves accurate depends largely on individual purchase
timelines that are determined by a wide variety of factors that for
practical purposes cannot be incorporated into our model.
This report concludes with a comparison of affordability and
preferences of MIG households across the seven cities. This
comparison brought to light certain pitfalls and challenges to the
development of affordable housing that need to be addressed. At the
same time, there is an air of apprehension regarding the 'affordability'
of projects promoted as affordable housing.
While buyers are slowly re-entering the market with the introduction of
smaller housing units at reasonable prices, certain sections of the
industry believe that affordable housing has to be able to cut across all
income segments and must make economic sense in terms of
proximity to buyers' work destinations. Affordable housing
development requires a coordinated public-private collaboration. It
remains to be seen how far the expectations of both the buyer and the
developer, regarding their own definitions of affordable housing, are
met in the forthcoming months.
05
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
The National Capital Region (NCR) spreads across an area of 33,578 sq.km, covering the states of Haryana,
Rajasthan, Uttar Pradesh and the National Capital Territory of Delhi. The concept of formation of the NCR was
introduced in the master plan of 1962. The aim of the concept was to develop a metropolitan area around
Delhi, so as to divert increasing pressure of population from the region. The concept was essential in order to
protect Delhi's infrastructure from excessive pressure and for a planned development of the region.
For the past 2-3 decades the focus of the regional authorities has been an integrated growth of the region by
means of a well developed and wide spread network of road, rail and air infrastructure. Connectivity to the
region has been strengthened by means of the national highways leading to the region. The NH 2, NH 8 & NH
24 form the core of Inter-State road connectivity, supported by a well planned network of expressways. The
partly operational and fast growing network of the Delhi Metro project is the most rapid and cost effective
means of communication within the region. Presence of a strong socio-economic infrastructure is an added
advantage to the region. A perfect mix of public and private owned school & colleges and professional
institutes provide the talent pool required in the fast growing industrial and services sectors in the NCR.
Sectors like the IT/ITeS, Automobile, Telecommunications, Medicine, Banking and Finance are the main
economic drivers.
In the last decade the Indian GDP has grown with a CAGR of about 7.8% per annum. Healthy economic
conditions have lead to an employment growth rate of 4.80% per annum in the NCR. A diversified talent pool
of professionals and a high literacy rate of about 79% have been the prime reasons behind employment
growth in the NCR. The average per capita income for NCR is around Rs.60,000 per annum.
Ever since the year 2000, Gurgaon and Noida have witnessed substantial growth as these regions were
identified by global companies, as suitable locations, to set up operational base in northern India. This
growth is mainly attributed to the off-shoring business, including high-end technology consulting, call
centers and software businesses. Ghaziabad and Faridabad on the other hand have predominantly been the
industrial town within the NCR. It has always been the manufacturing sector which has been the economic
driver for these locations. But in recent times, with the growing volume of retail business in NCR, a number of
national developers have explored Ghaziabad and Faridabad for retail developments. High-end
multi-brand malls, supported by a kitty of standalone stores and high street markets, have strengthened the
retail base in the region.
NATIONAL CAPITAL REGION (NCR)
The survey of tenant households, who are considered to be the most
potential buyers of residential property, has revealed certain
household characteristics. It has been observed that 83% of the
sample households are nuclear in nature with the rest belonging to the
joint family type. The average household size is 3.86. Another issue
worth mentioning is that a quarter of the respondents are females and
it highlights active participation of females in the decision making
process of house purchase. Among the households surveyed, 51%
represents the migratory population of the region. Of this, nearly 89%
of the households have migrated to the NCR for jobs and about 11%
after their marriage. The average number of years for which a migrant
household has been living in the region is about 5 years.
City Overview
Demand PerspectiveBuyer Profile
Figure 1
Distribution of Sample Households According to
Type of Occupation
Source: Knight Frank Research
Salaried Govt - 13%
Salaried Private - 70%
Self employed (business) - 11%
Self employed professional - 6%
(doctor, lawyer, CA)
06
The identification of affordability, given buyers' incomes and spending
and saving patterns, is a critical aspect of this report.
While the household surveys directly obtained data pertaining to the
income, expenditure and savings patterns of the households across
different income categories in Mumbai, NCR, Chennai, Kolkata,
Bangalore, Hyderabad and Pune, the maximum amount that
households can commit to purchasing a house has been derived using
certain norms. These norms, calculated from the survey findings, are
aimed at identifying the different heads of routine and non-routine
expenditure that households could forego to fund the purchase of a
house. It should be noted though that due to the size and prevalence
of the 'parallel economy' in India, the income and expenditure
disclosures of households might not be entirely reflective of their
actual purchasing power.
Cutting back on certain discretionary expenses could enhance the
affordability of households. It must be noted that this enhanced
affordability calculated is the maximum amount that an average
household can commit towards buying a house without exerting
unbearable strain on its finances. The survey results indicate that there
is a willingness among tenant households to slash expenses in order
to back house purchase decisions. Certain routine expenses, examples
being those on durables, clothing and transport, and non routine
expenses, examples being those on leisure travel, ceremonies and
entertainment, can be contained and diverted to support the purchase
of a house. Hence, the maximum amount that an average household
can pay towards buying a house has been estimated assuming an
interest rate of 9% fixed for a 20-year tenure and an 85% loan to value
ratio. While the future earning potential of a buyer would assist in
obtaining a housing loan, the 15% of the property value not funded by
lending institutions is assumed to constitute accumulated savings or
other informal sources of funding from friends and relatives.
As this report is based on the premise that affordable housing is the
need of the hour in India, Knight Frank research formulated an
accounting model to forecast the requirement for such housing
amongst consumers in the Rs.3-10 lakh annual income category in the
seven cities covered in this report. The model is based on the
assumption that the housing requirement comprises existing tenant
households that wish to own a home as well as fresh owner
households, the quantities of which have been projected until 2011
based on Indicus 2007 Housing Skyline Data. Firstly, 2007 population
data for each city was used to project population for each year until
2011 using population growth rate data.
Based on average number of people per household, a figure that was
obtained from household surveys conducted, the population data for
Need Assessment
Note
1 million = 10 lakh
LIG = Low Income Group
MIG = Middle Income Group
HIG = Higher Income Group
BHK = Bedroom, Hall, Kitchen
EMI = Equated Monthly Instalment
each city was used to project total number of households. Using norms
regarding the percentage of total households in the Rs.3-10 lakh
income category and the percentage of rental and owner households in
total households, owner and rental households in the Rs.3-10 lakh
income category was forecasted until 2011.
The number of tenanted households in the Rs.3-10 lakh category for
each year was discounted to reflect the percentage of such households
who per the household survey did not express an interest in owning a
home in the near future. The resulting figure denotes the requirement
for housing from tenanted households, and to this figure was added
the requirement constituted by the incremental number of owner
households each year.
The congestion factor also has to be taken into account, and to this
extent our model incorporated the potential requirement emanating
from owner households with greater than 6 members. The final
requirement figure arrived at for each year simply denotes the housing
requirement assuming that desire translates to concrete demand in the
time periods covered. It must be noted that the extent to which this
assumption proves accurate depends largely on individual purchase
timelines that are determined by a wide variety of factors that for
practical purposes cannot be incorporated into our model.
This report concludes with a comparison of affordability and
preferences of MIG households across the seven cities. This
comparison brought to light certain pitfalls and challenges to the
development of affordable housing that need to be addressed. At the
same time, there is an air of apprehension regarding the 'affordability'
of projects promoted as affordable housing.
While buyers are slowly re-entering the market with the introduction of
smaller housing units at reasonable prices, certain sections of the
industry believe that affordable housing has to be able to cut across all
income segments and must make economic sense in terms of
proximity to buyers' work destinations. Affordable housing
development requires a coordinated public-private collaboration. It
remains to be seen how far the expectations of both the buyer and the
developer, regarding their own definitions of affordable housing, are
met in the forthcoming months.
05
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Keeping in mind the factors influencing choice of locations, buyers in
the NCR perceive Noida, Ghaziabad and Gurgaon as the most favoured
ones. In the Noida Greater Noida Expressway, sectors 93 (A and B), 105,
119, 137 and 151 have been identified as the most preferred locations.
Similarly, the potential buyers have expressed strong willingness to
consider locations near NH 8, Sushant Lok (II and III), extended Golf
Course Road and Sohna Road in Gurgaon. In addition to good
connectivity, Noida and Gurgaon have the advantage of commercial
attractiveness which is guiding the households towards these
locations. Ghaziabad has also been considered as an important
location for house purchase. The stretches of Indirapuram, Vasundhara
and Vaishali which are very close to sector 62 the emerging
commercial hub in Noida, have emerged as important locations where
potential buyers have expressed their preferences to buy a house.
Though property rates in Faridabad and Greater Noida are lower as
compared to Noida or Gurgaon, the buyers have serious issues
pertaining to connectivity and infrastructure facilities of these
locations.
The present study has captured the factors which influence the
decision of a buyer in the selection of residential projects in a preferred
location. The respondents have rated a set of factors on a scale of 1 to
4 (4 being the most important and 1 the least). Based on the ratings,
mean scores are generated for each factor and the one with the highest
mean score have been identified as the most important factor and
ranked 1.
Un-interrupted power supply, water supply and safety and security are
the top three important factors influencing a buyer's decision with
respect to residential project in a preferred location. Apartment price
and accommodation size are also considered to be important. The
potential buyers are not much concerned about developers' brand and
goodwill.
high level of security and power backup as a part of the project.
Finishing of apartment/flat is also considered to be moderately
important. Amenities like a gymnasium/spa, swimming pool and club
house are not given adequate preference. It may be inferred that the
households are more keen in getting good basic amenities than
aspiring for premium amenities like swimming pool and club house.
Factors Rank
Un-interrupted power supply 1
Water supply 2
Safety & security 3
Price 4
Apartment size 5
Facilities available 6
Developer goodwill 7
Disturbance caused by traffic/noise/congestion 8
Table 4
Factors Influencing Choice of Residential Project
Source: Knight Frank Research
Regarding amenities of a residential project, it is clearly evident from
the survey result that a prospective buyer in the NCR would want the
developer to provide basic amenities like un-interrupted water supply,
Supply Perspective
The NCR residential market has witnessed sizeable development over
the past 2-3 years. Since 2006, housing demand in the region was
largely seen to be tilted towards the premium and luxury segment. A
higher rate of appreciation in property prices and easing of credit
conditions eventually led to the growth in speculative trend. As a result,
prices soared to unaffordable levels, thereby reducing the buying
capacity of the MIG segment across the NCR.
Around mid 2008, the impact of the global economic recession took its
effect on the Indian economy, ensuing a setback to the real estate
sector as well. Consequently, the NCR residential market witnessed a
sharp decline in demand for housing and after a brief stagnation
period, a decline in the prices as well. The rapidly flagging property
prices led the investors to pull out of the market. The market dynamics
thus brought attention to the segment where genuine end-user
demand existed. However, mismatch on the product and price front
restricted the demand in the segment from being fulfilled.
Knight Frank research team carried out primary surveys across major
stakeholders in the sector comprising of developers, bankers and
government authorities to understand the supply dynamics.
Figure 4
Preferred Amenities within a Residential Project
Source: Knight Frank Research
0 50 100 150 200
Creche
Servant quarters
Modular Kitchen
Multipurpose hall
Club house
Interior fixtures
Swimming pool
GymnasiumSpa
Finishing
Power Back-up
High level of security systems
Un-interrupted water supply
No. of Responses
08
As far as the type of occupation is concerned, majority (70%) of the
households are salaried in the private sector. Since the study is
restricted to households having total annual income in the range of
Rs.3 lakh and Rs.10 lakh, the sample is distributed across this income
category. At a disaggregated income level, 54% of the households
have reported to have an annual household income in the range of
Rs.3 lakh to Rs.6 lakh and the rest between Rs.6 lakh to Rs.10 lakh.
Buyer Preferences
A prospective buyer's purchase decision is influenced by a host of
factors ranging from price points to location. Due to the growing
awareness among consumers, choice of facilities and amenities are
also found to be important determinants.
To start with, the survey has gauged the budgets of households who
are willing to purchase a house in near future. In addition, the survey
has also brought out the factors influencing preferences of potential
buyers pertaining to locations, projects and amenities within the
projects.
In the NCR, the average budget of the buyers varies between Rs.19 lakh
and Rs.31 lakh. It is observed that the budget has increased with
higher income households. The average budget of a household in the
annual income range of Rs.5-6 lakh is around 21% higher than a
household in the income range of Rs.3-5 lakh. Similarly, the average
budget of a household in the income range of Rs.8-10 lakh is found to
be approximately 15% higher than a household falling within the
income range of Rs.6-8 lakh. It can also be observed that annual
household income has a bearing on the household's preference for a
specific apartment size. A higher household income translates into a
higher house budget, which, in turn, leads to the choice of a bigger
apartment size.
The survey findings reveal that, on an average, tenant households are
staying in their current residence for the last two and a half years.
Majority of the households are residing in 2 BHK type of
accommodation irrespective of the income category. The average size
of a 1 BHK flat is around 550 sq.ft. and it commands a monthly rental of
around Rs.7000/month. The size and monthly rentals of 2 BHK and
independent houses are very similar in the NCR. However, the highest
monthly rental is prevalent in a 3 BHK flat which has an average size of
a little over 1000 sq.ft.
Figure 2
Distribution of Sample Households According to
Total Annual Income
Source: Knight Frank Research
Rs. 3-5 lakh - 33%
Rs. 5-6 lakh - 21%
Rs. 6-8 lakh - 19%
Rs. 8-10 lakh - 27%
Table 1
Percentage Distribution of Current Residence Type
Based on Annual Income
Annual Income 1 BHK 2 BHK 3 BHK Independent
Rs. 3-5 lakh 26% 68% 5% 0%
Rs. 5-6 lakh 11% 84% 5% 0%
Rs. 6-8 lakh 18% 70% 12% 0%
Rs. 8-10 lakh 22% 52% 22% 4%
Source: Knight Frank Research
Annual Income Average Budget Average Preferred
(Rs. lakh) Size (sq.ft.)
Rs. 3-5 lakh 19 713
Rs. 5-6 lakh 24 733
Rs. 6-8 lakh 27 810
Rs. 8-10 lakh 31 955
Table 3
Average Preferred Budget and Size
Source: Knight Frank Research
As far as the factors influencing choice of location are concerned, it is
observed that 'good connectivity to frequently travelled places' has
emerged as the most crucial factor followed by 'good potential for
development'.
Current Residence type Average Size Average Rental
(sq.ft.) (Rs./month)
1 BHK 545 7,043
2 BHK 696 9,678
3 BHK 1,045 13,947
Independent house 713 9,750
Table 2
Current Residence Type W.R.TAverage Size and Rentals
Source: Knight Frank Research
Favourable demographics
Presence of social circle
(friends, relatives)
Good infrastructure
Good potential for development
Good connectivity to frequently
travelled places
Figure 3
Factors Influencing Preference for Location
Source: Knight Frank Research
1%
7%
15%
34%
43%
0% 10% 20% 30% 40% 50%
Percentage of Responses
07
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Keeping in mind the factors influencing choice of locations, buyers in
the NCR perceive Noida, Ghaziabad and Gurgaon as the most favoured
ones. In the Noida Greater Noida Expressway, sectors 93 (A and B), 105,
119, 137 and 151 have been identified as the most preferred locations.
Similarly, the potential buyers have expressed strong willingness to
consider locations near NH 8, Sushant Lok (II and III), extended Golf
Course Road and Sohna Road in Gurgaon. In addition to good
connectivity, Noida and Gurgaon have the advantage of commercial
attractiveness which is guiding the households towards these
locations. Ghaziabad has also been considered as an important
location for house purchase. The stretches of Indirapuram, Vasundhara
and Vaishali which are very close to sector 62 the emerging
commercial hub in Noida, have emerged as important locations where
potential buyers have expressed their preferences to buy a house.
Though property rates in Faridabad and Greater Noida are lower as
compared to Noida or Gurgaon, the buyers have serious issues
pertaining to connectivity and infrastructure facilities of these
locations.
The present study has captured the factors which influence the
decision of a buyer in the selection of residential projects in a preferred
location. The respondents have rated a set of factors on a scale of 1 to
4 (4 being the most important and 1 the least). Based on the ratings,
mean scores are generated for each factor and the one with the highest
mean score have been identified as the most important factor and
ranked 1.
Un-interrupted power supply, water supply and safety and security are
the top three important factors influencing a buyer's decision with
respect to residential project in a preferred location. Apartment price
and accommodation size are also considered to be important. The
potential buyers are not much concerned about developers' brand and
goodwill.
high level of security and power backup as a part of the project.
Finishing of apartment/flat is also considered to be moderately
important. Amenities like a gymnasium/spa, swimming pool and club
house are not given adequate preference. It may be inferred that the
households are more keen in getting good basic amenities than
aspiring for premium amenities like swimming pool and club house.
Factors Rank
Un-interrupted power supply 1
Water supply 2
Safety & security 3
Price 4
Apartment size 5
Facilities available 6
Developer goodwill 7
Disturbance caused by traffic/noise/congestion 8
Table 4
Factors Influencing Choice of Residential Project
Source: Knight Frank Research
Regarding amenities of a residential project, it is clearly evident from
the survey result that a prospective buyer in the NCR would want the
developer to provide basic amenities like un-interrupted water supply,
Supply Perspective
The NCR residential market has witnessed sizeable development over
the past 2-3 years. Since 2006, housing demand in the region was
largely seen to be tilted towards the premium and luxury segment. A
higher rate of appreciation in property prices and easing of credit
conditions eventually led to the growth in speculative trend. As a result,
prices soared to unaffordable levels, thereby reducing the buying
capacity of the MIG segment across the NCR.
Around mid 2008, the impact of the global economic recession took its
effect on the Indian economy, ensuing a setback to the real estate
sector as well. Consequently, the NCR residential market witnessed a
sharp decline in demand for housing and after a brief stagnation
period, a decline in the prices as well. The rapidly flagging property
prices led the investors to pull out of the market. The market dynamics
thus brought attention to the segment where genuine end-user
demand existed. However, mismatch on the product and price front
restricted the demand in the segment from being fulfilled.
Knight Frank research team carried out primary surveys across major
stakeholders in the sector comprising of developers, bankers and
government authorities to understand the supply dynamics.
Figure 4
Preferred Amenities within a Residential Project
Source: Knight Frank Research
0 50 100 150 200
Creche
Servant quarters
Modular Kitchen
Multipurpose hall
Club house
Interior fixtures
Swimming pool
GymnasiumSpa
Finishing
Power Back-up
High level of security systems
Un-interrupted water supply
No. of Responses
08
As far as the type of occupation is concerned, majority (70%) of the
households are salaried in the private sector. Since the study is
restricted to households having total annual income in the range of
Rs.3 lakh and Rs.10 lakh, the sample is distributed across this income
category. At a disaggregated income level, 54% of the households
have reported to have an annual household income in the range of
Rs.3 lakh to Rs.6 lakh and the rest between Rs.6 lakh to Rs.10 lakh.
Buyer Preferences
A prospective buyer's purchase decision is influenced by a host of
factors ranging from price points to location. Due to the growing
awareness among consumers, choice of facilities and amenities are
also found to be important determinants.
To start with, the survey has gauged the budgets of households who
are willing to purchase a house in near future. In addition, the survey
has also brought out the factors influencing preferences of potential
buyers pertaining to locations, projects and amenities within the
projects.
In the NCR, the average budget of the buyers varies between Rs.19 lakh
and Rs.31 lakh. It is observed that the budget has increased with
higher income households. The average budget of a household in the
annual income range of Rs.5-6 lakh is around 21% higher than a
household in the income range of Rs.3-5 lakh. Similarly, the average
budget of a household in the income range of Rs.8-10 lakh is found to
be approximately 15% higher than a household falling within the
income range of Rs.6-8 lakh. It can also be observed that annual
household income has a bearing on the household's preference for a
specific apartment size. A higher household income translates into a
higher house budget, which, in turn, leads to the choice of a bigger
apartment size.
The survey findings reveal that, on an average, tenant households are
staying in their current residence for the last two and a half years.
Majority of the households are residing in 2 BHK type of
accommodation irrespective of the income category. The average size
of a 1 BHK flat is around 550 sq.ft. and it commands a monthly rental of
around Rs.7000/month. The size and monthly rentals of 2 BHK and
independent houses are very similar in the NCR. However, the highest
monthly rental is prevalent in a 3 BHK flat which has an average size of
a little over 1000 sq.ft.
Figure 2
Distribution of Sample Households According to
Total Annual Income
Source: Knight Frank Research
Rs. 3-5 lakh - 33%
Rs. 5-6 lakh - 21%
Rs. 6-8 lakh - 19%
Rs. 8-10 lakh - 27%
Table 1
Percentage Distribution of Current Residence Type
Based on Annual Income
Annual Income 1 BHK 2 BHK 3 BHK Independent
Rs. 3-5 lakh 26% 68% 5% 0%
Rs. 5-6 lakh 11% 84% 5% 0%
Rs. 6-8 lakh 18% 70% 12% 0%
Rs. 8-10 lakh 22% 52% 22% 4%
Source: Knight Frank Research
Annual Income Average Budget Average Preferred
(Rs. lakh) Size (sq.ft.)
Rs. 3-5 lakh 19 713
Rs. 5-6 lakh 24 733
Rs. 6-8 lakh 27 810
Rs. 8-10 lakh 31 955
Table 3
Average Preferred Budget and Size
Source: Knight Frank Research
As far as the factors influencing choice of location are concerned, it is
observed that 'good connectivity to frequently travelled places' has
emerged as the most crucial factor followed by 'good potential for
development'.
Current Residence type Average Size Average Rental
(sq.ft.) (Rs./month)
1 BHK 545 7,043
2 BHK 696 9,678
3 BHK 1,045 13,947
Independent house 713 9,750
Table 2
Current Residence Type W.R.TAverage Size and Rentals
Source: Knight Frank Research
Favourable demographics
Presence of social circle
(friends, relatives)
Good infrastructure
Good potential for development
Good connectivity to frequently
travelled places
Figure 3
Factors Influencing Preference for Location
Source: Knight Frank Research
1%
7%
15%
34%
43%
0% 10% 20% 30% 40% 50%
Percentage of Responses
07
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Development models for both the DDA and HUDA are similar. These
authorities work as autonomous bodies in their respective regions
under the guidelines of the central and the state governments. DDA
and HUDA acquire agricultural land from farmers and the landlords and
with the aid of their internal engineering team carry out the housing
development activity. Any construction activity carried out by either of
the authorities is part of an approved planned development. DDA or
HUDA also carry out joint development activity with co-operative
societies. In this particular format, DDA or HUDA allocates land to a
particular co-operative society on the basis of a lottery, and facilitates
the society in carrying out construction activity.
The structural layout plan of the project is decided by the internal
engineering team and the sale price of the project is also decided by
the internal pricing team. There is a clause associated to this joint
development activity, which states that the co-operative society will be
awarded the land, “if and only if” the members of the society will use
the developed housing units for their own use. Awardees are awarded
a particular housing unit on a perpetual lease of 99 years.
The Noida authority facilitates the private developer in carrying out
residential development in the region. Land is allocated to a private
developer through a bidding process. Pricing bids are invited from the
developers, and the one with the maximum bid is awarded the land
parcel for group housing development. The authority is also planning
to enter into a PPP model with private developers, but currently it is
into a planning phase and no such efforts have been implemented.
Senior officials in the authority feel that with a PPP model in place,
marketability of their projects will improve. Besides, involvement of a
private player in the development model may help to improve and
modernise the project specifications. On the home loan front, bankers
have pointed out that demand for home loans was at its peak from mid
2006 to late 2007 in the NCR. Higher number of enquires led to a high
conversion ratio. The year 2008 has witnessed sluggishness in the
home loan sector. As per the industry statistics, home loan enquires
have dropped considerably and the conversion rate is almost 30% of
what it was in 2006-07.
The market for construction loans has also lost pace in recent times.
Banks have become cautious and are showing reluctance to provide
construction loans to the developers. At present, a multi level
screening of the developer is carried out before a construction loan is
approved.
Sr.No Project Name Developer Location May '09 Rate (Rs./sq.ft.) Unit Size Range (sq.ft.)
1 Omaxe Height Omaxe Ltd Sec 86,Faridabad 1,900 1,165-1,475
2 Omaxe New Height Omaxe Ltd Sec 78,Faridabad 1,720 850-1,350
3 Era Divine Court Era Group Sec 76,Faridabad 1,792 890-1,225
4 Redwood Residency Era Group Sec 78,Faridabad 1,900 1,150-1,470
5 Princess Park BPTP Ltd Sec 86,Faridabad 2,250 1,289-1,835
6 Park Floors II BPTP Ltd Sec 78, Faridabad 2,050 1,170-1,414
7 Imperial Estate SPR Buildtech Sec 82, Faridabad 1,950 1,881
8 ILD Spire Green ILD Group Sec 37C, Gurgaon 2,222 1,208-2,510
9 Park Serene BPTP Ltd Sec 37D, Gurgaon 2,250 1,488-2,450
10 Era Divine Era Group Sec-68, Gurgaon 2,550 1,290-1,700
11 Tulip Orange Tulip Group Sec-69/70, Gurgaon 2,200 1,137
12 Purvanchal Heights Purvanchal Construction Zeta – 1, Greater Noida 2,350 1,830-2,770
13 Jaypee Aman Jaypee Group Sec 151, Noida 2,100 850-1,320
14 Mahagun Mascot Mahagun Pvt.Ltd NH 24, Ghaziabad 2,070 1,100-1,890
15 River Heights Landcraft Developers Nh 58, Raj Nagar Ext, Ghaziabad 1,794 965-1,750
16 Mahagunpuram Mahagun Group NH 24, Ghaziabad 1,725 900-1,300
17 GulmoharTower SVP Group Sec-6, Ghaziabad 1,990 1,260-1,560
18 Grand Savana KDP Group Nh 58, Raj Nagar Ext, Ghaziabad 1,900 825-1,550
19 Camellia Garden M-Tech Developers On NH-8, Alwar Road 1,890 1,200-1,900
20 Ashiana Aangan Ashiana group On NH-8, Alwar road 2,100 1,200-1,520
Table 5
Select Affordable Housing Projects in NCR
Source: Knight Frank Research
10
It was observed that most of the developers in the NCR witnessed a
decline in their product enquires as well as conversion rates in the past
8-10 months. Market enquiries, on an average, have gone down by
about 25-30%, while the conversion rate (i.e. actual demand) has
declined by about 50%. Job insecurity among the potential buyers has
drastically reduced their confidence to enter into a long term fixed
financial obligation. Moreover, end users have become more cautious
in judging the “value for money” and as a result the purchase
decisions are deferred and they have adopted a “wait and watch
policy” with the expectation of house prices to fall further in near future.
Of late, identifying the latent demand in the mid-income segment,
developers have sensed a volume driven opportunity in initiating
affordable housing projects across various locations in the NCR.
Following are some of the key take-aways on the affordable housing
market, based on the discussion with the developers:
1. Location of the project - The developers feel that any location which
is in the radius of 30-35 kms from the CBD can be considered feasible
for affordable housing projects. According to them, the following
locations are preferred for affordable housing projects:
a. Haryana
i. Gurgaon Sectors 37 C&D, new planned sectors 56 and beyond.
ii. NH-8, Manesar
iii. Bhiwadi
iv. Dharuhera
v. Kundli and Rohtak road.
vi. Faridabad, new planned locations between sectors 70 to 88.
b. Uttar Pradesh (UP)
i. Noida Greater Noida express highway, sectors 93 A/B, 119, 151 and
beyond
ii. Ghaziabad Mohan Nagar, Vasundhara, Vaishali, Indirapuram, Raj
Nagar and NH-24
iii. Greater Noida All residential zones.
c. Delhi
i. GT Karnal Road
ii. Dwarka Najafgarh road
2. Property Specifications - It has been observed in the NCR market,
that developers have opted for adaptable value engineering in order to
alter product specifications. Use of load bearing structures, standard
flooring patterns like vitrified tiles and use of distemper paints instead
of Plaster of Paris, can bring down the input cost considerably and at
the same time make the product more affordable for the end user.
3. Amenities provided - The developers feel that provisioning of
amenities like power backup, uninterrupted water supply, 24 hrs
security, in-house clubs, gyms and swimming pool are important in an
affordable housing project. These amenities do not make a huge
difference in the cost of construction, as the total cost of such services
gets distributed among a large number of units.
4. Price of the product - As per the developers, given the earning
propensity of households within NCR, a product that can be sold within
the range of Rs.1600-2200/sq.ft., can be classified as affordable in the
NCR.
While majority of developers have evinced interest to construct
projects of affordable nature in the NCR, certain bottle necks have been
observed in the implementation of such plans:
1. Land cost across the NCR market is quite high. As land is a major
component of the cost of the property, it is difficult for the developers
to provide apartments in the price range of Rs.1600-2200/sq.ft. On the
other hand, land cost in the peripheral locations of the NCR is quite low
and suitable for affordable housing projects. But the public transport
system is not efficient enough in terms of connecting such locations to
the CBD regions, hence restricting the developers to explore such
locations for affordable housing projects.
2. Also, developers have to pay external and internal development
charges to the government. The External development charges (EDCs)
are basically imposed on the developer by the government for
providing basic social amenities like colony roads, sewerage system,
street lights and common play grounds. Internal development charges
(IDCs), on the other hand, are a kind of bank guarantee that a
developer has to keep with the government. In a residential project a
developer is responsible for providing basic social infrastructure within
the project premises. If the developer fails to do so, the regional
authorities use the IDC funds to carry out internal development activity.
These costs are transferred on to the end user by the developer. These
costs can go as high as Rs.350-400/sq.ft. Transaction cost and stamp
duty on land registration is also quite high. Stamp duty in Haryana is
around 8%, in UP is around 10% and in Delhi it is about 6%.
3. Permissible ground coverage and restrictive density norms
applicable for the NCR do not allow the developer to fully utilise the
project FSI.
Within the NCR, there are four active regulatory bodies, viz., the Delhi
Development Authority (DDA) in Delhi, Haryana Urban Development
Authority (HUDA) in Haryana, the New Okhla Industrial Development
Authority (NOIDA) for Noida and Greater Noida regions and the
Ghaziabad Development Authority (GDA). Though primary and
facilitating initiatives for housing developments are undertaken by
these authorities in their respective regions, none of the regulatory
bodies are working in collaboration with private developers in a PPP
model.
09
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Development models for both the DDA and HUDA are similar. These
authorities work as autonomous bodies in their respective regions
under the guidelines of the central and the state governments. DDA
and HUDA acquire agricultural land from farmers and the landlords and
with the aid of their internal engineering team carry out the housing
development activity. Any construction activity carried out by either of
the authorities is part of an approved planned development. DDA or
HUDA also carry out joint development activity with co-operative
societies. In this particular format, DDA or HUDA allocates land to a
particular co-operative society on the basis of a lottery, and facilitates
the society in carrying out construction activity.
The structural layout plan of the project is decided by the internal
engineering team and the sale price of the project is also decided by
the internal pricing team. There is a clause associated to this joint
development activity, which states that the co-operative society will be
awarded the land, “if and only if” the members of the society will use
the developed housing units for their own use. Awardees are awarded
a particular housing unit on a perpetual lease of 99 years.
The Noida authority facilitates the private developer in carrying out
residential development in the region. Land is allocated to a private
developer through a bidding process. Pricing bids are invited from the
developers, and the one with the maximum bid is awarded the land
parcel for group housing development. The authority is also planning
to enter into a PPP model with private developers, but currently it is
into a planning phase and no such efforts have been implemented.
Senior officials in the authority feel that with a PPP model in place,
marketability of their projects will improve. Besides, involvement of a
private player in the development model may help to improve and
modernise the project specifications. On the home loan front, bankers
have pointed out that demand for home loans was at its peak from mid
2006 to late 2007 in the NCR. Higher number of enquires led to a high
conversion ratio. The year 2008 has witnessed sluggishness in the
home loan sector. As per the industry statistics, home loan enquires
have dropped considerably and the conversion rate is almost 30% of
what it was in 2006-07.
The market for construction loans has also lost pace in recent times.
Banks have become cautious and are showing reluctance to provide
construction loans to the developers. At present, a multi level
screening of the developer is carried out before a construction loan is
approved.
Sr.No Project Name Developer Location May '09 Rate (Rs./sq.ft.) Unit Size Range (sq.ft.)
1 Omaxe Height Omaxe Ltd Sec 86,Faridabad 1,900 1,165-1,475
2 Omaxe New Height Omaxe Ltd Sec 78,Faridabad 1,720 850-1,350
3 Era Divine Court Era Group Sec 76,Faridabad 1,792 890-1,225
4 Redwood Residency Era Group Sec 78,Faridabad 1,900 1,150-1,470
5 Princess Park BPTP Ltd Sec 86,Faridabad 2,250 1,289-1,835
6 Park Floors II BPTP Ltd Sec 78, Faridabad 2,050 1,170-1,414
7 Imperial Estate SPR Buildtech Sec 82, Faridabad 1,950 1,881
8 ILD Spire Green ILD Group Sec 37C, Gurgaon 2,222 1,208-2,510
9 Park Serene BPTP Ltd Sec 37D, Gurgaon 2,250 1,488-2,450
10 Era Divine Era Group Sec-68, Gurgaon 2,550 1,290-1,700
11 Tulip Orange Tulip Group Sec-69/70, Gurgaon 2,200 1,137
12 Purvanchal Heights Purvanchal Construction Zeta – 1, Greater Noida 2,350 1,830-2,770
13 Jaypee Aman Jaypee Group Sec 151, Noida 2,100 850-1,320
14 Mahagun Mascot Mahagun Pvt.Ltd NH 24, Ghaziabad 2,070 1,100-1,890
15 River Heights Landcraft Developers Nh 58, Raj Nagar Ext, Ghaziabad 1,794 965-1,750
16 Mahagunpuram Mahagun Group NH 24, Ghaziabad 1,725 900-1,300
17 GulmoharTower SVP Group Sec-6, Ghaziabad 1,990 1,260-1,560
18 Grand Savana KDP Group Nh 58, Raj Nagar Ext, Ghaziabad 1,900 825-1,550
19 Camellia Garden M-Tech Developers On NH-8, Alwar Road 1,890 1,200-1,900
20 Ashiana Aangan Ashiana group On NH-8, Alwar road 2,100 1,200-1,520
Table 5
Select Affordable Housing Projects in NCR
Source: Knight Frank Research
10
It was observed that most of the developers in the NCR witnessed a
decline in their product enquires as well as conversion rates in the past
8-10 months. Market enquiries, on an average, have gone down by
about 25-30%, while the conversion rate (i.e. actual demand) has
declined by about 50%. Job insecurity among the potential buyers has
drastically reduced their confidence to enter into a long term fixed
financial obligation. Moreover, end users have become more cautious
in judging the “value for money” and as a result the purchase
decisions are deferred and they have adopted a “wait and watch
policy” with the expectation of house prices to fall further in near future.
Of late, identifying the latent demand in the mid-income segment,
developers have sensed a volume driven opportunity in initiating
affordable housing projects across various locations in the NCR.
Following are some of the key take-aways on the affordable housing
market, based on the discussion with the developers:
1. Location of the project - The developers feel that any location which
is in the radius of 30-35 kms from the CBD can be considered feasible
for affordable housing projects. According to them, the following
locations are preferred for affordable housing projects:
a. Haryana
i. Gurgaon Sectors 37 C&D, new planned sectors 56 and beyond.
ii. NH-8, Manesar
iii. Bhiwadi
iv. Dharuhera
v. Kundli and Rohtak road.
vi. Faridabad, new planned locations between sectors 70 to 88.
b. Uttar Pradesh (UP)
i. Noida Greater Noida express highway, sectors 93 A/B, 119, 151 and
beyond
ii. Ghaziabad Mohan Nagar, Vasundhara, Vaishali, Indirapuram, Raj
Nagar and NH-24
iii. Greater Noida All residential zones.
c. Delhi
i. GT Karnal Road
ii. Dwarka Najafgarh road
2. Property Specifications - It has been observed in the NCR market,
that developers have opted for adaptable value engineering in order to
alter product specifications. Use of load bearing structures, standard
flooring patterns like vitrified tiles and use of distemper paints instead
of Plaster of Paris, can bring down the input cost considerably and at
the same time make the product more affordable for the end user.
3. Amenities provided - The developers feel that provisioning of
amenities like power backup, uninterrupted water supply, 24 hrs
security, in-house clubs, gyms and swimming pool are important in an
affordable housing project. These amenities do not make a huge
difference in the cost of construction, as the total cost of such services
gets distributed among a large number of units.
4. Price of the product - As per the developers, given the earning
propensity of households within NCR, a product that can be sold within
the range of Rs.1600-2200/sq.ft., can be classified as affordable in the
NCR.
While majority of developers have evinced interest to construct
projects of affordable nature in the NCR, certain bottle necks have been
observed in the implementation of such plans:
1. Land cost across the NCR market is quite high. As land is a major
component of the cost of the property, it is difficult for the developers
to provide apartments in the price range of Rs.1600-2200/sq.ft. On the
other hand, land cost in the peripheral locations of the NCR is quite low
and suitable for affordable housing projects. But the public transport
system is not efficient enough in terms of connecting such locations to
the CBD regions, hence restricting the developers to explore such
locations for affordable housing projects.
2. Also, developers have to pay external and internal development
charges to the government. The External development charges (EDCs)
are basically imposed on the developer by the government for
providing basic social amenities like colony roads, sewerage system,
street lights and common play grounds. Internal development charges
(IDCs), on the other hand, are a kind of bank guarantee that a
developer has to keep with the government. In a residential project a
developer is responsible for providing basic social infrastructure within
the project premises. If the developer fails to do so, the regional
authorities use the IDC funds to carry out internal development activity.
These costs are transferred on to the end user by the developer. These
costs can go as high as Rs.350-400/sq.ft. Transaction cost and stamp
duty on land registration is also quite high. Stamp duty in Haryana is
around 8%, in UP is around 10% and in Delhi it is about 6%.
3. Permissible ground coverage and restrictive density norms
applicable for the NCR do not allow the developer to fully utilise the
project FSI.
Within the NCR, there are four active regulatory bodies, viz., the Delhi
Development Authority (DDA) in Delhi, Haryana Urban Development
Authority (HUDA) in Haryana, the New Okhla Industrial Development
Authority (NOIDA) for Noida and Greater Noida regions and the
Ghaziabad Development Authority (GDA). Though primary and
facilitating initiatives for housing developments are undertaken by
these authorities in their respective regions, none of the regulatory
bodies are working in collaboration with private developers in a PPP
model.
09
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Table 7 illustrates this fact based on the willingness of the buyer to
Locations May '09 Rates Max Size (in sq.ft.) & Total Property Value (in Rs.lakh)
(in Rs./sq.ft.)
500 600 700 800 900 1000 1100 1200
sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft.
Greater Kailash I&II/ Min 11,000 55.0 66.0 77.0 88.0 99.0 110.0 121.0 132.0
New Friends Colony Max 15,000 75.0 90.0 105.0 120.0 135.0 150.0 165.0 180.0
Min 4,150 20.8 24.9 29.1 33.2 37.3 41.5 45.7 49.8Janakpuri
Max 7,000 35.0 42.0 49.0 56.0 63.0 70.0 77.0 84.0
Min 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0Dwarka
Max 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0Rohini/Pitampura
Max 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
Min 3,350 16.8 20.1 23.5 26.8 30.2 33.5 36.9 40.2Gurgaon-Sushant Lok 1
Max 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0
Min 2,400 12.0 14.4 16.8 19.2 21.6 24.0 26.4 28.8Gurgaon-Sushant Lok II & III
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Gurgaon-Golf Course Road - Min 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Sectors 52/ 56/58 and 61 Max 7,200 36.0 43.2 50.4 57.6 64.8 72.0 79.2 86.4
Gurgaon-Extended Golf Min 2,100 10.5 12.6 14.7 16.8 18.9 21.0 23.1 25.2
Course Road/Sohna Road Max 3,800 19.0 22.8 26.6 30.4 34.2 38.0 41.8 45.6
Min 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0Gurgoan-DLF Phase 1-4
Max 7,000 35.0 42.0 49.0 56.0 63.0 70.0 77.0 84.0
Min 2,100 10.5 12.6 14.7 16.8 18.9 21.0 23.1 25.2Gurgaon-Near NH-8
Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Old Ghaziabad-Mohan Nagar/ Min 2,800 14.0 16.8 19.6 22.4 25.2 28.0 30.8 33.6
Raj Nagar/Kavi nagar Max 4,500 22.5 27.0 31.5 36.0 40.5 45.0 49.5 54.0
Min 2,200 11.0 13.2 15.4 17.6 19.8 22.0 24.2 26.4Indirapuram-Ghaziabad
Max 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
Min 2,000 10.0 12.0 14.0 16.0 18.0 20.0 22.0 24.0Vaishali/Vasundhara-Ghaziabad
Max 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
Min 1,900 9.5 11.4 13.3 15.2 17.1 19.0 20.9 22.8NH-24 Ghaziabad
Max 2,400 12.0 14.4 16.8 19.2 21.6 24.0 26.4 28.8
Min 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0Old Faridabad 15, 16, 17,21
Max 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
Min 3,400 17.0 20.4 23.8 27.2 30.6 34.0 37.4 40.8Faridabad-Suraj kund
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Min 1,800 9.0 10.8 12.6 14.4 16.2 18.0 19.8 21.6Faridabad (Sectors 70-88)
Max 2,400 12.0 14.4 16.8 19.2 21.6 24.0 26.4 28.8
Min 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0NH-2 Faridabad
Max 4,200 21.0 25.2 29.4 33.6 37.8 42.0 46.2 50.4
Noida-Sectors 93 A & B, Min 2,100 10.5 12.6 14.7 16.8 18.9 21.0 23.1 25.2
119, 137, 151 Max 4,200 21.0 25.2 29.4 33.6 37.8 42.0 46.2 50.4
Noida-Sectors - 50, 61, 62, 63, Min 3,800 19.0 22.8 26.6 30.4 34.2 38.0 41.8 45.6
71, 82 Max 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
Min 1,700 8.5 10.2 11.9 13.6 15.3 17.0 18.7 20.4Greater Noida
Max 2,600 13.0 15.6 18.2 20.8 23.4 26.0 28.6 31.2
Table 7
Size Preference in NCR- Min-700 sq.ft. Max-1000 sq.ft.
Affordable House Property in NCR- Min 14.32 lakh Max 38.84 lakhNot Affordable
Source: Knight Frank Research
compromise on the size of the residential unit:
12
Identifying Affordability
NCR revealed a number of interesting facts during the household
survey carried out in order to ascertain the affordability of the various
income groups at city level. Table 6 depicts in detail the maximum
affordable EMI of households in various income levels. This EMI has
been estimated from the annual income of household and its spending
and saving behavior. The maximum EMI has been translated into
affordable house property value based on an assumed interest rate,
loan tenure and loan to value ratio. The table also shows the capital
values that the households will have to pay keeping in view the
preferred house size and the affordable house property value. An
interesting point that was inferred from the survey results was that the
income groups of Rs.3-5 lakh and Rs.5-6 lakh preferred similar sized
units for their housing needs. Both the income categories expressed
the area of their residential units in the range of 700-800 sq.ft.
However, while this allows the lower income group to purchase a
property with an average price of Rs.2300/sq.ft., the same enabled the
higher income group of Rs.5-6 lakh to opt for properties in the range of
Rs.2900-3650/sq.ft. Meanwhile, NCR, spanning a larger area with vast
land parcels available for residential development, provides varied
location options for the residents of the city to fulfill their housing
needs. The category of households with income of Rs.6 lakh and above
can afford residential units in select pockets of the newly developed
zones in Gurgaon, Noida as well as along NH-2 and NH-24. Though
these locations suit the budget preference of households, they are
located about 30 kms from the CBD area of Delhi i.e. Connaught Place.
For example residential locations in Gurgaon and Noida are atleast 30
kms from the CBD. Residential locations on NH 24, Ghaziabad and NH
2, Faridabad, are about 35 kms and 27 kms respectively from the CBD.
Meanwhile, if households, especially those in the income category of
Rs.3-5 Lakh, are willing to compromise on unit sizes, they will have
more options in terms of housing locations to choose from.
Household income (per annum)
Maximum EMI (Rs.) 11,000 - 15,000 16,000 - 21,000 19,000 - 24,000 28,000 - 30,000
Maximum loan eligibility (Rs.)
(9% interest rate, 20 year loan tenure) 12,17,000 - 16,50,000 17,74,000 - 23,38,000 20,90,000 - 26,84,000 30,88,000 - 33,00,000
Buyer's own contribution (Rs.)
(Assuming 85% loan) 2,15,000 - 2,91,000 3,13,000 - 4,12,000 3,69,000 - 4,74,000 5,45,000 - 5,83,000
Affordable house property value (Rs.) 14,32,000 - 19,40,000 20,87,000 - 27,50,000 24,60,000 - 31,58,000 36,33,000 - 38,84,000
Preferred size (sq.ft.) 700 - 800 700 - 800 750 - 850 900 - 1,000
Price (Rs./sq.ft.) 2,000 - 2,500 2,900 - 3,650 3,250 - 3,750 3,800 - 4,000
Rs. 3 lakh - 5 lakh Rs. 5 lakh - 6 lakh Rs. 6 lakh - 8 lakh Rs. 8 lakh - 10 lakh
Table 6
Affordability in NCR
Source: Knight Frank Research
Locations available
considering preferred size
and few residential areas
Gurgaon-
Sushant Lok II & III,
Extd Golf Course Road,
Sohna Road, NH-8
Ghaziabad -
Indirapuram
Vaishali
Vasundhara, NH-24
Noida-
Sectors 93 A & B,
Sectors 119, 137, 151
Faridabad-
Sectors 70-88
Greater Noida
Delhi-
Rohini/Pitampura
Gurgaon-
Sushant Lok I, II, III,
Golf Course Road,
Sectors 52/ 56/58/61,
Extd Golf Course Road,
Sohna Road, NH-8
Ghaziabad-
Mohan Nagar
Raj Nagar
Kavi Nagar, Indirapuram
Vaishali/Vasundhara
NH-24
Noida-
Sectors 93 A & B
Sectors 119, 137, 151
Faridabad-
Suraj Kund,
Sectors 70-88
NH-2
Greater Noida
Delhi-
Rohini/Pitampura
Gurgaon-
Sushant Lok I, II, III,
Golf Course Road,
Sectors 52/ 56/58/61,
Extd Golf Course Road,
Sohna Road, NH-8
Ghaziabad-
Mohan Nagar
Raj Nagar
Kavi Nagar, Indirapuram
Vaishali/Vasundhara
NH-24
Noida-
Sectors
93 A & B
Sectors 119, 137, 151
Faridabad-
Suraj Kund,
Sectors 70-88
NH-2
Greater Noida
50, 61, 62, 63,
Sectors 71, 82
Sectors
Delhi-
Rohini/Pitampura
Gurgaon-
Sushant Lok I, II, III,
Golf Course Road,
Sectors 52/ 56/58/61,
Extd Golf Course Road,
Sohna Road, NH-8
Ghaziabad-
Mohan Nagar
Raj Nagar
Kavi Nagar, Indirapuram
Vaishali/Vasundhara
NH-24
Noida-
Sectors 93 A & B
Sectors 119, 137, 151
Faridabad-
Suraj Kund,
Sectors 70-88
NH-2
Greater Noida
11
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Table 7 illustrates this fact based on the willingness of the buyer to
Locations May '09 Rates Max Size (in sq.ft.) & Total Property Value (in Rs.lakh)
(in Rs./sq.ft.)
500 600 700 800 900 1000 1100 1200
sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft.
Greater Kailash I&II/ Min 11,000 55.0 66.0 77.0 88.0 99.0 110.0 121.0 132.0
New Friends Colony Max 15,000 75.0 90.0 105.0 120.0 135.0 150.0 165.0 180.0
Min 4,150 20.8 24.9 29.1 33.2 37.3 41.5 45.7 49.8Janakpuri
Max 7,000 35.0 42.0 49.0 56.0 63.0 70.0 77.0 84.0
Min 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0Dwarka
Max 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0Rohini/Pitampura
Max 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
Min 3,350 16.8 20.1 23.5 26.8 30.2 33.5 36.9 40.2Gurgaon-Sushant Lok 1
Max 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0
Min 2,400 12.0 14.4 16.8 19.2 21.6 24.0 26.4 28.8Gurgaon-Sushant Lok II & III
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Gurgaon-Golf Course Road - Min 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Sectors 52/ 56/58 and 61 Max 7,200 36.0 43.2 50.4 57.6 64.8 72.0 79.2 86.4
Gurgaon-Extended Golf Min 2,100 10.5 12.6 14.7 16.8 18.9 21.0 23.1 25.2
Course Road/Sohna Road Max 3,800 19.0 22.8 26.6 30.4 34.2 38.0 41.8 45.6
Min 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0Gurgoan-DLF Phase 1-4
Max 7,000 35.0 42.0 49.0 56.0 63.0 70.0 77.0 84.0
Min 2,100 10.5 12.6 14.7 16.8 18.9 21.0 23.1 25.2Gurgaon-Near NH-8
Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Old Ghaziabad-Mohan Nagar/ Min 2,800 14.0 16.8 19.6 22.4 25.2 28.0 30.8 33.6
Raj Nagar/Kavi nagar Max 4,500 22.5 27.0 31.5 36.0 40.5 45.0 49.5 54.0
Min 2,200 11.0 13.2 15.4 17.6 19.8 22.0 24.2 26.4Indirapuram-Ghaziabad
Max 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
Min 2,000 10.0 12.0 14.0 16.0 18.0 20.0 22.0 24.0Vaishali/Vasundhara-Ghaziabad
Max 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
Min 1,900 9.5 11.4 13.3 15.2 17.1 19.0 20.9 22.8NH-24 Ghaziabad
Max 2,400 12.0 14.4 16.8 19.2 21.6 24.0 26.4 28.8
Min 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0Old Faridabad 15, 16, 17,21
Max 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
Min 3,400 17.0 20.4 23.8 27.2 30.6 34.0 37.4 40.8Faridabad-Suraj kund
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Min 1,800 9.0 10.8 12.6 14.4 16.2 18.0 19.8 21.6Faridabad (Sectors 70-88)
Max 2,400 12.0 14.4 16.8 19.2 21.6 24.0 26.4 28.8
Min 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0NH-2 Faridabad
Max 4,200 21.0 25.2 29.4 33.6 37.8 42.0 46.2 50.4
Noida-Sectors 93 A & B, Min 2,100 10.5 12.6 14.7 16.8 18.9 21.0 23.1 25.2
119, 137, 151 Max 4,200 21.0 25.2 29.4 33.6 37.8 42.0 46.2 50.4
Noida-Sectors - 50, 61, 62, 63, Min 3,800 19.0 22.8 26.6 30.4 34.2 38.0 41.8 45.6
71, 82 Max 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
Min 1,700 8.5 10.2 11.9 13.6 15.3 17.0 18.7 20.4Greater Noida
Max 2,600 13.0 15.6 18.2 20.8 23.4 26.0 28.6 31.2
Table 7
Size Preference in NCR- Min-700 sq.ft. Max-1000 sq.ft.
Affordable House Property in NCR- Min 14.32 lakh Max 38.84 lakhNot Affordable
Source: Knight Frank Research
compromise on the size of the residential unit:
12
Identifying Affordability
NCR revealed a number of interesting facts during the household
survey carried out in order to ascertain the affordability of the various
income groups at city level. Table 6 depicts in detail the maximum
affordable EMI of households in various income levels. This EMI has
been estimated from the annual income of household and its spending
and saving behavior. The maximum EMI has been translated into
affordable house property value based on an assumed interest rate,
loan tenure and loan to value ratio. The table also shows the capital
values that the households will have to pay keeping in view the
preferred house size and the affordable house property value. An
interesting point that was inferred from the survey results was that the
income groups of Rs.3-5 lakh and Rs.5-6 lakh preferred similar sized
units for their housing needs. Both the income categories expressed
the area of their residential units in the range of 700-800 sq.ft.
However, while this allows the lower income group to purchase a
property with an average price of Rs.2300/sq.ft., the same enabled the
higher income group of Rs.5-6 lakh to opt for properties in the range of
Rs.2900-3650/sq.ft. Meanwhile, NCR, spanning a larger area with vast
land parcels available for residential development, provides varied
location options for the residents of the city to fulfill their housing
needs. The category of households with income of Rs.6 lakh and above
can afford residential units in select pockets of the newly developed
zones in Gurgaon, Noida as well as along NH-2 and NH-24. Though
these locations suit the budget preference of households, they are
located about 30 kms from the CBD area of Delhi i.e. Connaught Place.
For example residential locations in Gurgaon and Noida are atleast 30
kms from the CBD. Residential locations on NH 24, Ghaziabad and NH
2, Faridabad, are about 35 kms and 27 kms respectively from the CBD.
Meanwhile, if households, especially those in the income category of
Rs.3-5 Lakh, are willing to compromise on unit sizes, they will have
more options in terms of housing locations to choose from.
Household income (per annum)
Maximum EMI (Rs.) 11,000 - 15,000 16,000 - 21,000 19,000 - 24,000 28,000 - 30,000
Maximum loan eligibility (Rs.)
(9% interest rate, 20 year loan tenure) 12,17,000 - 16,50,000 17,74,000 - 23,38,000 20,90,000 - 26,84,000 30,88,000 - 33,00,000
Buyer's own contribution (Rs.)
(Assuming 85% loan) 2,15,000 - 2,91,000 3,13,000 - 4,12,000 3,69,000 - 4,74,000 5,45,000 - 5,83,000
Affordable house property value (Rs.) 14,32,000 - 19,40,000 20,87,000 - 27,50,000 24,60,000 - 31,58,000 36,33,000 - 38,84,000
Preferred size (sq.ft.) 700 - 800 700 - 800 750 - 850 900 - 1,000
Price (Rs./sq.ft.) 2,000 - 2,500 2,900 - 3,650 3,250 - 3,750 3,800 - 4,000
Rs. 3 lakh - 5 lakh Rs. 5 lakh - 6 lakh Rs. 6 lakh - 8 lakh Rs. 8 lakh - 10 lakh
Table 6
Affordability in NCR
Source: Knight Frank Research
Locations available
considering preferred size
and few residential areas
Gurgaon-
Sushant Lok II & III,
Extd Golf Course Road,
Sohna Road, NH-8
Ghaziabad -
Indirapuram
Vaishali
Vasundhara, NH-24
Noida-
Sectors 93 A & B,
Sectors 119, 137, 151
Faridabad-
Sectors 70-88
Greater Noida
Delhi-
Rohini/Pitampura
Gurgaon-
Sushant Lok I, II, III,
Golf Course Road,
Sectors 52/ 56/58/61,
Extd Golf Course Road,
Sohna Road, NH-8
Ghaziabad-
Mohan Nagar
Raj Nagar
Kavi Nagar, Indirapuram
Vaishali/Vasundhara
NH-24
Noida-
Sectors 93 A & B
Sectors 119, 137, 151
Faridabad-
Suraj Kund,
Sectors 70-88
NH-2
Greater Noida
Delhi-
Rohini/Pitampura
Gurgaon-
Sushant Lok I, II, III,
Golf Course Road,
Sectors 52/ 56/58/61,
Extd Golf Course Road,
Sohna Road, NH-8
Ghaziabad-
Mohan Nagar
Raj Nagar
Kavi Nagar, Indirapuram
Vaishali/Vasundhara
NH-24
Noida-
Sectors
93 A & B
Sectors 119, 137, 151
Faridabad-
Suraj Kund,
Sectors 70-88
NH-2
Greater Noida
50, 61, 62, 63,
Sectors 71, 82
Sectors
Delhi-
Rohini/Pitampura
Gurgaon-
Sushant Lok I, II, III,
Golf Course Road,
Sectors 52/ 56/58/61,
Extd Golf Course Road,
Sohna Road, NH-8
Ghaziabad-
Mohan Nagar
Raj Nagar
Kavi Nagar, Indirapuram
Vaishali/Vasundhara
NH-24
Noida-
Sectors 93 A & B
Sectors 119, 137, 151
Faridabad-
Suraj Kund,
Sectors 70-88
NH-2
Greater Noida
11
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
mumbai
Figure 7
Distribution of Sample Households According to
Type of Occupation
Source: Knight Frank Research
Salaried Govt - 4%
Salaried Private - 90%
Self employed (business) - 3%
Self employed professional - 3%
(doctor, lawyer, CA)
14
The commercial capital of India, Mumbai is one of the fastest growing cities in the country. The city comprises
an archipelago of seven islands amalgamated with the northern lands to form down town South Mumbai,
North Mumbai with suburbs Navi Mumbai and Thane. Being well connected to key global cities makes
Mumbai a gateway to India. Besides port related trade activities, Mumbai has also been the entertainment
capital of India. Important financial institutions like the Reserve Bank of India, the Bombay Stock Exchange,
the National Stock Exchange and the headquarters of many Indian corporates including a number of FMCG
corporates are located here. It is also an important location for multi-national companies entering the Indian
market.
Over the years, the residential demand shifted from South Mumbai to North Mumbai on account of the fresh
supply and comparatively lesser capital values. Further, developments like widening of the Mumbai-Pune
highway has led to extensive development along this corridor. This also led to the development of various
locations across Navi Mumbai. The expansion of the IT/ITES and BPO sector in the city, increase in double
income families, disposable income of general workforce, easy availability of home loans, etc. collectively
thereby lent optimism to the Mumbai real estate market. While most of the earlier developments provided
just the basic amenities, newer ones had a large amount of added features where the buyer aspired for a
higher level of luxury, be it in the heart of the city or in the suburbs of Mumbai.
The high-end residential market is concentrated in South Mumbai locations, viz. Malabar Hill, Napeansea
Road, Cuffe Parade, Altamont Road and Central Mumbai locations of Prabhadevi and Worli. Suburban
locations of Bandra, Khar, Santacruz, Juhu and Versova are sought after residential locations due to excellent
social infrastructure and their proximity to the airports and the suburban business districts of Bandra Kurla
Complex, Andheri and Powai-Vikhroli. Other western suburban locations of Goregaon, Malad, Kandivali and
central suburban locations of Powai, Ghatkopar, Bhandup and Mulund have witnessed large scale
developments in the residential sector. A noticeable trend among many developers is the creation of entire
townships in areas with availability of vast stretches of land. Locations like Thane, Vasai and Virar have seen
the development of many such townships.
City Overview
The potential buyers reveal various household characteristics giving
us an indication about the demographic profile of the residents of
Mumbai. The people who belong originally to the city comprise 43% of
the sample. Of the 57% who are not originally from Mumbai, a startling
93% have shifted to the city for job purposes. 72% of the migratory
population have been residing in Mumbai for a period of 1-5 years and
wish to purchase a house here. Considering the diversity of the
existing population and influence created by the variety of
multinational companies, people of the city have been experiencing a
culture transition over the years. While only a small percentage of the
respondents belonged to the joint family structure, around 79% were
nuclear type families with an average household size of 3-4 members.
Demand PerspectiveBuyer Profile
As is apparent from Table 7, assuming lower unit sizes, most of the
locations fall within the affordability of the various income groups.
Evidently, locations like Greater Noida, Faridabad (sectors 70-88), NH
24 and Indirapuram are affordable for all income segments without any
need for compromise on apartment size. However, upmarket locations
like Greater Kailash I & II and New Friends Colony, with residential
values in the range of Rs.11000-15000/sq.ft., continue to remain
beyond the reach of the mid-income segment of the NCR. Also, the
upper limit of capital values in select locations in Delhi (Janakpuri,
Dwarka and Rohini), Noida (sectors 50, 61, 62, 63, 71, 82),Gurgaon
(Sushant Lok 1, DLF Phase 1-4 and Golf Course Road) and old Faridabad
are too expensive for most of the respondents even if compromises on
unit sizes are made. While the average budget expressed by the
income groups remained within their calculated affordability, the only
anomaly observed was in case of the higher income group of Rs.8-10
lakh. As per the calculated affordable house value, a household within
this income category can opt for a property between Rs.36.3-38.8 lakh.
However, the survey revealed that respondents from this income
category preferred to have a much lower average budget of only Rs.31
lakh for buying a housey.
The National Capital Region (NCR), which consists of New Delhi,
Gurgaon, Greater Noida, Ghaziabad and Faridabad, represents a
diverse set of locations which vary in levels of development. The region
comprises a population of approximately 22 mn. that is growing at
approximately 4.4% per annum, with Greater Noida, Gurgaon,
Ghaziabad and Faridabad being the major contributors to this growth.
This is reflective of the relatively recent development of these locations
as compared to Delhi. Figure 5 specifies the housing requirement for
the middle income segment in the NCR region in 2009, 2010 and 2011.
City Outlook
Knight Frank research estimates that the middle income population in
the NCR region will require approximately 5.50 lakh housing units by
2011, which assuming an average unit size of 800 sq.ft. translates to
approximately 438 mn.sq.ft. of residential space. Approximately 70%
of this total middle income housing requirement will be accounted for
by the Rs.3-5 lakh income segment. In order for this requirement to be
converted to demand, the Rs.3-5 lakh income category would have to
be targeted with houses in the price range of Rs.14-19 lakh. A very
important consideration in assessing the demand for houses in the
middle income segment is the consumers' purchase timelines, as even
if 100% of the requirement translates to demand, how this demand
pans out depends on when consumers are willing to incur the financial
burden of purchasing a house. Figure 6 details the preferred purchase
timelines of rental households surveyed.
0-6 months - 5%
6-12 months - 29%
1-2 years - 66%
Figure 6
Household Purchase Timelines
Source: Knight Frank Research
About one third of prospective buyers are seeking to purchase a house
within the next year, with the remaining two thirds preferring to
purchase anytime up until the first quarter of 2011. The stalling of
residential projects in the NCR region has rendered middle income
consumers apprehensive about project completion, and consequently,
these consumers are now looking at purchasing only completed units.
This factor has delayed purchase decisions by prospective buyers.
Certain pockets in Sushant Lok I, II & III, extended Golf Course Road,
Sohna Road and locations near NH-8 are prime affordable housing
areas in the city. Indirapuram Vaishali and Vasundhara in Ghaziabad
and sector 70-88 of Faridabad also represent prominent affordable
locations. However, established housing locations in the NCR are
plagued by a lack of socioeconomic infrastructure and basic utility
services. Gurgaon, for example, faces a problem of power outages.
Ghaziabad and Faridabad lack basic amenities like regular water and
power supply, and are bereft of adequate healthcare services like
quality hospitals and nursing homes. In addition, a lack of proper
governance and public security initiatives in these areas has resulted
in safety concerns among potential home buyers. Greater Noida is
plagued by a lack of physical Infrastructure. A network of roads is still
under development and accessibility to upcoming residential locations
is limited. It is evident that even if prices are aligned with consumers'
preferences, the limitations detailed above hinder housing demand in
the aforementioned locations.
13
Figure 5
Total Housing Unit Requirement for Rs. 3-10 lakh
Income Category560,000
20
09
20
10
20
11
5,02,298
550,000
540,000
530,000
520,000
510,000
500,000
490,000
480,000
470,000
5,24,380
5,47,434
Source: Knight Frank Research
Previous Years’ Cumulative Requirement Incremental Requirement
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
mumbai
Figure 7
Distribution of Sample Households According to
Type of Occupation
Source: Knight Frank Research
Salaried Govt - 4%
Salaried Private - 90%
Self employed (business) - 3%
Self employed professional - 3%
(doctor, lawyer, CA)
14
The commercial capital of India, Mumbai is one of the fastest growing cities in the country. The city comprises
an archipelago of seven islands amalgamated with the northern lands to form down town South Mumbai,
North Mumbai with suburbs Navi Mumbai and Thane. Being well connected to key global cities makes
Mumbai a gateway to India. Besides port related trade activities, Mumbai has also been the entertainment
capital of India. Important financial institutions like the Reserve Bank of India, the Bombay Stock Exchange,
the National Stock Exchange and the headquarters of many Indian corporates including a number of FMCG
corporates are located here. It is also an important location for multi-national companies entering the Indian
market.
Over the years, the residential demand shifted from South Mumbai to North Mumbai on account of the fresh
supply and comparatively lesser capital values. Further, developments like widening of the Mumbai-Pune
highway has led to extensive development along this corridor. This also led to the development of various
locations across Navi Mumbai. The expansion of the IT/ITES and BPO sector in the city, increase in double
income families, disposable income of general workforce, easy availability of home loans, etc. collectively
thereby lent optimism to the Mumbai real estate market. While most of the earlier developments provided
just the basic amenities, newer ones had a large amount of added features where the buyer aspired for a
higher level of luxury, be it in the heart of the city or in the suburbs of Mumbai.
The high-end residential market is concentrated in South Mumbai locations, viz. Malabar Hill, Napeansea
Road, Cuffe Parade, Altamont Road and Central Mumbai locations of Prabhadevi and Worli. Suburban
locations of Bandra, Khar, Santacruz, Juhu and Versova are sought after residential locations due to excellent
social infrastructure and their proximity to the airports and the suburban business districts of Bandra Kurla
Complex, Andheri and Powai-Vikhroli. Other western suburban locations of Goregaon, Malad, Kandivali and
central suburban locations of Powai, Ghatkopar, Bhandup and Mulund have witnessed large scale
developments in the residential sector. A noticeable trend among many developers is the creation of entire
townships in areas with availability of vast stretches of land. Locations like Thane, Vasai and Virar have seen
the development of many such townships.
City Overview
The potential buyers reveal various household characteristics giving
us an indication about the demographic profile of the residents of
Mumbai. The people who belong originally to the city comprise 43% of
the sample. Of the 57% who are not originally from Mumbai, a startling
93% have shifted to the city for job purposes. 72% of the migratory
population have been residing in Mumbai for a period of 1-5 years and
wish to purchase a house here. Considering the diversity of the
existing population and influence created by the variety of
multinational companies, people of the city have been experiencing a
culture transition over the years. While only a small percentage of the
respondents belonged to the joint family structure, around 79% were
nuclear type families with an average household size of 3-4 members.
Demand PerspectiveBuyer Profile
As is apparent from Table 7, assuming lower unit sizes, most of the
locations fall within the affordability of the various income groups.
Evidently, locations like Greater Noida, Faridabad (sectors 70-88), NH
24 and Indirapuram are affordable for all income segments without any
need for compromise on apartment size. However, upmarket locations
like Greater Kailash I & II and New Friends Colony, with residential
values in the range of Rs.11000-15000/sq.ft., continue to remain
beyond the reach of the mid-income segment of the NCR. Also, the
upper limit of capital values in select locations in Delhi (Janakpuri,
Dwarka and Rohini), Noida (sectors 50, 61, 62, 63, 71, 82),Gurgaon
(Sushant Lok 1, DLF Phase 1-4 and Golf Course Road) and old Faridabad
are too expensive for most of the respondents even if compromises on
unit sizes are made. While the average budget expressed by the
income groups remained within their calculated affordability, the only
anomaly observed was in case of the higher income group of Rs.8-10
lakh. As per the calculated affordable house value, a household within
this income category can opt for a property between Rs.36.3-38.8 lakh.
However, the survey revealed that respondents from this income
category preferred to have a much lower average budget of only Rs.31
lakh for buying a housey.
The National Capital Region (NCR), which consists of New Delhi,
Gurgaon, Greater Noida, Ghaziabad and Faridabad, represents a
diverse set of locations which vary in levels of development. The region
comprises a population of approximately 22 mn. that is growing at
approximately 4.4% per annum, with Greater Noida, Gurgaon,
Ghaziabad and Faridabad being the major contributors to this growth.
This is reflective of the relatively recent development of these locations
as compared to Delhi. Figure 5 specifies the housing requirement for
the middle income segment in the NCR region in 2009, 2010 and 2011.
City Outlook
Knight Frank research estimates that the middle income population in
the NCR region will require approximately 5.50 lakh housing units by
2011, which assuming an average unit size of 800 sq.ft. translates to
approximately 438 mn.sq.ft. of residential space. Approximately 70%
of this total middle income housing requirement will be accounted for
by the Rs.3-5 lakh income segment. In order for this requirement to be
converted to demand, the Rs.3-5 lakh income category would have to
be targeted with houses in the price range of Rs.14-19 lakh. A very
important consideration in assessing the demand for houses in the
middle income segment is the consumers' purchase timelines, as even
if 100% of the requirement translates to demand, how this demand
pans out depends on when consumers are willing to incur the financial
burden of purchasing a house. Figure 6 details the preferred purchase
timelines of rental households surveyed.
0-6 months - 5%
6-12 months - 29%
1-2 years - 66%
Figure 6
Household Purchase Timelines
Source: Knight Frank Research
About one third of prospective buyers are seeking to purchase a house
within the next year, with the remaining two thirds preferring to
purchase anytime up until the first quarter of 2011. The stalling of
residential projects in the NCR region has rendered middle income
consumers apprehensive about project completion, and consequently,
these consumers are now looking at purchasing only completed units.
This factor has delayed purchase decisions by prospective buyers.
Certain pockets in Sushant Lok I, II & III, extended Golf Course Road,
Sohna Road and locations near NH-8 are prime affordable housing
areas in the city. Indirapuram Vaishali and Vasundhara in Ghaziabad
and sector 70-88 of Faridabad also represent prominent affordable
locations. However, established housing locations in the NCR are
plagued by a lack of socioeconomic infrastructure and basic utility
services. Gurgaon, for example, faces a problem of power outages.
Ghaziabad and Faridabad lack basic amenities like regular water and
power supply, and are bereft of adequate healthcare services like
quality hospitals and nursing homes. In addition, a lack of proper
governance and public security initiatives in these areas has resulted
in safety concerns among potential home buyers. Greater Noida is
plagued by a lack of physical Infrastructure. A network of roads is still
under development and accessibility to upcoming residential locations
is limited. It is evident that even if prices are aligned with consumers'
preferences, the limitations detailed above hinder housing demand in
the aforementioned locations.
13
Figure 5
Total Housing Unit Requirement for Rs. 3-10 lakh
Income Category560,000
20
09
20
10
20
11
5,02,298
550,000
540,000
530,000
520,000
510,000
500,000
490,000
480,000
470,000
5,24,380
5,47,434
Source: Knight Frank Research
Previous Years’ Cumulative Requirement Incremental Requirement
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
A majority of respondents were interested in purchasing affordable
houses in Thane and Navi Mumbai , primarily in Kharghar. Since, Navi
Mumbai is a relatively newly developed location, people in the city
would be keen to purchase a house there due to its good connectivity
to Pune via the Mumbai-Pune expressway. Besides this, infrastructure
developments along these corridors are extremely good and with the
new airport that has been recently sanctioned, the potential for further
development has increased significantly. In the western suburbs,
locations like Vasai, Mira Road, Virar, Dahisar, Borivali, Kandivali and
Naigoan were most prefrerred. Of these, Kandivali, Borivali and
Dahisar are considered to be within city limits, while Mira Road,
Naigaon, Vasai and Virar are in the outskirts of the western suburbs.
Land costs in these outskirt locations are relatively cheap, hence
although road connectivity is not that developed, these locations
would still be preferred for those households that are unwilling to
compromise on the size given a lower budget. Locations like Kandivali ,
Borivali and Dahisar have comparatively higher costs but their
proximity to the western suburban locations of Andheri and Bandra
would make them more preferred for those individuals that frequent
these locations. In the central suburbs Powai and Dombivali were the
preferred locations.
The present study has captured the factors which influence the
decision of a buyer in the selection of residential projects in a preferred
location. Respondents have rated a set of factors on a scale of 1 to 4
(4 being the most important and 1 the least). Based on the ratings,
mean scores are generated for each factor and the one with the highest
mean score has been identified as the most important factor and
ranked 1.
Water supply, uninterrupted power supply and price are the top three
factors that influence the choice for a residential project in a given
location. Appartment size and facilities available are the next two
important determinants, while safety & security, developer goodwill
and disturbance caused by noise/traffic and congestion were of the
least importance.
Factors Rank
Water supply 1
Un-interrupted power supply 2
Price 3
Apartment home size 4
Facilities available 4
Safety & security 6
Developer goodwill 7
Disturbance caused by traffic/noise/congestion 8
Table 11
Factors Influencing Choice of Residential Project
Source: Knight Frank Research
During the course of the survey the respondents were asked to mention
the amenities that they would like to have in the residential projects
that they would finally choose. The survey results reveal that
uninterrupted water supply is of prime importance, while high level
security systems and power- backup are the other two factors that
received significant responses. It is observed that though general
safety and security does not rate very high regarding influencing the
choice of a project, high level security systems within that project are a
preference. Finishing is the last factor that received a considerable
number of responses while the other amenities acquire much lower
preference levels. This would indicate that people in this city
irrespective of income category are interested mainly in the basic
amenities when looking at purchasing an apartment. Uninterrupted
water supply is of prime importance, while high level security systems
and power- backup are the other 2 factors that receive significant
responses.
Figure 10
Preferred Amenities within a Residential Project
Source: Knight Frank Research
0 160
Creche
Servant quarters
Modular Kitchen
Others
Interior fixtures
Swimming pool
Gymnasium/Spa
Finishing
Power Back-up
High level of security systems
Un-interrupted water supply
No. of Responses
20 40 60 80 100 120 140
Supply Perspective
Mumbai, in the last few years, witnessed the development of a number
of high-end residential complexes. The suburbs and extended suburbs
continued to absorb the demand emanating from the land-strapped
Island city, with residents opting to take advantage of lower costs and
newer large-scale residential developments here. Of late, factors like
global economic turmoil, rising interest rates and spiralling
construction costs proving to be deterrents to many aspiring
homebuyers, real estate developers are changing their strategies to
keep their business afloat. As a recent measure, they have been
shifting their focus to developing affordable housing projects or on
attracting high-end customers, who mostly buy cash down or with
limited amount of borrowing.
16
Figure 8
Distribution of Sample Households According to
Total Annual Income
Source: Knight Frank Research
Rs. 3-5 lakh - 45%
Rs. 5-6 lakh - 25%
Rs. 6-8 lakh - 21%
Rs. 8-10 lakh - 9%
Table 8
Percentage Distribution of Current Residence Type
Based on Annual Income
Annual Income 1 BHK 2 BHK 3 BHK
Rs. 3-5 lakh 63% 36% 1%
Rs. 5-6 lakh 41% 59% 0%
Rs. 6-8 lakh 52% 45% 3%
Rs. 8-10 lakh 29% 71% 0%
Source: Knight Frank Research
Current Residence type Average Size Average Rental
(sq.ft.) (Rs./month)
1 BHK 560 6,267
2 BHK 852 8,595
3 BHK 1,000 10,250
Table 9
Current Residence Type W.R.TAverage Size and Rentals
Source: Knight Frank Research
Annual Income Average Budget Average Preferred
(Rs. lakh) Size (sq.ft.)
Rs. 3-5 lakh 17 834
Rs. 5-6 lakh 18 868
Rs. 6-8 lakh 20 751
Rs. 8-10 lakh 25 875
Table 10
Average Preferred Budget and Size
Source: Knight Frank Research
15
In terms of occupation roughly 90% of the respondents from Mumbai
belong to the salaried private sector, while 3% each are self employed
in business and professional sector. The respondents engaged with
government offices formed around 4% of the total. The survey being
restricted to the middle income households within the bracket of
Rs.3-10 lakh annual income, the entire sample is distributed within this
income group. As such, the income category of Rs.3-6 lakh constitutes
a large portion of these respondents.
On an average, approximately 32% of the interviewed respondents
have been residing in their current residence for the past 2-3 years
while 30% have been there for 1-2 years. It is observed that in the
Rs.3-5 lakh income category around 63% reside in 1 BHK apartments
with an average size of 560 sq.ft. , while in the Rs.8-10 lakh income
bracket, 71% reside in 3 BHK apartments with an average size of 1,000
sq.ft. It is also witnessed that the average monthly rentals vary from
Rs.6,200- 8,600 per month for 1 BHK and 2 BHK apartments.
Buyer Preferences
It is observed that though price and size are important determinants
when making a purchase decision, other factors corresponding to the
changing city dynamics and individual preference based on evolving
lifestyles also have an impact on the final choice.
While most tenant household currently reside in housing units of sizes
varying from 560-1,000 sq.ft., it is observed that the average minimum
size preferred is not less than 751 sq.ft. when making a purchase
decision. It is also noticed that budget preference correspondingly
changes with varying income levels.
The average budget of Rs.3-5 lakh is Rs.17 lakh , while that of a
Rs.8-10 lakh household is Rs.25 lakh. However, in the Rs.6-8 lakh
income category, it is noticed that the average preferred size reduces
marginally while there is an increase in budget in comparison to the
previous income bracket. Individuals may compromise on size so as to
accommodate other luxuries within a property or move closer to city
centre locations.
It is observed that connectivity to frequently travelled places and good
infrastructure are the two key factors that drive the demand for a
project in terms of location. The potential for development is the next
important factor. On the other hand, presence of social circle and
favourable demographics hold the least weightage for the decision of
potential buyers in Mumbai.
Favourable demographics
Presence of social circle
(friends, relatives)
Good infrastructure
Good potential for development
Good connectivity to frequently
travelled places
Figure 9
Factors Influencing Preference for Location
Source: Knight Frank Research
1%
6%
20%
34%
40%
0% 10% 20% 30% 40% 50%
Percentage of Responses
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
A majority of respondents were interested in purchasing affordable
houses in Thane and Navi Mumbai , primarily in Kharghar. Since, Navi
Mumbai is a relatively newly developed location, people in the city
would be keen to purchase a house there due to its good connectivity
to Pune via the Mumbai-Pune expressway. Besides this, infrastructure
developments along these corridors are extremely good and with the
new airport that has been recently sanctioned, the potential for further
development has increased significantly. In the western suburbs,
locations like Vasai, Mira Road, Virar, Dahisar, Borivali, Kandivali and
Naigoan were most prefrerred. Of these, Kandivali, Borivali and
Dahisar are considered to be within city limits, while Mira Road,
Naigaon, Vasai and Virar are in the outskirts of the western suburbs.
Land costs in these outskirt locations are relatively cheap, hence
although road connectivity is not that developed, these locations
would still be preferred for those households that are unwilling to
compromise on the size given a lower budget. Locations like Kandivali ,
Borivali and Dahisar have comparatively higher costs but their
proximity to the western suburban locations of Andheri and Bandra
would make them more preferred for those individuals that frequent
these locations. In the central suburbs Powai and Dombivali were the
preferred locations.
The present study has captured the factors which influence the
decision of a buyer in the selection of residential projects in a preferred
location. Respondents have rated a set of factors on a scale of 1 to 4
(4 being the most important and 1 the least). Based on the ratings,
mean scores are generated for each factor and the one with the highest
mean score has been identified as the most important factor and
ranked 1.
Water supply, uninterrupted power supply and price are the top three
factors that influence the choice for a residential project in a given
location. Appartment size and facilities available are the next two
important determinants, while safety & security, developer goodwill
and disturbance caused by noise/traffic and congestion were of the
least importance.
Factors Rank
Water supply 1
Un-interrupted power supply 2
Price 3
Apartment home size 4
Facilities available 4
Safety & security 6
Developer goodwill 7
Disturbance caused by traffic/noise/congestion 8
Table 11
Factors Influencing Choice of Residential Project
Source: Knight Frank Research
During the course of the survey the respondents were asked to mention
the amenities that they would like to have in the residential projects
that they would finally choose. The survey results reveal that
uninterrupted water supply is of prime importance, while high level
security systems and power- backup are the other two factors that
received significant responses. It is observed that though general
safety and security does not rate very high regarding influencing the
choice of a project, high level security systems within that project are a
preference. Finishing is the last factor that received a considerable
number of responses while the other amenities acquire much lower
preference levels. This would indicate that people in this city
irrespective of income category are interested mainly in the basic
amenities when looking at purchasing an apartment. Uninterrupted
water supply is of prime importance, while high level security systems
and power- backup are the other 2 factors that receive significant
responses.
Figure 10
Preferred Amenities within a Residential Project
Source: Knight Frank Research
0 160
Creche
Servant quarters
Modular Kitchen
Others
Interior fixtures
Swimming pool
Gymnasium/Spa
Finishing
Power Back-up
High level of security systems
Un-interrupted water supply
No. of Responses
20 40 60 80 100 120 140
Supply Perspective
Mumbai, in the last few years, witnessed the development of a number
of high-end residential complexes. The suburbs and extended suburbs
continued to absorb the demand emanating from the land-strapped
Island city, with residents opting to take advantage of lower costs and
newer large-scale residential developments here. Of late, factors like
global economic turmoil, rising interest rates and spiralling
construction costs proving to be deterrents to many aspiring
homebuyers, real estate developers are changing their strategies to
keep their business afloat. As a recent measure, they have been
shifting their focus to developing affordable housing projects or on
attracting high-end customers, who mostly buy cash down or with
limited amount of borrowing.
16
Figure 8
Distribution of Sample Households According to
Total Annual Income
Source: Knight Frank Research
Rs. 3-5 lakh - 45%
Rs. 5-6 lakh - 25%
Rs. 6-8 lakh - 21%
Rs. 8-10 lakh - 9%
Table 8
Percentage Distribution of Current Residence Type
Based on Annual Income
Annual Income 1 BHK 2 BHK 3 BHK
Rs. 3-5 lakh 63% 36% 1%
Rs. 5-6 lakh 41% 59% 0%
Rs. 6-8 lakh 52% 45% 3%
Rs. 8-10 lakh 29% 71% 0%
Source: Knight Frank Research
Current Residence type Average Size Average Rental
(sq.ft.) (Rs./month)
1 BHK 560 6,267
2 BHK 852 8,595
3 BHK 1,000 10,250
Table 9
Current Residence Type W.R.TAverage Size and Rentals
Source: Knight Frank Research
Annual Income Average Budget Average Preferred
(Rs. lakh) Size (sq.ft.)
Rs. 3-5 lakh 17 834
Rs. 5-6 lakh 18 868
Rs. 6-8 lakh 20 751
Rs. 8-10 lakh 25 875
Table 10
Average Preferred Budget and Size
Source: Knight Frank Research
15
In terms of occupation roughly 90% of the respondents from Mumbai
belong to the salaried private sector, while 3% each are self employed
in business and professional sector. The respondents engaged with
government offices formed around 4% of the total. The survey being
restricted to the middle income households within the bracket of
Rs.3-10 lakh annual income, the entire sample is distributed within this
income group. As such, the income category of Rs.3-6 lakh constitutes
a large portion of these respondents.
On an average, approximately 32% of the interviewed respondents
have been residing in their current residence for the past 2-3 years
while 30% have been there for 1-2 years. It is observed that in the
Rs.3-5 lakh income category around 63% reside in 1 BHK apartments
with an average size of 560 sq.ft. , while in the Rs.8-10 lakh income
bracket, 71% reside in 3 BHK apartments with an average size of 1,000
sq.ft. It is also witnessed that the average monthly rentals vary from
Rs.6,200- 8,600 per month for 1 BHK and 2 BHK apartments.
Buyer Preferences
It is observed that though price and size are important determinants
when making a purchase decision, other factors corresponding to the
changing city dynamics and individual preference based on evolving
lifestyles also have an impact on the final choice.
While most tenant household currently reside in housing units of sizes
varying from 560-1,000 sq.ft., it is observed that the average minimum
size preferred is not less than 751 sq.ft. when making a purchase
decision. It is also noticed that budget preference correspondingly
changes with varying income levels.
The average budget of Rs.3-5 lakh is Rs.17 lakh , while that of a
Rs.8-10 lakh household is Rs.25 lakh. However, in the Rs.6-8 lakh
income category, it is noticed that the average preferred size reduces
marginally while there is an increase in budget in comparison to the
previous income bracket. Individuals may compromise on size so as to
accommodate other luxuries within a property or move closer to city
centre locations.
It is observed that connectivity to frequently travelled places and good
infrastructure are the two key factors that drive the demand for a
project in terms of location. The potential for development is the next
important factor. On the other hand, presence of social circle and
favourable demographics hold the least weightage for the decision of
potential buyers in Mumbai.
Favourable demographics
Presence of social circle
(friends, relatives)
Good infrastructure
Good potential for development
Good connectivity to frequently
travelled places
Figure 9
Factors Influencing Preference for Location
Source: Knight Frank Research
1%
6%
20%
34%
40%
0% 10% 20% 30% 40% 50%
Percentage of Responses
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
2. Price - Most of developers are also of the view that an affordable
housing project should pay focus on two factors - size of the unit
should depend on the budget. i.e. lower budget should equate with
smaller size, and price should be ideally 10-15% less than the prevalent
rates in similar locality within a radius of around 5 kms. While the cost
of construction can be reduced by decreasing the type of materials
used, one should ensure that although this is done, the developers do
not use inferior quality goods as this would create problems within a
shorter period.
3. Location - Currently the only locations where affordable housing
project can come up are in the distant suburbs where the cost of land
is relatively lower. Although these projects would sell as they are
within the budget of the middle income group, for a city like Mumbai it
will not drastically affect the mass. Though connectivity to locations
like Vashi, Virar, Thane etc. does exist, the time taken to reach these
locations would vary anywhere between an hour to two from the CBD
locations of south Mumbai where most individuals work. The second
factor is that this is cumbersome for those individuals in the service
industry with working erratic schedules, for instance, those in
hospitals, hotels, police and fire brigade services, etc.
4. Product Features - Most developers are of the opinion that, in
majority of the cases, individuals are not looking for high-end features
but ideally want to own a house with the basic amenities. In fact, most
of the times, people learn to live with some minor problems and take it
as a part of everyday life. For instance, in some of the peripheral
locations like Vasai, power cuts are quite frequent. However, people
generally invest in power back-up to compensate for those hours in
which the power cuts take place. Also another problem in the outskirts
is the lack of uninterrupted water supply. In those cases, a number of
societies get together to arrange tankers that provide water on a
weekly basis. The adequate size for an affordable housing unit should
ideally be compact, so that the cost of the apartment would reduce
even if land costs and construction costs are high. The following are
some of the unit sizes preferred by the developers for affordable
housing:
• 1 RK or 1 BHK = 450 sq.ft.
• 1 BHK = 600 sq.ft.
• 1.5 BHK = 700 sq.ft.
• 2 BHK = 800 sq.ft.
5. Availability of land - Developers do not mind coming up with
affordable projects within the city if they can avail of subsidised land
cost or a PPP model that encourages the development of such projects.
The present scenario is being viewed as being unfair by the developers.
According to them, while the government is creating an issue about the
developers catering only to the premium segment and how they are
making large efforts to bridge the gap between actual demand and
supply, they effectively make it impossible for developers to construct
these projects in locations within the city limits. Further, when the
government auctions land they put up only a small portion and offer
the same to at least 10 developers who drive up the price during the
bidding process. So, if they pay a premium price for the land, then they
would need to correspondingly increase prices of the product in order
to make even a marginal profit, which in turn would work out
unaffordable to the masses.
6. Government Support - Currently there are no tax incentives that are
being offered to developers. There were some incentives offered a few
years back, but it was soon retracted as some developers tried to
misuse the same. Developers feel that some form of tax incentives are
definitely required in order to encourage the development of affordable
housing in the city. In order to make the system more effective, there
should also be the provision for strict penalty for those misusing the
tax policies.
7. Other constraints - The developers further note that in terms of
infrastructure, by building these projects in the outskirts, two
situations arise. One, it further burdens the existing modes and means
of transport as a large percentage of the residents would need to travel
out of the city, considering that the MIG and LIG segment constitutes
around 80% of the population of Mumbai.
Two, considering the time involved in such travel and the
corresponding extreme distances from the commercial hubs of the city,
many may not relocate.
Though connectivity
to locations like
Vashi, Virar, Thane etc.
does exist, the time
taken to reach these
locations would vary
anywhere between an
hour to two from the
CBD locations of
south Mumbai where
most individuals work
18
Knight Frank research team carried out primary surveys across major
stakeholders in the sector comprising developers, bankers and
government authorities to understand the supply dynamics. Following
are some of major opinions and apprehensions of the developers
regarding affordable housing in Mumbai:
1. Income - According to most developers, demand is constant
irrespective of income as everyone would like to own a house, and
even those who own a house would wish to upgrade their residence
with the progression of time.
The maximum demand however would come from the lower MIG and
mid MIG segment as most households in these categories currently do
not own a house due to the prevalent high residential rates, but would
be aspiring for one. Though the RBI has reduced interest rates for loans
upto Rs.20 lakh, in the opinion of the developers, it would not help
much as correspondingly there should be units available in that
affordable range.
17
Sr.No Project Name Developer Location May '09 Rate* (Rs./sq.ft.) Unit Size Range (sq.ft.)
1 Garden View Apartments Royal Palms Goregaon (E) 4,800 483-1,259
2 Acme Amrut Acme Group Dahisar (E) 3,000 657-795
3 Orchid Ozone DB Realty Dahisar (W) 3,168 574-882
4 Lodha Aqua Lodha Group Dahisar (E) 3,800 616-2,232
5 Viceroy Park Tower B Vijay Associates Dahisar (W) 4,950 778-958
(Wadhwa) Developers
6 NG Shelter RNA Builders (NG) Mira Road 2,750 629-996
7 Gardenia Akruti City Mira Road 3,000 585 -1,010*
8 Mittal Enclave Mittal Builders Naigaon (E) 2,000 370-770
9 Sigrun Splendour Sigrun Vasai (E) 2,200 543-1,044
10 Virar Gardens Mayfair Housing Virar (W) 2,100* 370-510
11 Rustomjee Estate Rustomjee Virar (W) 1,660-2,054 523-604
12 Gokul Sapphire Agarwal Group Virar (W) 2,300 660-1,000
13 Viva Vrindavan Agarwal Group Virar (W) 2,050 885-1,100
14 Galaxy Apartment HDIL Kurla (E) 4,551 650-920
15 Rustomjee Rustomjee Thane (W) 3,960 780
Township-Atelier A Wing
16 Rustomjee Rustomjee Thane (W) 3,960-4,050 910
Township-Acura A & B Wing
17 Rustomjee Rustomjee Thane (W) 3,929 422-430
Township-Atelier E Wing
18 Dosti Vihar Dosti Group Thane (W) 4,241 837-1,212
19 Cosmos Lounge- Orchid Cosmos Builders Thane (W) 3,500 1,005-1,025
& Promoters Ltd.
20 Akruti Greenwoods Akruti Nirman Ltd. Thane (W) 3,900 565-990
21 Everest Countryside Everest Developers Thane (W) 2,780-3,140 587-831
22 Mittal Park Mittal Builders Thane (W) 3,500 880-2,100
23 Bhoomi Acres Bhoomi Group Thane (W) 3,500 625-925
24 Niharika Kanakia Builders Thane (W) 3,500 1,030-1,190
Table 12
Select Affordable Housing Projects in Mumbai
Source: Knight Frank Research
*These rates exclude significant floor rise additions *Rates charged on carpet area
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
2. Price - Most of developers are also of the view that an affordable
housing project should pay focus on two factors - size of the unit
should depend on the budget. i.e. lower budget should equate with
smaller size, and price should be ideally 10-15% less than the prevalent
rates in similar locality within a radius of around 5 kms. While the cost
of construction can be reduced by decreasing the type of materials
used, one should ensure that although this is done, the developers do
not use inferior quality goods as this would create problems within a
shorter period.
3. Location - Currently the only locations where affordable housing
project can come up are in the distant suburbs where the cost of land
is relatively lower. Although these projects would sell as they are
within the budget of the middle income group, for a city like Mumbai it
will not drastically affect the mass. Though connectivity to locations
like Vashi, Virar, Thane etc. does exist, the time taken to reach these
locations would vary anywhere between an hour to two from the CBD
locations of south Mumbai where most individuals work. The second
factor is that this is cumbersome for those individuals in the service
industry with working erratic schedules, for instance, those in
hospitals, hotels, police and fire brigade services, etc.
4. Product Features - Most developers are of the opinion that, in
majority of the cases, individuals are not looking for high-end features
but ideally want to own a house with the basic amenities. In fact, most
of the times, people learn to live with some minor problems and take it
as a part of everyday life. For instance, in some of the peripheral
locations like Vasai, power cuts are quite frequent. However, people
generally invest in power back-up to compensate for those hours in
which the power cuts take place. Also another problem in the outskirts
is the lack of uninterrupted water supply. In those cases, a number of
societies get together to arrange tankers that provide water on a
weekly basis. The adequate size for an affordable housing unit should
ideally be compact, so that the cost of the apartment would reduce
even if land costs and construction costs are high. The following are
some of the unit sizes preferred by the developers for affordable
housing:
• 1 RK or 1 BHK = 450 sq.ft.
• 1 BHK = 600 sq.ft.
• 1.5 BHK = 700 sq.ft.
• 2 BHK = 800 sq.ft.
5. Availability of land - Developers do not mind coming up with
affordable projects within the city if they can avail of subsidised land
cost or a PPP model that encourages the development of such projects.
The present scenario is being viewed as being unfair by the developers.
According to them, while the government is creating an issue about the
developers catering only to the premium segment and how they are
making large efforts to bridge the gap between actual demand and
supply, they effectively make it impossible for developers to construct
these projects in locations within the city limits. Further, when the
government auctions land they put up only a small portion and offer
the same to at least 10 developers who drive up the price during the
bidding process. So, if they pay a premium price for the land, then they
would need to correspondingly increase prices of the product in order
to make even a marginal profit, which in turn would work out
unaffordable to the masses.
6. Government Support - Currently there are no tax incentives that are
being offered to developers. There were some incentives offered a few
years back, but it was soon retracted as some developers tried to
misuse the same. Developers feel that some form of tax incentives are
definitely required in order to encourage the development of affordable
housing in the city. In order to make the system more effective, there
should also be the provision for strict penalty for those misusing the
tax policies.
7. Other constraints - The developers further note that in terms of
infrastructure, by building these projects in the outskirts, two
situations arise. One, it further burdens the existing modes and means
of transport as a large percentage of the residents would need to travel
out of the city, considering that the MIG and LIG segment constitutes
around 80% of the population of Mumbai.
Two, considering the time involved in such travel and the
corresponding extreme distances from the commercial hubs of the city,
many may not relocate.
Though connectivity
to locations like
Vashi, Virar, Thane etc.
does exist, the time
taken to reach these
locations would vary
anywhere between an
hour to two from the
CBD locations of
south Mumbai where
most individuals work
18
Knight Frank research team carried out primary surveys across major
stakeholders in the sector comprising developers, bankers and
government authorities to understand the supply dynamics. Following
are some of major opinions and apprehensions of the developers
regarding affordable housing in Mumbai:
1. Income - According to most developers, demand is constant
irrespective of income as everyone would like to own a house, and
even those who own a house would wish to upgrade their residence
with the progression of time.
The maximum demand however would come from the lower MIG and
mid MIG segment as most households in these categories currently do
not own a house due to the prevalent high residential rates, but would
be aspiring for one. Though the RBI has reduced interest rates for loans
upto Rs.20 lakh, in the opinion of the developers, it would not help
much as correspondingly there should be units available in that
affordable range.
17
Sr.No Project Name Developer Location May '09 Rate* (Rs./sq.ft.) Unit Size Range (sq.ft.)
1 Garden View Apartments Royal Palms Goregaon (E) 4,800 483-1,259
2 Acme Amrut Acme Group Dahisar (E) 3,000 657-795
3 Orchid Ozone DB Realty Dahisar (W) 3,168 574-882
4 Lodha Aqua Lodha Group Dahisar (E) 3,800 616-2,232
5 Viceroy Park Tower B Vijay Associates Dahisar (W) 4,950 778-958
(Wadhwa) Developers
6 NG Shelter RNA Builders (NG) Mira Road 2,750 629-996
7 Gardenia Akruti City Mira Road 3,000 585 -1,010*
8 Mittal Enclave Mittal Builders Naigaon (E) 2,000 370-770
9 Sigrun Splendour Sigrun Vasai (E) 2,200 543-1,044
10 Virar Gardens Mayfair Housing Virar (W) 2,100* 370-510
11 Rustomjee Estate Rustomjee Virar (W) 1,660-2,054 523-604
12 Gokul Sapphire Agarwal Group Virar (W) 2,300 660-1,000
13 Viva Vrindavan Agarwal Group Virar (W) 2,050 885-1,100
14 Galaxy Apartment HDIL Kurla (E) 4,551 650-920
15 Rustomjee Rustomjee Thane (W) 3,960 780
Township-Atelier A Wing
16 Rustomjee Rustomjee Thane (W) 3,960-4,050 910
Township-Acura A & B Wing
17 Rustomjee Rustomjee Thane (W) 3,929 422-430
Township-Atelier E Wing
18 Dosti Vihar Dosti Group Thane (W) 4,241 837-1,212
19 Cosmos Lounge- Orchid Cosmos Builders Thane (W) 3,500 1,005-1,025
& Promoters Ltd.
20 Akruti Greenwoods Akruti Nirman Ltd. Thane (W) 3,900 565-990
21 Everest Countryside Everest Developers Thane (W) 2,780-3,140 587-831
22 Mittal Park Mittal Builders Thane (W) 3,500 880-2,100
23 Bhoomi Acres Bhoomi Group Thane (W) 3,500 625-925
24 Niharika Kanakia Builders Thane (W) 3,500 1,030-1,190
Table 12
Select Affordable Housing Projects in Mumbai
Source: Knight Frank Research
*These rates exclude significant floor rise additions *Rates charged on carpet area
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Not surprisingly, given the exorbitant cost of land in Mumbai, the
financial hub of the country, the mid-income segment always had
difficulty in purchasing a residential property within the city. More so,
with the steep incline in residential prices in the last few years, owning
a housing unit in the city seemed a distant dream for the residents of
Mumbai. However, the recent years also witnessed the growth of the
extended suburbs like Vasai and Virar in the west as well as locations
in Navi Mumbai. The residential developments in these locations, due
to the distance factor, have lower prices, thus proving to be within the
affordability of the mid-income segment to purchase a home there. It is
evident from Table 13 that the size preference for the respondents
remains almost consistent in the range of 750-900 sq.ft. across all
income categories in the Rs.3-10 lakh income group. Given these size
preferences, the income category of Rs.3-5 lakh can afford to buy a
home only in locations like Naigaon, Vasai and Virar, which are around
15-25 kms away from the MCGM, while the households in the slightly
higher income category of Rs.5-6 lakh can additionally afford a home in
Kharghar at Navi Mumbai.
Thus, affordability is a serious consideration for the residents of the
city. With their size preference for 750-800 sq.ft. the households with
annual income of Rs.6-8 lakh may not be able to stretch beyond a price
range of Rs.3,400-3,800/sq.ft., which is not available in most of the
prime residential locations. They can afford to buy residential property
only in pockets like Mira Road, Vasai, Virar, Naigaon, Navi Mumbai and
Thane. The higher income category of Rs.8-10 lakh can additionally
purchase property in the central suburban locations of Powai, Chembur,
Ghatkopar, and in western suburban locations of Borivali, Kandivali,
Goregaon and Malad. Thus, purchasing a house in the preferred
residential locations like Bandra, Khar and Andheri is not feasible for
the mid-income segment in Mumbai. Alternatively, the mid-income
group can own a house only if they are willing to compromise on their
size requirement and opt for a smaller unit. For instance, if a household
in the income category of Rs.6-8 lakh opts for a residential unit of
500 sq.ft. instead of the preferred 850 sq.ft., it can purchase a property
worth Rs.5,000/sq.ft. in locations like Andheri and Vile Parle, which are
some of the most preferred locations in the western suburbs. Similarly,
smaller unit configurations can lead to more options in locations
across the city's suburbs. This holds true for the other income groups
as well. This fact has been represented by the Table 14 that depicts the
locations which are affordable to a household wiling to compromise on
the unit size.
Household income (per annum)
Maximum EMI (Rs.) 9,000-11,500 13,000-17,000 19,000-22,000 25,000-29,000
Maximum loan eligibility (Rs.)
(9% interest rate, 20 year loan tenure) 10,08,000-12,79,000 14,57,000-18,67,000 21,15,000-24,66,000 28,07,000-32,45,000
Buyer's own contribution (Rs.)
(Assuming 85% loan) 1,78,000-2,26,000 2,57,000-3,30,000 3,73,000-4,35,000 4,95,000-5,73,000
Affordable house property value (Rs.) 11,86,000-15,05,000 17,15,000-21,97,000 24,89,000-29,02,000 33,02,000-38,18,000
Preferred size (sq.ft.) 800-900 800-900 750-800 800-950
Price (Rs./sq.ft.) 1,500-1,600 2,000-2,400 3,400-3,800 4,000-4,100
Rs. 3 lakh - 5 lakh Rs. 5 lakh - 6 lakh Rs. 6 lakh - 8 lakh Rs. 8 lakh - 10 lakh
Table 13
Affordability in Mumbai
Source: Knight Frank Research
Locations available
considering preferred size
and few residential areas
Extended Suburbs
Naigoan
Vasai
Virar
Extended Suburbs
Naigoan
Vasai
Virar
Navi Mumbai
Kharghar
Western Suburbs
Mira Road
Goregaon
Malad
Kandivali
Borivali
Extended Suburbs
Naigaon
Vasai
Virar
Navi Mumbai
Vashi
Nerul
Airoli
Kharghar
Central Suburbs
Powai
Chembur
Ghatkopar
Thane
Western Suburbs
Mira Road
Extended Suburbs
Naigaon
Vasai
Virar
Navi Mumbai
Vashi
Nerul
Airoli
Kharghar
Central Suburbs
Thane
20
Among buyers in the lower MIG segment and LIG segment, there is a
higher probability of avoiding relocation as they would prefer to either
rent or buy units that have been illegally constructed in order to stay
within the city limits. This burdens the existing infrastructure, but in an
unorganised manner. Thus, if the government makes parcels of land
available within the city limits, utilising a PPP model is likely to benefit
the masses more.
Senior officials of public and private banks were also interviewed to
understand the demand dynamics witnessed by the home loan sector
in the past few years. Bankers are of the opinions that demand for
home loans is a function of a combination of factors. Loan
disbursement criteria depend on the prevailing market conditions, rate
of interest on home loans and job security. Job security ensures that
the individual can service the EMI conveniently. In recent times, due to
the economic downturn, companies all across are downsizing their
work force. This has had an adverse impact on the home loan demand.
According to the bankers, demand for home loans was at its peak from
mid 2006 to late 2007. High quantum of enquires led to a high
conversion ratio. The year 2008 has witnessed sluggishness in the
home loan sector. Enquiries had basically become non existent during
the months of September to early December 2008 in Mumbai.
The market for construction loan has also lost momentum in the last
few months. Normally, a construction loan is provided for a period of
3-5 years. Banks have become cautious and are showing reluctance in
providing construction loans to the developers.
A few factors that are considered before approving a construction loan
are:
1. Category of the Builder (Grade A, B or C)
2. Ability to deliver the project on time
3. Financial stability
4. Market reputation
5. Location and specifications of the project. The location of the project
should be part of a planned development
As per the bankers, the correction that the Mumbai residential market
has witnessed will prove healthy for the industry in the long run. They
feel that prices in the past were artificially inflated due to the
speculative behaviour of the investors. With the correction in property
prices, a perfect balance can be achieved in the market in terms of
property specification and the right price. Bankers are also of the view
that market revival is possible only by introducing the right product
mix in the market and by catering to the actual end-user demand.
Government authorities and officials from Maharashtra Housing and
Area Development Authority (MHADA) were also interviewed to learn
about the government's initiatives and support in making affordable
housing a successful model across Maharashtra, with particular
emphasis on Mumbai. Though MHADA primarily caters to the EWS and
LIG, of late, they have been including MIG also in the thrust areas.
The plan is to increase its housing stock, not only through
redevelopment of its old colonies. Recently, MHADA has ventured into
its most ambitious project ever to construct HIG flats in the plush
localities of Versova, Oshiwara, Bandra, Dindoshi etc. Apart from the
MHADA Versova housing complex, MHADA plans to acquire lands in
Mulund, Vikhroli and other northeastern suburbs of Mumbai.
The Government has granted MHADA buildings an FSI of 2.5 for both,
new constructions and redevelopment in the suburbs, and an FSI of 4
for those in South Mumbai. To be eligible, applicants have to be Indian
nationals, resident of Maharshtra for 15 years, fall under the prescribed
monthly family income levels (Rs.12,000-20,000 for MIG and
Rs.20,000 plus for HIG) and not own a flat either in their own name or
their spouse's name in the relevant district. While 51% of the flats are
allotted to the general public, 49% are for reserved categories.
Bankers are also of
the view that market
revival is possible only
by introducing the
right product mix in
the market and by
catering to the
actual end-user
demand
19
Identifying Affordability
The results of the household survey were used to compute affordability
pertaining to various locations in the city. Table 13 depicts in detail the
maximum affordable EMI of households of various income levels. This
EMI figure was arrived at by considering the respondents' stated
affordable EMI with regards to their saving and spending patterns. The
resulting figure was then translated into a house price based on an
assumed interest rate, loan tenure and loan to value ratio. The house
price is then converted to a per sq.ft. rate assuming house size, and
this conversion facilitates comparisons with prevailing rates in
different locations.
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Not surprisingly, given the exorbitant cost of land in Mumbai, the
financial hub of the country, the mid-income segment always had
difficulty in purchasing a residential property within the city. More so,
with the steep incline in residential prices in the last few years, owning
a housing unit in the city seemed a distant dream for the residents of
Mumbai. However, the recent years also witnessed the growth of the
extended suburbs like Vasai and Virar in the west as well as locations
in Navi Mumbai. The residential developments in these locations, due
to the distance factor, have lower prices, thus proving to be within the
affordability of the mid-income segment to purchase a home there. It is
evident from Table 13 that the size preference for the respondents
remains almost consistent in the range of 750-900 sq.ft. across all
income categories in the Rs.3-10 lakh income group. Given these size
preferences, the income category of Rs.3-5 lakh can afford to buy a
home only in locations like Naigaon, Vasai and Virar, which are around
15-25 kms away from the MCGM, while the households in the slightly
higher income category of Rs.5-6 lakh can additionally afford a home in
Kharghar at Navi Mumbai.
Thus, affordability is a serious consideration for the residents of the
city. With their size preference for 750-800 sq.ft. the households with
annual income of Rs.6-8 lakh may not be able to stretch beyond a price
range of Rs.3,400-3,800/sq.ft., which is not available in most of the
prime residential locations. They can afford to buy residential property
only in pockets like Mira Road, Vasai, Virar, Naigaon, Navi Mumbai and
Thane. The higher income category of Rs.8-10 lakh can additionally
purchase property in the central suburban locations of Powai, Chembur,
Ghatkopar, and in western suburban locations of Borivali, Kandivali,
Goregaon and Malad. Thus, purchasing a house in the preferred
residential locations like Bandra, Khar and Andheri is not feasible for
the mid-income segment in Mumbai. Alternatively, the mid-income
group can own a house only if they are willing to compromise on their
size requirement and opt for a smaller unit. For instance, if a household
in the income category of Rs.6-8 lakh opts for a residential unit of
500 sq.ft. instead of the preferred 850 sq.ft., it can purchase a property
worth Rs.5,000/sq.ft. in locations like Andheri and Vile Parle, which are
some of the most preferred locations in the western suburbs. Similarly,
smaller unit configurations can lead to more options in locations
across the city's suburbs. This holds true for the other income groups
as well. This fact has been represented by the Table 14 that depicts the
locations which are affordable to a household wiling to compromise on
the unit size.
Household income (per annum)
Maximum EMI (Rs.) 9,000-11,500 13,000-17,000 19,000-22,000 25,000-29,000
Maximum loan eligibility (Rs.)
(9% interest rate, 20 year loan tenure) 10,08,000-12,79,000 14,57,000-18,67,000 21,15,000-24,66,000 28,07,000-32,45,000
Buyer's own contribution (Rs.)
(Assuming 85% loan) 1,78,000-2,26,000 2,57,000-3,30,000 3,73,000-4,35,000 4,95,000-5,73,000
Affordable house property value (Rs.) 11,86,000-15,05,000 17,15,000-21,97,000 24,89,000-29,02,000 33,02,000-38,18,000
Preferred size (sq.ft.) 800-900 800-900 750-800 800-950
Price (Rs./sq.ft.) 1,500-1,600 2,000-2,400 3,400-3,800 4,000-4,100
Rs. 3 lakh - 5 lakh Rs. 5 lakh - 6 lakh Rs. 6 lakh - 8 lakh Rs. 8 lakh - 10 lakh
Table 13
Affordability in Mumbai
Source: Knight Frank Research
Locations available
considering preferred size
and few residential areas
Extended Suburbs
Naigoan
Vasai
Virar
Extended Suburbs
Naigoan
Vasai
Virar
Navi Mumbai
Kharghar
Western Suburbs
Mira Road
Goregaon
Malad
Kandivali
Borivali
Extended Suburbs
Naigaon
Vasai
Virar
Navi Mumbai
Vashi
Nerul
Airoli
Kharghar
Central Suburbs
Powai
Chembur
Ghatkopar
Thane
Western Suburbs
Mira Road
Extended Suburbs
Naigaon
Vasai
Virar
Navi Mumbai
Vashi
Nerul
Airoli
Kharghar
Central Suburbs
Thane
20
Among buyers in the lower MIG segment and LIG segment, there is a
higher probability of avoiding relocation as they would prefer to either
rent or buy units that have been illegally constructed in order to stay
within the city limits. This burdens the existing infrastructure, but in an
unorganised manner. Thus, if the government makes parcels of land
available within the city limits, utilising a PPP model is likely to benefit
the masses more.
Senior officials of public and private banks were also interviewed to
understand the demand dynamics witnessed by the home loan sector
in the past few years. Bankers are of the opinions that demand for
home loans is a function of a combination of factors. Loan
disbursement criteria depend on the prevailing market conditions, rate
of interest on home loans and job security. Job security ensures that
the individual can service the EMI conveniently. In recent times, due to
the economic downturn, companies all across are downsizing their
work force. This has had an adverse impact on the home loan demand.
According to the bankers, demand for home loans was at its peak from
mid 2006 to late 2007. High quantum of enquires led to a high
conversion ratio. The year 2008 has witnessed sluggishness in the
home loan sector. Enquiries had basically become non existent during
the months of September to early December 2008 in Mumbai.
The market for construction loan has also lost momentum in the last
few months. Normally, a construction loan is provided for a period of
3-5 years. Banks have become cautious and are showing reluctance in
providing construction loans to the developers.
A few factors that are considered before approving a construction loan
are:
1. Category of the Builder (Grade A, B or C)
2. Ability to deliver the project on time
3. Financial stability
4. Market reputation
5. Location and specifications of the project. The location of the project
should be part of a planned development
As per the bankers, the correction that the Mumbai residential market
has witnessed will prove healthy for the industry in the long run. They
feel that prices in the past were artificially inflated due to the
speculative behaviour of the investors. With the correction in property
prices, a perfect balance can be achieved in the market in terms of
property specification and the right price. Bankers are also of the view
that market revival is possible only by introducing the right product
mix in the market and by catering to the actual end-user demand.
Government authorities and officials from Maharashtra Housing and
Area Development Authority (MHADA) were also interviewed to learn
about the government's initiatives and support in making affordable
housing a successful model across Maharashtra, with particular
emphasis on Mumbai. Though MHADA primarily caters to the EWS and
LIG, of late, they have been including MIG also in the thrust areas.
The plan is to increase its housing stock, not only through
redevelopment of its old colonies. Recently, MHADA has ventured into
its most ambitious project ever to construct HIG flats in the plush
localities of Versova, Oshiwara, Bandra, Dindoshi etc. Apart from the
MHADA Versova housing complex, MHADA plans to acquire lands in
Mulund, Vikhroli and other northeastern suburbs of Mumbai.
The Government has granted MHADA buildings an FSI of 2.5 for both,
new constructions and redevelopment in the suburbs, and an FSI of 4
for those in South Mumbai. To be eligible, applicants have to be Indian
nationals, resident of Maharshtra for 15 years, fall under the prescribed
monthly family income levels (Rs.12,000-20,000 for MIG and
Rs.20,000 plus for HIG) and not own a flat either in their own name or
their spouse's name in the relevant district. While 51% of the flats are
allotted to the general public, 49% are for reserved categories.
Bankers are also of
the view that market
revival is possible only
by introducing the
right product mix in
the market and by
catering to the
actual end-user
demand
19
Identifying Affordability
The results of the household survey were used to compute affordability
pertaining to various locations in the city. Table 13 depicts in detail the
maximum affordable EMI of households of various income levels. This
EMI figure was arrived at by considering the respondents' stated
affordable EMI with regards to their saving and spending patterns. The
resulting figure was then translated into a house price based on an
assumed interest rate, loan tenure and loan to value ratio. The house
price is then converted to a per sq.ft. rate assuming house size, and
this conversion facilitates comparisons with prevailing rates in
different locations.
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Presently, these suburbs accommodate a large portion of the city's
population, and some represent prime areas for affordable housing
development. Figure 11 specifies the housing requirement for the
middle income segment in Mumbai in 2009, 2010 and 2011.
Knight Frank research estimates that the middle income population in
Mumbai will require approximately 4.05 lakh housing units by 2011,
which assuming an average unit size of 800 sq.ft. translates to
approximately 324 mn.sq.ft. of residential space. Approximately 86%
of this total middle income housing requirement will be accounted for
by the Rs.3-5 lakh income segment.
As per survey results, this income group prefers property prices in the
range of Rs.12-15 lakh. Thus, in order to cater to the affordability of the
middle income segment, developers need to compromise on their
pricing strategies and come up with products of lower size
configurations. From the buyers' perspective, it is imperative to
compromise on preferred unit sizes. A very important consideration in
assessing the demand for houses in the middle income segment is the
consumers' purchase timelines, as even if 100% of the requirement
translates to demand, how this demand pans out depends on when
consumers are willing to incur the financial burden of purchasing a
house.
Figure 12 details the preferred purchase timelines of rental households
surveyed. Despite the prevailing adverse economic conditions,
approximately 56% of the survey respondents expressed a desire to
purchase a house within a year. This desire can be catered to due to
the rapid development of the extended suburbs like Naigaon, Vasai
and Virar as well as the satellite township of Navi Mumbai.
0-6 months - 7%
6-12 months - 49%
1-2 years - 44%
Figure 12
Household Purchase Timelines
Source: Knight Frank Research
These locations, hitherto dormant, have witnessed considerable
infrastructure development in recent years. In addition, these locations
are provided good connectivity by the local railway network. Navi
Mumbai has benefitted greatly from the property boom of 2005-08.
This period witnessed great residential, office and retail space
development in the region. The upcoming international airport at Navi
Mumbai has also increased the attractiveness of Navi Mumbai as a real
estate investment destination.
The 44% of respondents who indicated a desire to wait up to 2 years to
purchase a house are of the view that a 'wait and watch' approach is
best given the general perception that prices might yet decline further.
Another reason that certain consumers are currently unwilling to invest
in property in that due to the tight liquidity situation faced by
developers, most projects have been stalled and their completion
dates postponed. This has created uncertainty pertaining to the
delivery of units, leading a section of prospective buyers to defer
purchases.
22
Figure 11
Total Housing Unit Requirement for Rs. 3-10 lakh
Income Category
410,000
20
09
20
10
20
11
3,83,675
405,000
400,000
395,000
390,000
385,000
380,000
375,000
370,000
3,94,034
4,04,673
Source: Knight Frank Research
Previous Years’ Cumulative Requirement Incremental Requirement
Although a number of affordable housing projects have been
announced in Mumbai, quoted prices are still unaffordable for a chunk
of the middle income segment. Thus, it is important for developers to
consider lowering their prices. At present, the attractiveness of the
most affordable projects, which are located in the distant suburbs, is
diminished by the inadequate social infrastructure in these suburban
locations. Therefore, while there is sizeable demand for housing from
Mumbai's middle income segment, the extent to which this demand is
satiated remains to be seen.
Thus, it is important that the developers take into consideration the
affordability of the buyers and thereby come up with products with
smaller unit configurations and lower prices. Reduced unit size
expectations on the end user's side and readiness for price negotiation
on the developer's front can lead to meeting the housing demand in
the mid-income segment to a large extent.
Another interesting fact observed during the survey was that the
prudence shown by the respondents while quoting their preferred
average budget to purchase a house. In most cases, the budgets
stated by the respondents are much lower than their affordable range
calculated by Knight Frank research. For instance, the maximum
affordable house value arrived at for the income category of
Rs.8-10 lakh fall in the range of Rs.33-38 lakh, while the average
preferred budget as expressed by the respondents in this income
Locations May '09 Rates Max Size (in sq.ft.) & Total Property Value (in Rs.lakh)
(in Rs./sq.ft.)
500 600 700 800 900 1000 1100 1200
sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft.
Western Suburbs 1 Min 13,000 65.0 78.0 91.0 104.0 117.0 130.0 143.0 156.0
(Bandra W / Khar W / Santacruz W) Max 30,000 150.0 180.0 210.0 240.0 270.0 300.0 330.0 360.0
Western Suburbs 2 Min 7,000 35.0 42.0 49.0 56.0 63.0 70.0 77.0 84.0
(Bandra E / Khar E / Santacruz E) Max 12,000 60.0 72.0 84.0 96.0 108.0 120.0 132.0 144.0
Western Suburbs 3 Min 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0
(Vile Parle /Andheri /Jogeshwari ) Max 15,000 75.0 90.0 105.0 120.0 135.0 150.0 165.0 180.0
Western Suburbs 4 Min 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
(Goregaon / Malad/ Max 7,500 37.5 45.0 52.5 60.0 67.5 75.0 82.5 90.0
Kandivali, Borivali)
Western Suburbs 5 Min 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
(Mira Road) Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Extended Suburbs Min 1,400 7.0 8.4 9.8 11.2 12.6 14.0 15.4 16.8
(Naigoan , Vasai, Virar) Max 2,400 12.0 14.4 16.8 19.2 21.6 24.0 26.4 28.8
Navi Mumbai 1 Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
(Vashi) Max 5,500 27.5 33.0 38.5 44.0 49.5 55.0 60.5 66.0
Navi Mumbai 2 Min 2,700 13.5 16.2 18.9 21.6 24.3 27.0 29.7 32.4
(Nerul) Max 4,500 22.5 27.0 31.5 36.0 40.5 45.0 49.5 54.0
Navi Mumbai 3 Min 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
(Airoli) Max 3,750 18.8 22.5 26.3 30.0 33.8 37.5 41.3 45.0
Navi Mumbai 4 Min 2,000 10.0 12.0 14.0 16.0 18.0 20.0 22.0 24.0
(Kharghar) Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Central Suburbs1 Min 4,500 22.5 27.0 31.5 36.0 40.5 45.0 49.5 54.0
(Sion/Wadala) Max 8,500 42.5 51.0 59.5 68.0 76.5 85.0 93.5 102.0
Central Suburbs2 Min 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
(Powai/ Chembur/Ghatkopar) Max 9,000 45.0 54.0 63.0 72.0 81.0 90.0 99.0 108.0
Central Suburbs3 Min 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
(Thane) Max 5,500 27.5 33.0 38.5 44.0 49.5 55.0 60.5 66.0
Table 14
Size Preference in Mumbai - Min-750 sq.ft. Max-950 sq.ft.
Affordable House Property in Mumbai - Min 11.86 lakh Max 38.18 lakh Not Affordable
Source: Knight Frank Research
group for purchasing a property is Rs.25 lakh. This can be attributed
primarily to the present unfavourable economic conditions and the
insecurity regarding the ability to pay off housing loans in the face of
job lay-offs.
Mumbai comprises a population of 15 million that has been growing at
the rate of 2.7% per annum. Being the financial capital of the country,
the city attracts a huge influx of migratory population every year. As a
consequence of this sizeable population growth, the housing stock of
the city has come under severe strain. Consequently, in recent years,
extensive development has taken place in the extended suburbs.
City Outlook
21
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Presently, these suburbs accommodate a large portion of the city's
population, and some represent prime areas for affordable housing
development. Figure 11 specifies the housing requirement for the
middle income segment in Mumbai in 2009, 2010 and 2011.
Knight Frank research estimates that the middle income population in
Mumbai will require approximately 4.05 lakh housing units by 2011,
which assuming an average unit size of 800 sq.ft. translates to
approximately 324 mn.sq.ft. of residential space. Approximately 86%
of this total middle income housing requirement will be accounted for
by the Rs.3-5 lakh income segment.
As per survey results, this income group prefers property prices in the
range of Rs.12-15 lakh. Thus, in order to cater to the affordability of the
middle income segment, developers need to compromise on their
pricing strategies and come up with products of lower size
configurations. From the buyers' perspective, it is imperative to
compromise on preferred unit sizes. A very important consideration in
assessing the demand for houses in the middle income segment is the
consumers' purchase timelines, as even if 100% of the requirement
translates to demand, how this demand pans out depends on when
consumers are willing to incur the financial burden of purchasing a
house.
Figure 12 details the preferred purchase timelines of rental households
surveyed. Despite the prevailing adverse economic conditions,
approximately 56% of the survey respondents expressed a desire to
purchase a house within a year. This desire can be catered to due to
the rapid development of the extended suburbs like Naigaon, Vasai
and Virar as well as the satellite township of Navi Mumbai.
0-6 months - 7%
6-12 months - 49%
1-2 years - 44%
Figure 12
Household Purchase Timelines
Source: Knight Frank Research
These locations, hitherto dormant, have witnessed considerable
infrastructure development in recent years. In addition, these locations
are provided good connectivity by the local railway network. Navi
Mumbai has benefitted greatly from the property boom of 2005-08.
This period witnessed great residential, office and retail space
development in the region. The upcoming international airport at Navi
Mumbai has also increased the attractiveness of Navi Mumbai as a real
estate investment destination.
The 44% of respondents who indicated a desire to wait up to 2 years to
purchase a house are of the view that a 'wait and watch' approach is
best given the general perception that prices might yet decline further.
Another reason that certain consumers are currently unwilling to invest
in property in that due to the tight liquidity situation faced by
developers, most projects have been stalled and their completion
dates postponed. This has created uncertainty pertaining to the
delivery of units, leading a section of prospective buyers to defer
purchases.
22
Figure 11
Total Housing Unit Requirement for Rs. 3-10 lakh
Income Category
410,000
20
09
20
10
20
11
3,83,675
405,000
400,000
395,000
390,000
385,000
380,000
375,000
370,000
3,94,034
4,04,673
Source: Knight Frank Research
Previous Years’ Cumulative Requirement Incremental Requirement
Although a number of affordable housing projects have been
announced in Mumbai, quoted prices are still unaffordable for a chunk
of the middle income segment. Thus, it is important for developers to
consider lowering their prices. At present, the attractiveness of the
most affordable projects, which are located in the distant suburbs, is
diminished by the inadequate social infrastructure in these suburban
locations. Therefore, while there is sizeable demand for housing from
Mumbai's middle income segment, the extent to which this demand is
satiated remains to be seen.
Thus, it is important that the developers take into consideration the
affordability of the buyers and thereby come up with products with
smaller unit configurations and lower prices. Reduced unit size
expectations on the end user's side and readiness for price negotiation
on the developer's front can lead to meeting the housing demand in
the mid-income segment to a large extent.
Another interesting fact observed during the survey was that the
prudence shown by the respondents while quoting their preferred
average budget to purchase a house. In most cases, the budgets
stated by the respondents are much lower than their affordable range
calculated by Knight Frank research. For instance, the maximum
affordable house value arrived at for the income category of
Rs.8-10 lakh fall in the range of Rs.33-38 lakh, while the average
preferred budget as expressed by the respondents in this income
Locations May '09 Rates Max Size (in sq.ft.) & Total Property Value (in Rs.lakh)
(in Rs./sq.ft.)
500 600 700 800 900 1000 1100 1200
sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft.
Western Suburbs 1 Min 13,000 65.0 78.0 91.0 104.0 117.0 130.0 143.0 156.0
(Bandra W / Khar W / Santacruz W) Max 30,000 150.0 180.0 210.0 240.0 270.0 300.0 330.0 360.0
Western Suburbs 2 Min 7,000 35.0 42.0 49.0 56.0 63.0 70.0 77.0 84.0
(Bandra E / Khar E / Santacruz E) Max 12,000 60.0 72.0 84.0 96.0 108.0 120.0 132.0 144.0
Western Suburbs 3 Min 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0
(Vile Parle /Andheri /Jogeshwari ) Max 15,000 75.0 90.0 105.0 120.0 135.0 150.0 165.0 180.0
Western Suburbs 4 Min 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
(Goregaon / Malad/ Max 7,500 37.5 45.0 52.5 60.0 67.5 75.0 82.5 90.0
Kandivali, Borivali)
Western Suburbs 5 Min 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
(Mira Road) Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Extended Suburbs Min 1,400 7.0 8.4 9.8 11.2 12.6 14.0 15.4 16.8
(Naigoan , Vasai, Virar) Max 2,400 12.0 14.4 16.8 19.2 21.6 24.0 26.4 28.8
Navi Mumbai 1 Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
(Vashi) Max 5,500 27.5 33.0 38.5 44.0 49.5 55.0 60.5 66.0
Navi Mumbai 2 Min 2,700 13.5 16.2 18.9 21.6 24.3 27.0 29.7 32.4
(Nerul) Max 4,500 22.5 27.0 31.5 36.0 40.5 45.0 49.5 54.0
Navi Mumbai 3 Min 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
(Airoli) Max 3,750 18.8 22.5 26.3 30.0 33.8 37.5 41.3 45.0
Navi Mumbai 4 Min 2,000 10.0 12.0 14.0 16.0 18.0 20.0 22.0 24.0
(Kharghar) Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Central Suburbs1 Min 4,500 22.5 27.0 31.5 36.0 40.5 45.0 49.5 54.0
(Sion/Wadala) Max 8,500 42.5 51.0 59.5 68.0 76.5 85.0 93.5 102.0
Central Suburbs2 Min 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
(Powai/ Chembur/Ghatkopar) Max 9,000 45.0 54.0 63.0 72.0 81.0 90.0 99.0 108.0
Central Suburbs3 Min 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
(Thane) Max 5,500 27.5 33.0 38.5 44.0 49.5 55.0 60.5 66.0
Table 14
Size Preference in Mumbai - Min-750 sq.ft. Max-950 sq.ft.
Affordable House Property in Mumbai - Min 11.86 lakh Max 38.18 lakh Not Affordable
Source: Knight Frank Research
group for purchasing a property is Rs.25 lakh. This can be attributed
primarily to the present unfavourable economic conditions and the
insecurity regarding the ability to pay off housing loans in the face of
job lay-offs.
Mumbai comprises a population of 15 million that has been growing at
the rate of 2.7% per annum. Being the financial capital of the country,
the city attracts a huge influx of migratory population every year. As a
consequence of this sizeable population growth, the housing stock of
the city has come under severe strain. Consequently, in recent years,
extensive development has taken place in the extended suburbs.
City Outlook
21
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
As the study is restricted to households with an annual income in the
range of Rs.3-10 lakh, around 62% of the sample are between the
income range of Rs.3-6 lakh, with the rest falling in the Rs.6-10 lakh
income bracket.
Figure 14
Distribution of Sample Households According to
Total Annual Income
Source: Knight Frank Research
Rs. 3-5 lakh - 31%
Rs. 5-6 lakh - 31%
Rs. 6-8 lakh - 26%
Rs. 8-10 lakh - 12%
On an average, around 55% of the sample respondents have been
residing in their current residence for the past 1-2 years and the rest for
2-3 years. It is observed that almost all the households are residing in
1 BHK and 2 BHK apartments which have average sizes of around
590 and 750 sq.ft. respectively. The prevailing rents of 1 BHK and 2 BHK
apartments are in the range of Rs.7,000-10,300/month.
Table 15
Percentage Distribution of Current Residence Type
Based on Annual Income
Annual Income 1 BHK 2 BHK 3 BHK Independent
Rs. 3-5 lakh 55% 39% 5% 1%
Rs. 5-6 lakh 41% 55% 5% 0%
Rs. 6-8 lakh 50% 42% 8% 0%
Rs. 8-10 lakh 29% 71% 0% 0%
Source: Knight Frank Research
Current Residence type Average Size Average Rental
(sq.ft.) (Rs./month)
1 BHK 587 7,084
2 BHK 751 10,260
3 BHK 1,029 12,929
Table 16
Current Residence Type W.R.TAverage Size and Rentals
Source: Knight Frank Research
Buyer Preferences
While the overall budget of a household is the primary determinant in
the purchase decision, a host of various other factors also have
significant impacts on the ultimate choice of a house. These are the
outcomes of city dynamics and changing lifestyles of a population.
An important observation to note is that although most of the tenant
households in the annual income level of Rs.3-5 lakh currently reside in
1 BHK apartments with an average size of 590 sq.ft., they would ideally
prefer an average size of at least 640 sq.ft. when making a purchase
decision. The average budget of a household in the annual income
category of Rs.3-5 lakh is Rs.16 lakh vis-à-vis Rs.20 lakh for households
in the next higher income slab. This trend clearly shows that preferred
size and budget increase with higher income levels.
Annual Income Average Budget Average Preferred
(Rs. lakh) Size (sq.ft.)
Rs. 3-5 lakh 16 638
Rs. 5-6 lakh 20 689
Rs. 6-8 lakh 23 736
Rs. 8-10 lakh 26 788
Table 17
Average Preferred Budget and Size
Source: Knight Frank Research
It is observed that good connectivity, availability of necessary
infrastructure facilities and high potential for development are the
major factors that drive the decisions of potential buyers in selecting
locations for their houses. Favourable demographics and the presence
of a social circle in the form of friends and relatives do not matter much
in the choice of locations.
24
Others
Presence of social circle
(friends, relatives)
Good infrastructure
Good potential for development
Good connectivity to frequently
travelled places
Figure 15
Factors Influencing Preference for Location
Source: Knight Frank Research
1%
7%
25%
27%
40%
0% 10% 20% 30% 40% 50%
Percentage of Responses
Keeping in mind the factors influencing location, buyers in Pune
identified Kothrud, Hadapsar and the Pimpri-Chinchwad region as their
top three preferred locations. There is strong preference towards
locations like Bavdhan and Aundh as well. Pimpri-Chinchwad and
Aundh, located to the northern part of the city, have been considered
as important locations for a house purchase due to their proximity to
many manufacturing industries that are located at Bhosari/Pimpri.
Pune
The city of Pune has witnessed an enormous change over the last decade. Located to the west of India at a
distance of around 150 kms east of Mumbai, it the second largest city in the state of Maharashtra and the 8th
largest urban agglomeration in India. What was once referred to as a pensioner's paradise has now
transformed into the Oxford of India due to the presence of several reputed colleges and other top class
educational institutions. Prominent professional colleges in Pune are affiliated to the University of Pune,
which is one of the largest universities in the world in terms of matriculation.
While the city is reputed for its educational institutions, Pune also boasts a strong presence of the
engineering and automobile sectors. Economic activity in the city is triggered by the presence of big
corporate giants like Bajaj, TELCO, Fiat, General,Motors and Bharat Forge, and over the years has helped
consolidate Pune's position as the 'Detroit of India'.
In addition to this, over the past few years, Pune has emerged as a preferred IT destination. Companies like
Infosys, Wipro, TCS and Syntel have their bases here and have been increasing their business at a significant
pace. Its proximity to India's financial capital Mumbai has also helped to accelerate real estate activity in the
region. The Mumbai-Pune expressway, which connects both the destinations, has made Pune a much sought
after location for even out of town investors.
In the recent years, real estate development across the city has geared up to keep pace with changes in
demand. This has led to the residential market evolving through various consumer profiles and preferences,
thereby creating significant changes in project profiles, housing patterns, facilities offered etc. The past three
years have witnessed an increased residential demand that was spread throughout all income categories,
but was most prevalent among the high end segment of the market. At present, major high-end residential
locations of Pune city are Koregaon Park, Hadapsar, Kalyani Nagar, Boat Club Road, Bund Garden Road,
Shivaji Nagar and Law College Road.
City Overview
A high proportion (around 70%) of potential buyers interviewed in
Pune is not originally from the city. By and large, the stay period of
these migrant households is in the range of 1-5 years. Since Pune is a
city that is largely driven by the IT/ITES sector, automobile sector as
well as educational institutes, a large number of potential buyers
include those who have shifted to the city for educational as well as
job purposes.
Most of the sample households have 3-4 members, and it is observed
that a little over 70% of them are nuclear households. Only 30% of the
prospective buyers are staying in joint families.
In terms of occupation, around 80% of the sample households in Pune
are employed in the salaried private sector.
Demand PerspectiveBuyer Profile
Figure 13
Distribution of Sample Households According to
Type of Occupation
Source: Knight Frank Research
Salaried Govt - 14%
Salaried Private - 80%
Self employed (business) - 5%
Self employed professional - 1%
(doctor, lawyer, CA)
23
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
As the study is restricted to households with an annual income in the
range of Rs.3-10 lakh, around 62% of the sample are between the
income range of Rs.3-6 lakh, with the rest falling in the Rs.6-10 lakh
income bracket.
Figure 14
Distribution of Sample Households According to
Total Annual Income
Source: Knight Frank Research
Rs. 3-5 lakh - 31%
Rs. 5-6 lakh - 31%
Rs. 6-8 lakh - 26%
Rs. 8-10 lakh - 12%
On an average, around 55% of the sample respondents have been
residing in their current residence for the past 1-2 years and the rest for
2-3 years. It is observed that almost all the households are residing in
1 BHK and 2 BHK apartments which have average sizes of around
590 and 750 sq.ft. respectively. The prevailing rents of 1 BHK and 2 BHK
apartments are in the range of Rs.7,000-10,300/month.
Table 15
Percentage Distribution of Current Residence Type
Based on Annual Income
Annual Income 1 BHK 2 BHK 3 BHK Independent
Rs. 3-5 lakh 55% 39% 5% 1%
Rs. 5-6 lakh 41% 55% 5% 0%
Rs. 6-8 lakh 50% 42% 8% 0%
Rs. 8-10 lakh 29% 71% 0% 0%
Source: Knight Frank Research
Current Residence type Average Size Average Rental
(sq.ft.) (Rs./month)
1 BHK 587 7,084
2 BHK 751 10,260
3 BHK 1,029 12,929
Table 16
Current Residence Type W.R.TAverage Size and Rentals
Source: Knight Frank Research
Buyer Preferences
While the overall budget of a household is the primary determinant in
the purchase decision, a host of various other factors also have
significant impacts on the ultimate choice of a house. These are the
outcomes of city dynamics and changing lifestyles of a population.
An important observation to note is that although most of the tenant
households in the annual income level of Rs.3-5 lakh currently reside in
1 BHK apartments with an average size of 590 sq.ft., they would ideally
prefer an average size of at least 640 sq.ft. when making a purchase
decision. The average budget of a household in the annual income
category of Rs.3-5 lakh is Rs.16 lakh vis-à-vis Rs.20 lakh for households
in the next higher income slab. This trend clearly shows that preferred
size and budget increase with higher income levels.
Annual Income Average Budget Average Preferred
(Rs. lakh) Size (sq.ft.)
Rs. 3-5 lakh 16 638
Rs. 5-6 lakh 20 689
Rs. 6-8 lakh 23 736
Rs. 8-10 lakh 26 788
Table 17
Average Preferred Budget and Size
Source: Knight Frank Research
It is observed that good connectivity, availability of necessary
infrastructure facilities and high potential for development are the
major factors that drive the decisions of potential buyers in selecting
locations for their houses. Favourable demographics and the presence
of a social circle in the form of friends and relatives do not matter much
in the choice of locations.
24
Others
Presence of social circle
(friends, relatives)
Good infrastructure
Good potential for development
Good connectivity to frequently
travelled places
Figure 15
Factors Influencing Preference for Location
Source: Knight Frank Research
1%
7%
25%
27%
40%
0% 10% 20% 30% 40% 50%
Percentage of Responses
Keeping in mind the factors influencing location, buyers in Pune
identified Kothrud, Hadapsar and the Pimpri-Chinchwad region as their
top three preferred locations. There is strong preference towards
locations like Bavdhan and Aundh as well. Pimpri-Chinchwad and
Aundh, located to the northern part of the city, have been considered
as important locations for a house purchase due to their proximity to
many manufacturing industries that are located at Bhosari/Pimpri.
Pune
The city of Pune has witnessed an enormous change over the last decade. Located to the west of India at a
distance of around 150 kms east of Mumbai, it the second largest city in the state of Maharashtra and the 8th
largest urban agglomeration in India. What was once referred to as a pensioner's paradise has now
transformed into the Oxford of India due to the presence of several reputed colleges and other top class
educational institutions. Prominent professional colleges in Pune are affiliated to the University of Pune,
which is one of the largest universities in the world in terms of matriculation.
While the city is reputed for its educational institutions, Pune also boasts a strong presence of the
engineering and automobile sectors. Economic activity in the city is triggered by the presence of big
corporate giants like Bajaj, TELCO, Fiat, General,Motors and Bharat Forge, and over the years has helped
consolidate Pune's position as the 'Detroit of India'.
In addition to this, over the past few years, Pune has emerged as a preferred IT destination. Companies like
Infosys, Wipro, TCS and Syntel have their bases here and have been increasing their business at a significant
pace. Its proximity to India's financial capital Mumbai has also helped to accelerate real estate activity in the
region. The Mumbai-Pune expressway, which connects both the destinations, has made Pune a much sought
after location for even out of town investors.
In the recent years, real estate development across the city has geared up to keep pace with changes in
demand. This has led to the residential market evolving through various consumer profiles and preferences,
thereby creating significant changes in project profiles, housing patterns, facilities offered etc. The past three
years have witnessed an increased residential demand that was spread throughout all income categories,
but was most prevalent among the high end segment of the market. At present, major high-end residential
locations of Pune city are Koregaon Park, Hadapsar, Kalyani Nagar, Boat Club Road, Bund Garden Road,
Shivaji Nagar and Law College Road.
City Overview
A high proportion (around 70%) of potential buyers interviewed in
Pune is not originally from the city. By and large, the stay period of
these migrant households is in the range of 1-5 years. Since Pune is a
city that is largely driven by the IT/ITES sector, automobile sector as
well as educational institutes, a large number of potential buyers
include those who have shifted to the city for educational as well as
job purposes.
Most of the sample households have 3-4 members, and it is observed
that a little over 70% of them are nuclear households. Only 30% of the
prospective buyers are staying in joint families.
In terms of occupation, around 80% of the sample households in Pune
are employed in the salaried private sector.
Demand PerspectiveBuyer Profile
Figure 13
Distribution of Sample Households According to
Type of Occupation
Source: Knight Frank Research
Salaried Govt - 14%
Salaried Private - 80%
Self employed (business) - 5%
Self employed professional - 1%
(doctor, lawyer, CA)
23
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Following are some of the opinions and apprehensions expressed by
the developers on the affordable housing market in Pune:
1. Ticket size - According to the general opinion of the developers, the
lower MIG belonging to the income group of Rs.3-5 lakh would aim for a
house costing Rs.15-20 lakh, while the income groups of Rs.6-7 lakh
and Rs.7-10 lakh could increase their budget range to Rs.25-30 lakh
and Rs.35-40 lakh respectively. They also indicated that in terms of
socio-economic classification, IT/ITES employees are their most
attractive target clientele.
2. Availability of land - In terms of supply, considering the cost of land
within the city limits (PMC), the developers ruled out any possibility of
affordability housing schemes in these established areas. Most felt
that the shortage of land is the primary reason for higher rates and this
could be resolved by increasing the FSI. Land rates in the peripheral
locations of Dhanori, Wagholi, Manjri, Pisoli/Undri Yeolewadi, Chakan,
Mahalunge, and Ambegaon range between Rs.400-800/sq.ft, while
those in Wakad, Bavdhan and Pimple Nilakh are relatively higher at
around Rs.1,000-1,200/sq.ft.
3. Policy change - The developers also stated that the old gaothan
areas of Pune city should have a conducive policy for redevelopment
that focuses on affordable housing schemes, and that
re-development of the old city should be looked into.
4. Cost of construction - While the cost of construction is around
Rs.1,000/sq.ft., the developer's profit margin is still considered at
around 25-30%. Besides this basic cost, an additional charge for the
MSEB (Maharashtra State Electricity Board), Stamp Duty, Registration
and Legal Charges further increases the cost that the end-user
ultimately pays. This makes it still comparatively unaffordable to the
masses. In order to reduce the cost, many developers have reduced the
size of units but maintain the higher price levels. Thus, many of the
marketed affordable housing units are not really catering to the
demand and space requirements of an average MIG household.
5. Tax - Developers also pointed out the various transaction costs and
taxes (during land acquisition till completion of project) which add on
to the selling cost. The tax components like stamp duty, VAT, etc.
constitute 35% of the cost per sq.ft. of the final product. They feel that
these should be subsidised to the extent of at least 20% out of the
35% for the idea of affordable housing to really take off.
Despite these bottlenecks, a number of developers have expressed
their willingness to take up affordable housing. Currently, most of the
upcoming affordable housing schemes being planned are coming up
in the outskirts.
Officials of public and private banks were also interviewed to
understand the demand dynamics witnessed by the home loan sector
in the past few years. The banks agreed with developers that it would
prove more effective to increase FSI rather than increase TDR, as they
were largely concerned over the TDR buying capacity of developers and
thus the exclusion of smaller developers.
Sr.No Project Name Developer Location May '09 Rate Unit Size Range
(Rs./sq.ft.) (sq.ft.)
1 Sanskruti - Phase I & II Gini Const. Co. Hadapsar - Handewadi Road 2,750 1,045-1,400
2 Seagul - Phase I & II Runwal Housing Hadapsar - Handewadi Road 2,400-2,500 700-1,362
3 Ashok Nagar Phase I Harshad Const. Hadapsar - Handewadi Road 2,200 885- 1,255
4 Elegance Phase I & II Dreams Group Hadapsar - Handewadi Road 2,250-2,500 800 - 953
5 Green City Phase I Arihant Venkateshwara Hadapsar - Handewadi Road 1,900 552-2,300
Housing
6 Rose Wood Kolte Patil Developers Ltd. Undri 2,500 1,115 -1,890
7 Skyheights Phase I Lushlife & Undri - Pisoli Road 2,250 568 -1,025
Trimurti Developers
8 Sankalp and Lotus Ranjeet Developers Undri 2,000 572-1,500
9 Sunshine Hills Phase I Tricon Builders Undri - Pisoli Road, Pisoli 2,200 600-830
10 Ganga Sparsh and Goel Ganga Group Undri 2,500 530-1,325
Ganga Elika
11 Raheja Vistas K Raheja Corp. Mohammadwadi 2,750 1,095-1,515
12 Hill View Anand Shelters Kondhwa Khurd 2,700 804-930
13 Akruti Countrywoods Phase I Akruti Jay Developers Kondhwa Budruk 2,250 565-885
14 Bellagio Mirchandani Group Undri 2,575 1,250-1,650
Table 19
Select Affordable Housing Projects in Pune
Source: Knight Frank Research
2625
Also, these locations enjoy the advantage of being close to the
Mumbai- Bengaluru highway. Kothrud, located in the south-west, is
one of the oldest residential markets in addition to being one of the
fastest growing micro-markets of Pune in terms of social infrastructure,
and this has led households to prefer this location. Bavdhan, which is
slightly further south-west, is in proximity to Kothrud but commands
relatively lower rates. Both these locations are also well connected to
the Mumbai-Bengaluru highway which connects them to Hinjewadi,
which is an important commerical location. Hadapsar in the eastern
part of the city is generally favoured by people engaged in the IT/ITES
sector due to its proximity to Eon and MIDC IT Park at Kharadi,
Magarpatta City and Kumar IT Planet, which are some of the prime
commercial IT developments of the region. In addition, this location is
also preferred by the out of town people from villages further ahead on
Sholapur Road. From the above observations, it can be emphasized
that good connectivity to frequently travelled places, good
infrastructure and good potential for development are the primary
determinants influencing the location choice of a buyer in Pune.
The present study has captured the factors which influence the
decision of a buyer in the selection of residential projects in a preferred
location. Respondents have rated a set of factors on a scale of 1 to 4 (4
being the most important and 1 the least). Based on the ratings, mean
scores are generated for each factor and the one with the highest mean
score has been identified as the most important factor and ranked 1.
Water supply, price and un-interrupted power supply are the three
important factors that influence a buyer's decision in Pune with respect
to a residential project in a chosen location. These potential buyers do
not place much importance on the disturbance caused by
traffic/noise/congestion and on developers' goodwill.
During the course of the survey, the tenant households have been
asked to mention the amenities they would like to have in the
residential projects of their choice. It is observed that the top three
amenities preferred while making a purchase decision include
Un-interrupted water supply, Power Back-up and High Level Security
Systems. It can therefore be inferred that a potential buyer would be
unwilling to compromise on these basic requirements.
Factors Rank
Water supply 1
Price 2
Un-interrupted power supply 3
Apartment home size 4
Safety & security 5
Facilities available 6
Disturbance caused by traffic/noise/congestion 7
Developer goodwill 8
Table 18
Factors Influencing Choice of Residential Project
Source: Knight Frank Research
Factors like Finishing, Gymnasium/Spa and Interior Fixtures are the
next three important factors, and it may be argued that once the
primary requirements of the household have been met, the aspirations
for better amenities emerge. Developers in Pune city should ideally
include the top two primary requirements in any affordable housing
project. They may also include the other four amenities for the
semi-luxury affordable projects which would cater to relatively higher
income households with larger budgets.
Figure 16
Preferred Amenities within a Residential Project
Source: Knight Frank Research
0 140
Creche
Servant quarters
Modular Kitchen
Multipurpose hall
Club house
Interior fixtures
Swimming pool
Gymnasium/Spa
Finishing
Power Back-up
High level of security systems
Un-interrupted water supply
No. of Responses
20 40 60 80 100 120
Supply Perspective
In the recent past, the residential market in Pune witnessed hectic real
estate activity, aided by strong demand from the IT/ITES sector. The
developers geared up to keep pace with the rise in quality demand,
leading to a significant change in project profiles, housing patterns
and facilities offered. Increase in demand was spread throughout all
size categories, but was most significant at the high-end segment of
the market. Many old developments have been demolished to give way
to new high rise developments due to limited land availability in prime
locations.
In the past five years, estimated growth in the population of the city
has been approximately 24%. Similarly, the migrating population has
doubled over the past five years, which assures steady demand for
housing units. Thus, the housing sector in Pune is primarily end-user
driven.
Knight Frank research carried out primary surveys across major
stakeholders in the sector comprising developers, bankers and
government authorities to understand the supply dynamics.
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Following are some of the opinions and apprehensions expressed by
the developers on the affordable housing market in Pune:
1. Ticket size - According to the general opinion of the developers, the
lower MIG belonging to the income group of Rs.3-5 lakh would aim for a
house costing Rs.15-20 lakh, while the income groups of Rs.6-7 lakh
and Rs.7-10 lakh could increase their budget range to Rs.25-30 lakh
and Rs.35-40 lakh respectively. They also indicated that in terms of
socio-economic classification, IT/ITES employees are their most
attractive target clientele.
2. Availability of land - In terms of supply, considering the cost of land
within the city limits (PMC), the developers ruled out any possibility of
affordability housing schemes in these established areas. Most felt
that the shortage of land is the primary reason for higher rates and this
could be resolved by increasing the FSI. Land rates in the peripheral
locations of Dhanori, Wagholi, Manjri, Pisoli/Undri Yeolewadi, Chakan,
Mahalunge, and Ambegaon range between Rs.400-800/sq.ft, while
those in Wakad, Bavdhan and Pimple Nilakh are relatively higher at
around Rs.1,000-1,200/sq.ft.
3. Policy change - The developers also stated that the old gaothan
areas of Pune city should have a conducive policy for redevelopment
that focuses on affordable housing schemes, and that
re-development of the old city should be looked into.
4. Cost of construction - While the cost of construction is around
Rs.1,000/sq.ft., the developer's profit margin is still considered at
around 25-30%. Besides this basic cost, an additional charge for the
MSEB (Maharashtra State Electricity Board), Stamp Duty, Registration
and Legal Charges further increases the cost that the end-user
ultimately pays. This makes it still comparatively unaffordable to the
masses. In order to reduce the cost, many developers have reduced the
size of units but maintain the higher price levels. Thus, many of the
marketed affordable housing units are not really catering to the
demand and space requirements of an average MIG household.
5. Tax - Developers also pointed out the various transaction costs and
taxes (during land acquisition till completion of project) which add on
to the selling cost. The tax components like stamp duty, VAT, etc.
constitute 35% of the cost per sq.ft. of the final product. They feel that
these should be subsidised to the extent of at least 20% out of the
35% for the idea of affordable housing to really take off.
Despite these bottlenecks, a number of developers have expressed
their willingness to take up affordable housing. Currently, most of the
upcoming affordable housing schemes being planned are coming up
in the outskirts.
Officials of public and private banks were also interviewed to
understand the demand dynamics witnessed by the home loan sector
in the past few years. The banks agreed with developers that it would
prove more effective to increase FSI rather than increase TDR, as they
were largely concerned over the TDR buying capacity of developers and
thus the exclusion of smaller developers.
Sr.No Project Name Developer Location May '09 Rate Unit Size Range
(Rs./sq.ft.) (sq.ft.)
1 Sanskruti - Phase I & II Gini Const. Co. Hadapsar - Handewadi Road 2,750 1,045-1,400
2 Seagul - Phase I & II Runwal Housing Hadapsar - Handewadi Road 2,400-2,500 700-1,362
3 Ashok Nagar Phase I Harshad Const. Hadapsar - Handewadi Road 2,200 885- 1,255
4 Elegance Phase I & II Dreams Group Hadapsar - Handewadi Road 2,250-2,500 800 - 953
5 Green City Phase I Arihant Venkateshwara Hadapsar - Handewadi Road 1,900 552-2,300
Housing
6 Rose Wood Kolte Patil Developers Ltd. Undri 2,500 1,115 -1,890
7 Skyheights Phase I Lushlife & Undri - Pisoli Road 2,250 568 -1,025
Trimurti Developers
8 Sankalp and Lotus Ranjeet Developers Undri 2,000 572-1,500
9 Sunshine Hills Phase I Tricon Builders Undri - Pisoli Road, Pisoli 2,200 600-830
10 Ganga Sparsh and Goel Ganga Group Undri 2,500 530-1,325
Ganga Elika
11 Raheja Vistas K Raheja Corp. Mohammadwadi 2,750 1,095-1,515
12 Hill View Anand Shelters Kondhwa Khurd 2,700 804-930
13 Akruti Countrywoods Phase I Akruti Jay Developers Kondhwa Budruk 2,250 565-885
14 Bellagio Mirchandani Group Undri 2,575 1,250-1,650
Table 19
Select Affordable Housing Projects in Pune
Source: Knight Frank Research
2625
Also, these locations enjoy the advantage of being close to the
Mumbai- Bengaluru highway. Kothrud, located in the south-west, is
one of the oldest residential markets in addition to being one of the
fastest growing micro-markets of Pune in terms of social infrastructure,
and this has led households to prefer this location. Bavdhan, which is
slightly further south-west, is in proximity to Kothrud but commands
relatively lower rates. Both these locations are also well connected to
the Mumbai-Bengaluru highway which connects them to Hinjewadi,
which is an important commerical location. Hadapsar in the eastern
part of the city is generally favoured by people engaged in the IT/ITES
sector due to its proximity to Eon and MIDC IT Park at Kharadi,
Magarpatta City and Kumar IT Planet, which are some of the prime
commercial IT developments of the region. In addition, this location is
also preferred by the out of town people from villages further ahead on
Sholapur Road. From the above observations, it can be emphasized
that good connectivity to frequently travelled places, good
infrastructure and good potential for development are the primary
determinants influencing the location choice of a buyer in Pune.
The present study has captured the factors which influence the
decision of a buyer in the selection of residential projects in a preferred
location. Respondents have rated a set of factors on a scale of 1 to 4 (4
being the most important and 1 the least). Based on the ratings, mean
scores are generated for each factor and the one with the highest mean
score has been identified as the most important factor and ranked 1.
Water supply, price and un-interrupted power supply are the three
important factors that influence a buyer's decision in Pune with respect
to a residential project in a chosen location. These potential buyers do
not place much importance on the disturbance caused by
traffic/noise/congestion and on developers' goodwill.
During the course of the survey, the tenant households have been
asked to mention the amenities they would like to have in the
residential projects of their choice. It is observed that the top three
amenities preferred while making a purchase decision include
Un-interrupted water supply, Power Back-up and High Level Security
Systems. It can therefore be inferred that a potential buyer would be
unwilling to compromise on these basic requirements.
Factors Rank
Water supply 1
Price 2
Un-interrupted power supply 3
Apartment home size 4
Safety & security 5
Facilities available 6
Disturbance caused by traffic/noise/congestion 7
Developer goodwill 8
Table 18
Factors Influencing Choice of Residential Project
Source: Knight Frank Research
Factors like Finishing, Gymnasium/Spa and Interior Fixtures are the
next three important factors, and it may be argued that once the
primary requirements of the household have been met, the aspirations
for better amenities emerge. Developers in Pune city should ideally
include the top two primary requirements in any affordable housing
project. They may also include the other four amenities for the
semi-luxury affordable projects which would cater to relatively higher
income households with larger budgets.
Figure 16
Preferred Amenities within a Residential Project
Source: Knight Frank Research
0 140
Creche
Servant quarters
Modular Kitchen
Multipurpose hall
Club house
Interior fixtures
Swimming pool
Gymnasium/Spa
Finishing
Power Back-up
High level of security systems
Un-interrupted water supply
No. of Responses
20 40 60 80 100 120
Supply Perspective
In the recent past, the residential market in Pune witnessed hectic real
estate activity, aided by strong demand from the IT/ITES sector. The
developers geared up to keep pace with the rise in quality demand,
leading to a significant change in project profiles, housing patterns
and facilities offered. Increase in demand was spread throughout all
size categories, but was most significant at the high-end segment of
the market. Many old developments have been demolished to give way
to new high rise developments due to limited land availability in prime
locations.
In the past five years, estimated growth in the population of the city
has been approximately 24%. Similarly, the migrating population has
doubled over the past five years, which assures steady demand for
housing units. Thus, the housing sector in Pune is primarily end-user
driven.
Knight Frank research carried out primary surveys across major
stakeholders in the sector comprising developers, bankers and
government authorities to understand the supply dynamics.
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Locations May '09 Rates Max Size (in sq.ft.) & Total Property Value (in Rs.lakh)
(in Rs./sq.ft.)
500 600 700 800 900 1000 1100 1200
sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft.
Koregaon Park/ Deccan Min 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0
Max 10,000 50.0 60.0 70.0 80.0 90.0 100.0 110.0 120.0
Bhosale Nagar Min 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0
Max 8,000 40.0 48.0 56.0 64.0 72.0 80.0 88.0 96.0
Aundh Min 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Max 5,500 27.5 33.0 38.5 44.0 49.5 55.0 60.5 66.0
Kothrud Min 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Max 4,500 22.5 27.0 31.5 36.0 40.5 45.0 49.5 54.0
Baner Min 3,200 16.0 19.2 22.4 25.6 28.8 32.0 35.2 38.4
Max 4,200 21.0 25.2 29.4 33.6 37.8 42.0 46.2 50.4
Magarpatta Min 3,200 16.0 19.2 22.4 25.6 28.8 32.0 35.2 38.4
Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Bavdhan Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Vishrantwadi Min 2,800 14.0 16.8 19.6 22.4 25.2 28.0 30.8 33.6
Max 3,200 16.0 19.2 22.4 25.6 28.8 32.0 35.2 38.4
Pashan/Vadgoan Sheri Min 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
Max 3,200 16.0 19.2 22.4 25.6 28.8 32.0 35.2 38.4
Hinjewadi Min 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Viman Nagar Min 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Kharadi Min 2,400 12.0 14.4 16.8 19.2 21.6 24.0 26.4 28.8
Max 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
Kondhwa - Undri Min 2,200 11.0 13.2 15.4 17.6 19.8 22.0 24.2 26.4
Max 3,100 15.5 18.6 21.7 24.8 27.9 31.0 34.1 37.2
Pimpri-Chinchwad Min 2,200 11.0 13.2 15.4 17.6 19.8 22.0 24.2 26.4
Max 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
Manjri Min 1,400 7.0 8.4 9.8 11.2 12.6 14.0 15.4 16.8
Max 1,800 9.0 10.8 12.6 14.4 16.2 18.0 19.8 21.6
Table 21
Size Preference in Pune - Min-600 sq.ft. Max-1000 sq.ft.
Affordable House Property in Pune - Min 13.38 lakh Max 39.56 lakhNot Affordable
Source: Knight Frank Research
Of late, these locations, although located around 10-18 kms from
Shivaji Nagar , have become prime IT hubs in the region and are being
actively promoted by the state government. Another point which came
across in the survey was that the size preference for residential units
did not vary much among the different income groups. While the lower
income groups preferred a unit size of around 600-700 sq.ft., the
upper income groups of Rs.6 lakh and above prefer unit size in the
range of 700-800 sq.ft. As a result of these relatively lower unit size
preferences, the income category of Rs.8-10 lakh can afford to
purchase properties in prime residential locations like Koregaon Park,
Deccan and Bhosale Nagar.
However, notwithstanding the affordable nature of most of the
residential locations in Pune, the households in the lower income
categories would be able to purchase a house in the more upmarket
locations within the city only if they are willing to compromise on their
unit sizes. Table 21 illustrates this fact based on the willingness of the
buyer to compromise on the size of the residential unit. The table
elucidates the point that given the lower size of the residential units,
locations like Koregaon Park, Deccan and Bhosale Nagar, which are
considered to be the most sought after locations in the city, become
affordable to the income category of Rs.5-6 lakh and above.
2827
Household income (per annum)
Maximum EMI (Rs.) 10,200-16,400 15,300-22,700 21,000-23,500 27,000-30,300
Maximum loan eligibility (Rs.)
(9% interest rate, 20 year loan tenure) 11,37,000-18,22,000 17,04,000-25,22,000 23,33,000-26,10,000 30,04,000-33,63,000
Buyer's own contribution (Rs.)
(Assuming 85% loan) 2,00,000-3,21,000 3,00,000-4,45,000 4,12,000-4,60,000 5,30,000-5,93,000
Affordable house property value (Rs.) 13,38,000-21,43,000 20,05,000-29,67,000 27,45,000-30,70,000 35,34,000-39,56,000
Preferred size (sq.ft.) 600-650 650-700 700-750 700-800
Price (Rs./sq.ft.) 2,100-3,300 2,900-4,200 3,800-4,300 4,400-5,900
Rs. 3 lakh - 5 lakh Rs. 5 lakh - 6 lakh Rs. 6 lakh - 8 lakh Rs. 8 lakh - 10 lakh
Table 20
Affordability in Pune
Source: Knight Frank Research
Locations available
considering preferred size
and few residential areas
Baner
Magarpatta
Bavdhan
Vishrantwadi
Pashan
Vadgoan Sheri
Hinjewadi
Viman Nagar
Kharadi
Kondhwa-Undri
Pimpri-Chinchwad
Wakad
Manjri
Aundh
Kothrud
Baner
Magarpatta
Bavdhan
Vishrantwadi
Pashan
Vadgoan Sheri
Hinjewadi
Viman Nagar
Kharadi
Kondhwa-Undri
Pimpri-Chinchwad
Wakad
Manjri
Koregaon Park
Deccan
Bhosale Nagar
Aundh
Kothrud
Baner
Magarpatta
Bavdhan
Vishrantwadi
Pashan
Vadgoan Sheri
Hinjewadi
Viman Nagar
Kharadi
Kondhwa - Undri
Pimpri-Chinchwad
Wakad
Manjri
Aundh
Kothrud
Baner
Magarpatta
Bavdhan
Vishrantwadi
Pashan
Vadgoan Sheri
Hinjewadi
Viman Nagar
Kharadi
Kondhwa-Undri
Pimpri-Chinchwad
Wakad
Manjri
The major apprehensions of banks while lending to an affordable
housing project are the criteria of location (i.e it should not be far from
the city or without proper connectivity), the saleability of the project
and the location's future development and price appreciation potential.
In their opinion, infrastructure development no longer becomes a
primary issue if the residential schemes are larger and similar
developments are constructed in that area, as the developers
themselves take care of these basic requirements. As such,
connectivity to the workplace and social amenities become important
factors.
Bankers are also of the opinion that Wakad, Balewadi, Pimple
Saudagar (marketed as Aundh Annex), Wagholi, Viman Nagar and
Kharadi are the locations where most households belonging to the MIG
category are buying homes. The reasons for preferring these locations
are mainly due to better connectivity and the availability of affordable
housing options. Many of these developments provide amenities like
community centre, children's play area, good roads and pathways.
Besides these, most of the developers are adhering to standard
specifications minus any expensive or redundant finishing, with a
loading of 25% being charged for the affordable projects as well.
Identifying Affordability
A number of interesting facts came up during the household survey
carried out in Pune to ascertain the affordability of the various income
groups at city level. Table 20 depicts in detail the maximum affordable
EMI of households in various income levels. This EMI has been
estimated from the annual income of a household and its spending
and saving behaviour. The maximum EMI has been translated into an
affordable house property value based on an assumed interest rate,
loan tenure and loan to value ratio. Table 20 also shows the capital
values that the households will have to pay keeping in view the
preferred house size and the affordable house property value.
It highlights the fact that despite being in proximity to Mumbai, where
property prices are considered to be the highest in the country, Pune is
relatively affordable for purchasing a property. A number of locations
are available for the mid-income category for their housing needs. It
has been observed that based on their unit size preference, the
households falling in the range of Rs.3-8 lakh can afford properties in
recently developed locations like Aundh, Baner and Viman Nagar as
well as in upcoming locations like Magarpatta, Wakad and Hinjewadi.
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Locations May '09 Rates Max Size (in sq.ft.) & Total Property Value (in Rs.lakh)
(in Rs./sq.ft.)
500 600 700 800 900 1000 1100 1200
sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft.
Koregaon Park/ Deccan Min 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0
Max 10,000 50.0 60.0 70.0 80.0 90.0 100.0 110.0 120.0
Bhosale Nagar Min 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0
Max 8,000 40.0 48.0 56.0 64.0 72.0 80.0 88.0 96.0
Aundh Min 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Max 5,500 27.5 33.0 38.5 44.0 49.5 55.0 60.5 66.0
Kothrud Min 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Max 4,500 22.5 27.0 31.5 36.0 40.5 45.0 49.5 54.0
Baner Min 3,200 16.0 19.2 22.4 25.6 28.8 32.0 35.2 38.4
Max 4,200 21.0 25.2 29.4 33.6 37.8 42.0 46.2 50.4
Magarpatta Min 3,200 16.0 19.2 22.4 25.6 28.8 32.0 35.2 38.4
Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Bavdhan Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Vishrantwadi Min 2,800 14.0 16.8 19.6 22.4 25.2 28.0 30.8 33.6
Max 3,200 16.0 19.2 22.4 25.6 28.8 32.0 35.2 38.4
Pashan/Vadgoan Sheri Min 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
Max 3,200 16.0 19.2 22.4 25.6 28.8 32.0 35.2 38.4
Hinjewadi Min 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Viman Nagar Min 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Kharadi Min 2,400 12.0 14.4 16.8 19.2 21.6 24.0 26.4 28.8
Max 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
Kondhwa - Undri Min 2,200 11.0 13.2 15.4 17.6 19.8 22.0 24.2 26.4
Max 3,100 15.5 18.6 21.7 24.8 27.9 31.0 34.1 37.2
Pimpri-Chinchwad Min 2,200 11.0 13.2 15.4 17.6 19.8 22.0 24.2 26.4
Max 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
Manjri Min 1,400 7.0 8.4 9.8 11.2 12.6 14.0 15.4 16.8
Max 1,800 9.0 10.8 12.6 14.4 16.2 18.0 19.8 21.6
Table 21
Size Preference in Pune - Min-600 sq.ft. Max-1000 sq.ft.
Affordable House Property in Pune - Min 13.38 lakh Max 39.56 lakhNot Affordable
Source: Knight Frank Research
Of late, these locations, although located around 10-18 kms from
Shivaji Nagar , have become prime IT hubs in the region and are being
actively promoted by the state government. Another point which came
across in the survey was that the size preference for residential units
did not vary much among the different income groups. While the lower
income groups preferred a unit size of around 600-700 sq.ft., the
upper income groups of Rs.6 lakh and above prefer unit size in the
range of 700-800 sq.ft. As a result of these relatively lower unit size
preferences, the income category of Rs.8-10 lakh can afford to
purchase properties in prime residential locations like Koregaon Park,
Deccan and Bhosale Nagar.
However, notwithstanding the affordable nature of most of the
residential locations in Pune, the households in the lower income
categories would be able to purchase a house in the more upmarket
locations within the city only if they are willing to compromise on their
unit sizes. Table 21 illustrates this fact based on the willingness of the
buyer to compromise on the size of the residential unit. The table
elucidates the point that given the lower size of the residential units,
locations like Koregaon Park, Deccan and Bhosale Nagar, which are
considered to be the most sought after locations in the city, become
affordable to the income category of Rs.5-6 lakh and above.
2827
Household income (per annum)
Maximum EMI (Rs.) 10,200-16,400 15,300-22,700 21,000-23,500 27,000-30,300
Maximum loan eligibility (Rs.)
(9% interest rate, 20 year loan tenure) 11,37,000-18,22,000 17,04,000-25,22,000 23,33,000-26,10,000 30,04,000-33,63,000
Buyer's own contribution (Rs.)
(Assuming 85% loan) 2,00,000-3,21,000 3,00,000-4,45,000 4,12,000-4,60,000 5,30,000-5,93,000
Affordable house property value (Rs.) 13,38,000-21,43,000 20,05,000-29,67,000 27,45,000-30,70,000 35,34,000-39,56,000
Preferred size (sq.ft.) 600-650 650-700 700-750 700-800
Price (Rs./sq.ft.) 2,100-3,300 2,900-4,200 3,800-4,300 4,400-5,900
Rs. 3 lakh - 5 lakh Rs. 5 lakh - 6 lakh Rs. 6 lakh - 8 lakh Rs. 8 lakh - 10 lakh
Table 20
Affordability in Pune
Source: Knight Frank Research
Locations available
considering preferred size
and few residential areas
Baner
Magarpatta
Bavdhan
Vishrantwadi
Pashan
Vadgoan Sheri
Hinjewadi
Viman Nagar
Kharadi
Kondhwa-Undri
Pimpri-Chinchwad
Wakad
Manjri
Aundh
Kothrud
Baner
Magarpatta
Bavdhan
Vishrantwadi
Pashan
Vadgoan Sheri
Hinjewadi
Viman Nagar
Kharadi
Kondhwa-Undri
Pimpri-Chinchwad
Wakad
Manjri
Koregaon Park
Deccan
Bhosale Nagar
Aundh
Kothrud
Baner
Magarpatta
Bavdhan
Vishrantwadi
Pashan
Vadgoan Sheri
Hinjewadi
Viman Nagar
Kharadi
Kondhwa - Undri
Pimpri-Chinchwad
Wakad
Manjri
Aundh
Kothrud
Baner
Magarpatta
Bavdhan
Vishrantwadi
Pashan
Vadgoan Sheri
Hinjewadi
Viman Nagar
Kharadi
Kondhwa-Undri
Pimpri-Chinchwad
Wakad
Manjri
The major apprehensions of banks while lending to an affordable
housing project are the criteria of location (i.e it should not be far from
the city or without proper connectivity), the saleability of the project
and the location's future development and price appreciation potential.
In their opinion, infrastructure development no longer becomes a
primary issue if the residential schemes are larger and similar
developments are constructed in that area, as the developers
themselves take care of these basic requirements. As such,
connectivity to the workplace and social amenities become important
factors.
Bankers are also of the opinion that Wakad, Balewadi, Pimple
Saudagar (marketed as Aundh Annex), Wagholi, Viman Nagar and
Kharadi are the locations where most households belonging to the MIG
category are buying homes. The reasons for preferring these locations
are mainly due to better connectivity and the availability of affordable
housing options. Many of these developments provide amenities like
community centre, children's play area, good roads and pathways.
Besides these, most of the developers are adhering to standard
specifications minus any expensive or redundant finishing, with a
loading of 25% being charged for the affordable projects as well.
Identifying Affordability
A number of interesting facts came up during the household survey
carried out in Pune to ascertain the affordability of the various income
groups at city level. Table 20 depicts in detail the maximum affordable
EMI of households in various income levels. This EMI has been
estimated from the annual income of a household and its spending
and saving behaviour. The maximum EMI has been translated into an
affordable house property value based on an assumed interest rate,
loan tenure and loan to value ratio. Table 20 also shows the capital
values that the households will have to pay keeping in view the
preferred house size and the affordable house property value.
It highlights the fact that despite being in proximity to Mumbai, where
property prices are considered to be the highest in the country, Pune is
relatively affordable for purchasing a property. A number of locations
are available for the mid-income category for their housing needs. It
has been observed that based on their unit size preference, the
households falling in the range of Rs.3-8 lakh can afford properties in
recently developed locations like Aundh, Baner and Viman Nagar as
well as in upcoming locations like Magarpatta, Wakad and Hinjewadi.
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
30
The city of Bengaluru, previously known as Bangalore, is the capital of the state of Karnataka. Located on the
Deccan plateau in the south-eastern part of Karnataka, Bengaluru is India's third most populous city and fifth
most populous urban agglomeration. Today, it is recognized as one of the world's major metropolises and is
home to some of the most renowned colleges and research institutions in India and abroad. Bengaluru also
houses numerous public sector heavy industries, software companies, aerospace offices and
telecommunication offices.
Over the past decade Bengaluru has established itself as India's premier IT destination. It is currently the
nation's leading IT employer and exporter. The city also has the third highest number of high net worth
individuals in the country, and consequently represents the country's fourth largest fast moving consumer
goods (FMCG) market. A demographically diverse city, Bengaluru is a major economic hub and the fastest
growing major metropolis in India. Favourable weather conditions and a friendly political climate have
facilitated investment in the city.
Bengaluru has followed a radial growth pattern. MG Road and surrounding locations constitute the Central
Business District (CBD) and represent the most developed parts of the city. Prominent residential
catchments like Jayanagar, JP Nagar, and Malleshwaram are located towards the southern and western
locations of the city. At present, peripheral locations like Whitefield and Kanakpura Road are attracting
strong interest due to the presence of a number of important office projects there along with developments
underway.
Bengaluru's IT/ITES sector, which is the prime economic driver of the city, has been directly responsible for
the increase in housing demand among the city's various demographic segments. Over the past decade
there has been a paradigm shift in the attitude of home buyers. Strong economic growth has resulted in an
increase in the city's per capita income, which along with fast paced development has changed the home
buyer's outlook. The traditionally conservative consumer mindset has been replaced by a desire for instant
gratification, which has resulted in frantic activity in the property market. Home buyers in Bengaluru
represent a mix of end-users and investors, whereas previously the former constituted the majority of
housing demand.
Bengaluru
Bengaluru's cosmopolitan constitution reflects the large influx of a
migratory population seeking better work opportunities. The
representative sample for the household survey carried out reveals that
close to 77% of the respondents are migrants. Over a period of time,
these migrants increasingly integrate with the rest of the population
and become actively involved in property acquisitions.
A typical home buyer in Bengaluru is a salaried professional working in
the service sector. Among the households surveyed, 88% of household
heads are employed in the service sector, with a large number
employed in the IT/ITES sector. The educated middle class segment in
the city is quite large and forms a strong potential demand base.
City Overview
Demand PerspectiveBuyer Profile
Figure 19
Distribution of Sample Households According to
Type of Occupation
Source: Knight Frank Research
Salaried Govt - 3%
Salaried Private - 88%
Self employed (business) - 8%
Self employed professional - 1%
(doctor, lawyer, CA)
29
This income category, whose affordable house property value has been
calculated to be in the range of Rs.20-29.7 lakh, would be able to
afford a house in Koregaon Park/Deccan at Rs.5,000/sq.ft. with an unit
size of 600 sq.ft. However, it also depends on whether the developer
would be ready to come up with smaller sized units and lower prices at
such central locations within the city.
As with the other cities surveyed, the residents of Pune in the higher
income category of Rs.8-10 lakh, too, proved to be cautious while
expressing their preferred budget. While households in this income
group can afford to purchase a property in the range of Rs.35-40 lakh,
as computed by Knight Frank Research, they conveyed a preferred
average budget of Rs.26 lakh, which was much lower than their
affordability. This implies that the higher income households in the
mid-income segment would rather curtail their aspirations and
maintain a conservative approach in times of economic adversity. On
the other hand, the lower income groups continue to keep their
preferred budget within their affordability.
Pune has a population of over 5 million that has been growing at the
rate of 4% per annum. The city features a strong presence of the
automobile sector, and of late has become a viable destination for the
IT/ITES sector. The increase in employment opportunities in Pune has
resulted in increased demand for housing that has put pressure on the
city's housing stock. Figure 17 specifies the housing requirement for
the middle income segment in Pune in 2009, 2010 and 2011.
City Outlook 0-6 months - 9%
6-12 months - 38%
1-2 years - 53%
Figure 18
Household Purchase Timelines
Source: Knight Frank Research
Knight Frank research estimates that the middle income population in
Pune will require approximately 1.34 lakh housing units by 2011, which
assuming an average unit size of 800 sq.ft. translates to approximately
107 mn.sq.ft. of residential space. Approximately 87% of this total
middle income housing requirement will be accounted for by the
Rs.3-5 lakh income segment. In order for this requirement to be
converted to demand, the Rs.3-5 lakh income category would have to
be targeted with houses in the price range of Rs.13-18 lakh. A very
important consideration in assessing the demand for houses in the
middle income segment is the consumers' purchase timelines, as even
if 100% of the requirement translates to demand, how this demand
pans out depends on when consumers are willing to incur the financial
burden of purchasing a house. Figure 18 details the preferred purchase
timelines of rental households surveyed.
As per the survey, about half of the prospective buyers are seeking to
purchase a house within the next year, while the other half expressed a
desire to purchase anytime within the next 2 years.
The growth of Pune has been limited by a lack of infrastructure support.
Poor quality of roads, interrupted power supply and lack of proper
public transport services have hindered the development of the city.
Eastern locations of the city like Kharadi and Kondhawa are preferred
housing destinations, primarily due to their relative proximity to
established commercial hubs like Magarpatta City and developed
residential locations like Kalyani Nagar. Viman Nagar is also an
attractive affordable housing destination due to its proximity to the
airport. Towards the west, locations like Wakad and Hinjewadi are
generating interest due to the strong IT/ITES development in these
areas and their proximity to the MumbaiPune Expressway.
Pimpri-Chinchwad, located towards the north of Pune, is also a viable
location for affordable housing, but its relative distance from the city
and its strong composition of automobile & manufacturing units has
reduced its attractiveness among potential home buyers. Therefore,
while there is demand for affordable housing from Pune's middle
income segment, the extent to which this demand is satiated depends
on how fast infrastructural gaps in the city are plugged.
Figure 17
Total Housing Unit Requirement for Rs. 3-10 lakh
Income Category
136,000
20
09
20
10
20
11
1,24,135
134,000
132,000
130,000
128,000
126,000
124,000
122,000
120,000
118,000
1,29,100
1,34,264
Source: Knight Frank Research
Previous Years’ Cumulative Requirement Incremental Requirement
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
30
The city of Bengaluru, previously known as Bangalore, is the capital of the state of Karnataka. Located on the
Deccan plateau in the south-eastern part of Karnataka, Bengaluru is India's third most populous city and fifth
most populous urban agglomeration. Today, it is recognized as one of the world's major metropolises and is
home to some of the most renowned colleges and research institutions in India and abroad. Bengaluru also
houses numerous public sector heavy industries, software companies, aerospace offices and
telecommunication offices.
Over the past decade Bengaluru has established itself as India's premier IT destination. It is currently the
nation's leading IT employer and exporter. The city also has the third highest number of high net worth
individuals in the country, and consequently represents the country's fourth largest fast moving consumer
goods (FMCG) market. A demographically diverse city, Bengaluru is a major economic hub and the fastest
growing major metropolis in India. Favourable weather conditions and a friendly political climate have
facilitated investment in the city.
Bengaluru has followed a radial growth pattern. MG Road and surrounding locations constitute the Central
Business District (CBD) and represent the most developed parts of the city. Prominent residential
catchments like Jayanagar, JP Nagar, and Malleshwaram are located towards the southern and western
locations of the city. At present, peripheral locations like Whitefield and Kanakpura Road are attracting
strong interest due to the presence of a number of important office projects there along with developments
underway.
Bengaluru's IT/ITES sector, which is the prime economic driver of the city, has been directly responsible for
the increase in housing demand among the city's various demographic segments. Over the past decade
there has been a paradigm shift in the attitude of home buyers. Strong economic growth has resulted in an
increase in the city's per capita income, which along with fast paced development has changed the home
buyer's outlook. The traditionally conservative consumer mindset has been replaced by a desire for instant
gratification, which has resulted in frantic activity in the property market. Home buyers in Bengaluru
represent a mix of end-users and investors, whereas previously the former constituted the majority of
housing demand.
Bengaluru
Bengaluru's cosmopolitan constitution reflects the large influx of a
migratory population seeking better work opportunities. The
representative sample for the household survey carried out reveals that
close to 77% of the respondents are migrants. Over a period of time,
these migrants increasingly integrate with the rest of the population
and become actively involved in property acquisitions.
A typical home buyer in Bengaluru is a salaried professional working in
the service sector. Among the households surveyed, 88% of household
heads are employed in the service sector, with a large number
employed in the IT/ITES sector. The educated middle class segment in
the city is quite large and forms a strong potential demand base.
City Overview
Demand PerspectiveBuyer Profile
Figure 19
Distribution of Sample Households According to
Type of Occupation
Source: Knight Frank Research
Salaried Govt - 3%
Salaried Private - 88%
Self employed (business) - 8%
Self employed professional - 1%
(doctor, lawyer, CA)
29
This income category, whose affordable house property value has been
calculated to be in the range of Rs.20-29.7 lakh, would be able to
afford a house in Koregaon Park/Deccan at Rs.5,000/sq.ft. with an unit
size of 600 sq.ft. However, it also depends on whether the developer
would be ready to come up with smaller sized units and lower prices at
such central locations within the city.
As with the other cities surveyed, the residents of Pune in the higher
income category of Rs.8-10 lakh, too, proved to be cautious while
expressing their preferred budget. While households in this income
group can afford to purchase a property in the range of Rs.35-40 lakh,
as computed by Knight Frank Research, they conveyed a preferred
average budget of Rs.26 lakh, which was much lower than their
affordability. This implies that the higher income households in the
mid-income segment would rather curtail their aspirations and
maintain a conservative approach in times of economic adversity. On
the other hand, the lower income groups continue to keep their
preferred budget within their affordability.
Pune has a population of over 5 million that has been growing at the
rate of 4% per annum. The city features a strong presence of the
automobile sector, and of late has become a viable destination for the
IT/ITES sector. The increase in employment opportunities in Pune has
resulted in increased demand for housing that has put pressure on the
city's housing stock. Figure 17 specifies the housing requirement for
the middle income segment in Pune in 2009, 2010 and 2011.
City Outlook 0-6 months - 9%
6-12 months - 38%
1-2 years - 53%
Figure 18
Household Purchase Timelines
Source: Knight Frank Research
Knight Frank research estimates that the middle income population in
Pune will require approximately 1.34 lakh housing units by 2011, which
assuming an average unit size of 800 sq.ft. translates to approximately
107 mn.sq.ft. of residential space. Approximately 87% of this total
middle income housing requirement will be accounted for by the
Rs.3-5 lakh income segment. In order for this requirement to be
converted to demand, the Rs.3-5 lakh income category would have to
be targeted with houses in the price range of Rs.13-18 lakh. A very
important consideration in assessing the demand for houses in the
middle income segment is the consumers' purchase timelines, as even
if 100% of the requirement translates to demand, how this demand
pans out depends on when consumers are willing to incur the financial
burden of purchasing a house. Figure 18 details the preferred purchase
timelines of rental households surveyed.
As per the survey, about half of the prospective buyers are seeking to
purchase a house within the next year, while the other half expressed a
desire to purchase anytime within the next 2 years.
The growth of Pune has been limited by a lack of infrastructure support.
Poor quality of roads, interrupted power supply and lack of proper
public transport services have hindered the development of the city.
Eastern locations of the city like Kharadi and Kondhawa are preferred
housing destinations, primarily due to their relative proximity to
established commercial hubs like Magarpatta City and developed
residential locations like Kalyani Nagar. Viman Nagar is also an
attractive affordable housing destination due to its proximity to the
airport. Towards the west, locations like Wakad and Hinjewadi are
generating interest due to the strong IT/ITES development in these
areas and their proximity to the MumbaiPune Expressway.
Pimpri-Chinchwad, located towards the north of Pune, is also a viable
location for affordable housing, but its relative distance from the city
and its strong composition of automobile & manufacturing units has
reduced its attractiveness among potential home buyers. Therefore,
while there is demand for affordable housing from Pune's middle
income segment, the extent to which this demand is satiated depends
on how fast infrastructural gaps in the city are plugged.
Figure 17
Total Housing Unit Requirement for Rs. 3-10 lakh
Income Category
136,000
20
09
20
10
20
11
1,24,135
134,000
132,000
130,000
128,000
126,000
124,000
122,000
120,000
118,000
1,29,100
1,34,264
Source: Knight Frank Research
Previous Years’ Cumulative Requirement Incremental Requirement
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
32
The results of the household survey revealed that Bannerghatta Road
is the respondents' most preferred location to reside at. This is not
surprising given the location's good connectivity, strong development
potential, proximity to major markets and relatively lower cost. Other
locations like Koramangala, Ulsoor and Old Airport Road also proved
attractive, but they are relatively mature locations that exhibit higher
prices. Jayanagar and Hebbal are peripheral locations which the survey
respondents demonstrated an interest in.
The table below reveals that the unit price and the availability of basic
amenities like power and water is a more important consideration than
apartment size when purchase decisions are made. This reflects the
importance of basic amenities for the middle income group.
Factors Rank
Water supply 1
Price 2
Un-interrupted power supply 3
Safety & security 4
Apartment size 5
Disturbance caused by traffic/noise/congestion 6
Facilities available 7
Developer goodwill 8
Table 25
Factors Influencing Choice of Residential Project
Source: Knight Frank Research
One of the questions in the household survey required tenant
households to identify amenities that they would like to have in their
ideal house. It was revealed that uninterrupted water supply, power
backup and a high level of security were the most desirable amenities
amongst the households sampled. The range of amenities that are
generally provided in a housing unit gives an indication of buyer
preference and the premium which the developer would command for
the property. Figure 22 shows that the middle income segment
prioritizes the provision of basic amenities as opposed to frills like a
club house.
Figure 21
Factors Influencing Preference for Location
Favourable demographics
Presence of social circle
(friends, relatives)
Good infrastructure
Good potential for development
Good connectivity to frequently
travelled places
Source: Knight Frank Research
4%
17%
22%
26%
31%
0% 10% 20% 30% 40%
Percentage of Responses
Supply Perspective
Bengaluru has witnessed strong growth in residential property
development over the past five years. A majority of this development,
which was driven by investor demand, was in the premium housing
segment, leading to astronomical increases in property values across
the city. This sharp escalation in residential prices has made housing
unaffordable for Bengaluru's middle income segment.
The current slowdown in the economy has considerably affected
speculative demand, thus hindering the take up of residential units
within the city. This has resulted in an oversupply of housing units,
with most builders and developers finding a majority of their projects
plagued either by a lack of financing or drastically reduced demand.
This has put pressure on developers to explore other avenues in order
to meet their capital requirements. In this scenario, the middle income
segment has come to represent the strongest demand catchment in
the city as it constitutes a considerable portion of end user demand. To
cater to this potential demand segment, city builders and developers
are trying to promote existing and upcoming high end projects as
affordable housing options for the MIG segment.
In order to better understand the factors which influence the take up of
housing supply, Knight Frank Research conducted interviews with
prominent developers, banking and financial institutions and
government agencies in the city. It was learnt that over the past
8-10 months, residential enquiries have declined by an average of 30%,
while absolute sales have come down by about 60%. The primary
reason for the decline in residential demand was job insecurity
amongst home buyers. This has resulted in a sizeable number of
prominent developers turning to affordable housing projects either
directly or indirectly through their subsidiary companies.
Figure 22
Preferred Amenities within a Residential Project
Source: Knight Frank Research
0 100 120 140
Servant quarters
Modular Kitchen
Multipurpose hall
Club house
Interior fixtures
Swimming pool
Gymnasium/Spa
Finishing
Power Back-up
High level of security systems
Un-interrupted water supply
No. of Responses
80604020
31
The survey results revealed that close to 59% of the survey
respondents are in the annual household income bracket of
Rs.4-6 lakh, and would constitute a major chunk of housing demand.
Buyer Preferences
A prospective middle income home buyer in Bengaluru considers
various factors when deciding on the type of dwelling unit in which to
invest. Notable factors include unit price, location characteristics, unit
size, facilities and amenities. Over the years, the number of factors to
consider has increased, making it mandatory for the buyer to have a
high level of awareness of all aspects pertaining to a property. The cost
of a housing unit is obviously the primary concern, and the survey
results revealed that the middle income segment in Bengaluru would
prefer the property cost not to exceed Rs.26 lakh.
The size of the property is also a key criterion to consider when
deciding on a residential unit. Although those renting homes tend to
live in smaller units, they would prefer a bigger unit size if purchasing.
The table below depicts that across all middle income brackets,
apartment sizes preferred range from 900-1000 sq.ft.
The results of the household survey revealed that the Rs.5-6 lakh
income segment represents the biggest contributor to demand for
2 BHK apartments. This behavior is drastically different from that of
higher income groups, especially the Rs.8-10 lakh bracket, which was
revealed to be more inclined towards purchasing 1 BHK apartments.
This is primarily due to this income bracket's view of housing as a
short-term investment that would not warrant high capital outlays.
Figure 20
Distribution of Sample Households According to
Total Annual Income
Source: Knight Frank Research
Rs. 3-5 lakh - 25%
Rs. 5-6 lakh - 33%
Rs. 6-8 lakh - 18%
Rs. 8-10 lakh - 24%
Table 22
Percentage Distribution of Current Residence Type
Based on Annual Income
Annual Income 1 BHK 2 BHK 3 BHK Independent Row
House House
Rs. 3-5 lakh 38% 53% 3% 3% 3%
Rs. 5-6 lakh 28% 65% 4% 2% 0%
Rs. 6-8 lakh 40% 56% 0% 4% 0%
Rs. 8-10 lakh 42% 37% 16% 5% 0%
Source: Knight Frank Research
Average property rental values are directly influenced by apartment
sizes. The results of the survey revealed buyer preference to be for
2 BHK apartments, the size of which range between 800-900 sq.ft.
1 BHK houses command a monthly rental of approximately Rs.5,200,
which is about 44% less than the monthly rental for 2 BHK houses.
This exemplifies the huge rental increments as house size increases.
Annual Income Average Budget Average Preferred
(Rs. lakh) Size (sq.ft.)
Rs. 3-5 lakh 18 900
Rs. 5-6 lakh 20 913
Rs. 6-8 lakh 22 931
Rs. 8-10 lakh 26 994
Table 24
Average Preferred Budget and Size
Source: Knight Frank Research
Current Residence type Average Size Average Rental
(sq.ft.) (Rs./month)
1 BHK 573 5,241
2 BHK 835 7,592
3 BHK 1,055 13,000
Table 23
Current Residence Type W.R.T
Average Size and Rentals
Source: Knight Frank Research
When deciding on location, a majority of buyers prefer good
connectivity to frequently travelled places and high development
potential. This reflects the fact that a lack of connectivity effectively
blocks the development of potential housing markets. Good
infrastructure and the presence of a healthy social circle were also
revealed to be important considerations pertaining to location
preferences.
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
32
The results of the household survey revealed that Bannerghatta Road
is the respondents' most preferred location to reside at. This is not
surprising given the location's good connectivity, strong development
potential, proximity to major markets and relatively lower cost. Other
locations like Koramangala, Ulsoor and Old Airport Road also proved
attractive, but they are relatively mature locations that exhibit higher
prices. Jayanagar and Hebbal are peripheral locations which the survey
respondents demonstrated an interest in.
The table below reveals that the unit price and the availability of basic
amenities like power and water is a more important consideration than
apartment size when purchase decisions are made. This reflects the
importance of basic amenities for the middle income group.
Factors Rank
Water supply 1
Price 2
Un-interrupted power supply 3
Safety & security 4
Apartment size 5
Disturbance caused by traffic/noise/congestion 6
Facilities available 7
Developer goodwill 8
Table 25
Factors Influencing Choice of Residential Project
Source: Knight Frank Research
One of the questions in the household survey required tenant
households to identify amenities that they would like to have in their
ideal house. It was revealed that uninterrupted water supply, power
backup and a high level of security were the most desirable amenities
amongst the households sampled. The range of amenities that are
generally provided in a housing unit gives an indication of buyer
preference and the premium which the developer would command for
the property. Figure 22 shows that the middle income segment
prioritizes the provision of basic amenities as opposed to frills like a
club house.
Figure 21
Factors Influencing Preference for Location
Favourable demographics
Presence of social circle
(friends, relatives)
Good infrastructure
Good potential for development
Good connectivity to frequently
travelled places
Source: Knight Frank Research
4%
17%
22%
26%
31%
0% 10% 20% 30% 40%
Percentage of Responses
Supply Perspective
Bengaluru has witnessed strong growth in residential property
development over the past five years. A majority of this development,
which was driven by investor demand, was in the premium housing
segment, leading to astronomical increases in property values across
the city. This sharp escalation in residential prices has made housing
unaffordable for Bengaluru's middle income segment.
The current slowdown in the economy has considerably affected
speculative demand, thus hindering the take up of residential units
within the city. This has resulted in an oversupply of housing units,
with most builders and developers finding a majority of their projects
plagued either by a lack of financing or drastically reduced demand.
This has put pressure on developers to explore other avenues in order
to meet their capital requirements. In this scenario, the middle income
segment has come to represent the strongest demand catchment in
the city as it constitutes a considerable portion of end user demand. To
cater to this potential demand segment, city builders and developers
are trying to promote existing and upcoming high end projects as
affordable housing options for the MIG segment.
In order to better understand the factors which influence the take up of
housing supply, Knight Frank Research conducted interviews with
prominent developers, banking and financial institutions and
government agencies in the city. It was learnt that over the past
8-10 months, residential enquiries have declined by an average of 30%,
while absolute sales have come down by about 60%. The primary
reason for the decline in residential demand was job insecurity
amongst home buyers. This has resulted in a sizeable number of
prominent developers turning to affordable housing projects either
directly or indirectly through their subsidiary companies.
Figure 22
Preferred Amenities within a Residential Project
Source: Knight Frank Research
0 100 120 140
Servant quarters
Modular Kitchen
Multipurpose hall
Club house
Interior fixtures
Swimming pool
Gymnasium/Spa
Finishing
Power Back-up
High level of security systems
Un-interrupted water supply
No. of Responses
80604020
31
The survey results revealed that close to 59% of the survey
respondents are in the annual household income bracket of
Rs.4-6 lakh, and would constitute a major chunk of housing demand.
Buyer Preferences
A prospective middle income home buyer in Bengaluru considers
various factors when deciding on the type of dwelling unit in which to
invest. Notable factors include unit price, location characteristics, unit
size, facilities and amenities. Over the years, the number of factors to
consider has increased, making it mandatory for the buyer to have a
high level of awareness of all aspects pertaining to a property. The cost
of a housing unit is obviously the primary concern, and the survey
results revealed that the middle income segment in Bengaluru would
prefer the property cost not to exceed Rs.26 lakh.
The size of the property is also a key criterion to consider when
deciding on a residential unit. Although those renting homes tend to
live in smaller units, they would prefer a bigger unit size if purchasing.
The table below depicts that across all middle income brackets,
apartment sizes preferred range from 900-1000 sq.ft.
The results of the household survey revealed that the Rs.5-6 lakh
income segment represents the biggest contributor to demand for
2 BHK apartments. This behavior is drastically different from that of
higher income groups, especially the Rs.8-10 lakh bracket, which was
revealed to be more inclined towards purchasing 1 BHK apartments.
This is primarily due to this income bracket's view of housing as a
short-term investment that would not warrant high capital outlays.
Figure 20
Distribution of Sample Households According to
Total Annual Income
Source: Knight Frank Research
Rs. 3-5 lakh - 25%
Rs. 5-6 lakh - 33%
Rs. 6-8 lakh - 18%
Rs. 8-10 lakh - 24%
Table 22
Percentage Distribution of Current Residence Type
Based on Annual Income
Annual Income 1 BHK 2 BHK 3 BHK Independent Row
House House
Rs. 3-5 lakh 38% 53% 3% 3% 3%
Rs. 5-6 lakh 28% 65% 4% 2% 0%
Rs. 6-8 lakh 40% 56% 0% 4% 0%
Rs. 8-10 lakh 42% 37% 16% 5% 0%
Source: Knight Frank Research
Average property rental values are directly influenced by apartment
sizes. The results of the survey revealed buyer preference to be for
2 BHK apartments, the size of which range between 800-900 sq.ft.
1 BHK houses command a monthly rental of approximately Rs.5,200,
which is about 44% less than the monthly rental for 2 BHK houses.
This exemplifies the huge rental increments as house size increases.
Annual Income Average Budget Average Preferred
(Rs. lakh) Size (sq.ft.)
Rs. 3-5 lakh 18 900
Rs. 5-6 lakh 20 913
Rs. 6-8 lakh 22 931
Rs. 8-10 lakh 26 994
Table 24
Average Preferred Budget and Size
Source: Knight Frank Research
Current Residence type Average Size Average Rental
(sq.ft.) (Rs./month)
1 BHK 573 5,241
2 BHK 835 7,592
3 BHK 1,055 13,000
Table 23
Current Residence Type W.R.T
Average Size and Rentals
Source: Knight Frank Research
When deciding on location, a majority of buyers prefer good
connectivity to frequently travelled places and high development
potential. This reflects the fact that a lack of connectivity effectively
blocks the development of potential housing markets. Good
infrastructure and the presence of a healthy social circle were also
revealed to be important considerations pertaining to location
preferences.
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
34
It will be developed at a cost of Rs.2,639 crore, and will span across
4,814 acres, including 12 villages between Magadi Road and Mysore
Road in Bangalore West. Each of the layouts will be self-sustained,
have both residential and commercial establishments and will provide
proper commuting facilities like bus and taxi stands. All public
amenities like parks, roads, playgrounds as well as educational
institutions and healthcare facilities will also be provided for. The
roads within the layouts will connect with the service roads linking to
the PRR. In spite of such developmental projects being announced,
their execution has been delayed. If these projects were to progress on
schedule, it would make peripheral locations more attractive and the
prospect of affordable housing far more realistic.
Easier availability of home loans and construction finance are other
aspects that would dramatically improve the supply of affordable
housing. The economic downturn has witnessed loan defaults that
have piled financial pressure on banks. The financial institutions
interviewed by us revealed that in Bengaluru, more than 80% of
customers apply for a loan of Rs.20 lakh and fall in the middle income
bracket of Rs.4-7 lakh. Since early 2008, loan disbursements in the
city have reduced by 60-70% in spite of interest rate cuts. This has
adversely impacted banks. The lending institutions interviewed were of
the view that a lot of people were waiting for prices to correct even
further before committing to purchases. Unless developers show real
intent in coming out with genuinely affordable products, house buying
will remain low, especially considering the prevailing economic
conditions. Construction finance loans, which are given at a 15%
interest rate, are based on the grade of the developer, location of the
project, target segment and time of completion.
Currently, upcoming projects by even premier developers are being
closely scrutinized, and most banks are very cautious in their lending.
Most affordable housing projects, an example being the Commune off
Kanakpura road, are witnessing dismal sales after keen initial interest.
Banks view most affordable housing schemes as being high risk due to
the fact that a majority of such projects are coming up in peripheral
areas where infrastructural deficiencies greatly hinder demand. Most
financial institutions believe that unless developers take the lead and
come up with products that overcome various demand hindering
factors, the lull in the Bengaluru residential market can be expected to
persist for the foreseeable future.
Table 27 depicts in detail the maximum affordable EMI of households
of various income levels. Significantly, the results of the survey
revealed that the preference for size of residential units ranges from
850-1050 sq.ft. across all income categories surveyed. Unsurprisingly,
given this preference for larger unit sizes, very few locations in
Bengaluru would be affordable for consumers in the
Rs.5-6 lakh and Rs.6-8 lakh income categories. Amongst the
residential micro markets of Bengaluru, only Whitefield, Banerghatta
and Hebbal, all located at a distance of at least 10 kms from the city
centre of MG Road, would be affordable for the aforementioned income
groups. In fact, given size preferences, the residential locations of MG
Road, Sadashiv Nagar, Malleshwaram, Basavangudi, Indira Nagar,
Rajaji Nagar and Koramangala are beyond the affordability of even the
Rs.8-10 lakh income group. Thus, affordability is a serious
consideration for the residents of the city.
Identifying Affordability
Household income (per annum)
Maximum EMI (Rs.) 10,000 - 14,000 14,000 - 18,500 18,500 - 22,000 25,500 - 28,000
Maximum loan eligibility (Rs.) 11,00,000 - 15,38,000 15,85,000 - 20,48,000 20,32,000 - 24,19,000 28,30,000 - 31,23,000
(9% interest rate, 20 year loan tenure)
Buyer's own contribution (Rs.) 1,94,000 - 2,71,000 2,80,000 - 3,61,000 3,59,000 - 4,27,000 5,00,000 - 5,51,000
(Assuming 85% loan)
Affordable house property value (Rs.) 12,95,000 - 18,10,000 18,65,000 - 24,09,000 23,90,000 - 28,45,000 33,29,000 - 36,75,000
Preferred size (sq.ft.) 900 - 1,000 900 - 1,000 850 - 1,050 950 - 1,050
Price (Rs./sq.ft.) 1,500 - 1,850 2,050 - 2,600 2,700 - 2,850 3,450 - 3,600
Rs. 3 lakh - 5 lakh Rs. 5 lakh - 6 lakh Rs. 6 lakh - 8 lakh Rs. 8 lakh - 10 lakh
Table 27
Affordability in Bengaluru
Source: Knight Frank Research
Locations available
considering preferred size
and few residential areas
None Whitefield
Bannerghatta Road
Hebbal
Banswadi
BTM
Old Airport Road
Jayanagar
Old Madras Road
J.P. Nagar
Whitefield
Bannerghatta Road
Hebbal
Whitefield
Bannerghatta Road
Hebbal
33
Most such projects are being developed towards the southern and
eastern parts of the city, which comprise strong middle income end
user demand. Locations where developers are looking to come up with
affordable housing projects include Kanakpura Road, Hebbal,
Electronic City, BTM Layout and Whitefield. The cost of an affordable
unit would vary from Rs.15-30 lakh depending on the location. Most
builders in the city are concentrating on constructing 1 and 2 BHK
apartments as affordable homes, with sizes varying from
500-900 sq.ft. and cost varying from Rs.1200-2500/sq.ft. The cost of
construction for these projects is expected to vary between
Rs.1500-2000/sq.ft., which represents an increase from the normal
cost by Rs.300-500/sq.ft. This is primarily due to the higher number of
internal walls in these projects.
Builders are of the view that although there is not much reduction in
price, the absolute reduction in unit cost would be sufficient to drive
affordable housing demand. The builders' reputation, along with
facilities and amenities such as swimming pools and gymnasiums on
offer, is expected to create genuine interest in upcoming affordable
housing projects. Developers consider high land cost and a lack of
proper incentives by the state the primary obstacles impeding the
development of affordable housing in suburban locations of Bengaluru.
Since most of the land in these locations was bought at inflated prices,
affordable housing projects are not financially viable. Most projects
that are being launched constitute hidden charges like higher
maintenance cost and corpus funds that would offset the lower price
for a unit. Hence, a product advertised for Rs.20 lakh would ultimately
cost close to Rs.7-8 lakh more. As their existing projects are not
fetching any revenue, some Grade A developers are looking to the
affordable housing segment as an opportunity to boost their cash
flows in the prevailing dormant economic climate.
The Bengaluru Development Authority (BDA) and Bruhat Bengaluru
Mahanagara Palike (BBMP) are the local agencies that regulate
development in the city. Any construction activity in the city requires
prior approvals from these bodies. In certain instances, in order to
promote housing in peripheral locations, the BDA auctions plots in
various parts of the city, some of which are decided through a lottery.
Among infrastructure projects, the development of the NICE corridor
towards Mysore, the Peripheral Ring Road and the elevated highway at
Electronic City are expected to give a major boost to connectivity in
southern parts of the city. The Government of Karnataka's initiatives,
which are based on the public-private partnership model, have
resulted in a range of successful projects being completed in record
time, an example being the four-lane conversion of the existing State
Highway No.17 that passes through Kengeri, Bidadi, Ramanagaram,
Chennapatna, Maddur, Mandya and Srirangapatna. The government's
focus on realty development will be concentrated on Bengaluru's
periphery, with five integrated thematic townships coming up in
Kengeri, Bidadi, Ramanagaram, Chennapatna and Maddur. The
concept of integrated townships, which is being heavily promoted, is
expected to encourage the 'walk-to-work' culture, especially in
peripheral areas. According to the Bangalore Metropolitan and Rural
Development Authority (BMRDA), each of these townships will be built
around a specific theme. Currently, Bidadi Township has been
earmarked as an IT centre. Ramanagaram, which is a proposed
heritage hub, will also be an IT centre if the demand from the Bidadi
Township spills over. The profile of other townships will be dictated by
demand.
The proposed Peripheral Ring Road (PRR) will connect the new
international airport in Devanahalli with other radial roads in the city,
especially those within the north and east zones. The PRR will connect
with all the highways and radial roads at several junctions. Phase I of
the PRR, a 65 km. stretch, will link Hosur Road in Bangalore South to
Tumkur Road in Bangalore North. Phase II, spread across 51 km., will
connect Bangalore South to the West. This stretch will cross
Kanakapura Road, Mysore Road and Magadi Road. The BDA has
planned five major residential layouts along the Peripheral Ring Road
route to meet the housing requirements of Bengaluru's growing
population. A total of 1.74 lakh plots have been planned. In Phase I of
the PRR, the layouts earmarked are Dr Shivarama Karanth Layout, D
Devaraj Urs Layout, S Nijalingappa Layout and K C Reddy Layout. Phase
II of the PRR will have the Nadaprabhu Kempegowda Layout, which is
envisaged to be the model on which the other four layouts will be
based. The layouts will also feature 60,000 flats especially for the
economically weaker sections. The Kempegowda Layout was the first
one to be approved under Master Plan 2015, and has now been notified.
Sr.No Project Name Developer Location May '09 Rate (Rs./sq.ft.) Unit Size Range (sq.ft.)
1 Janapriya Greenwoods Janapriya Haserghatta 1,400 925-1,400
2 Commune Golden Gate Kanakpura Road 1,700 900-1,120
3 Westend Heights DLF BTM Layout 1,850 1,000-1,800
4 Vakil Townscape Vakil Housing Jigani 3,000 1,200-1,400
5 Evergreens Ozone Off Sarjapur Road 3,000 600-920
Table 26
Select Affordable Housing Projects in Bengaluru
Source: Knight Frank Research
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
34
It will be developed at a cost of Rs.2,639 crore, and will span across
4,814 acres, including 12 villages between Magadi Road and Mysore
Road in Bangalore West. Each of the layouts will be self-sustained,
have both residential and commercial establishments and will provide
proper commuting facilities like bus and taxi stands. All public
amenities like parks, roads, playgrounds as well as educational
institutions and healthcare facilities will also be provided for. The
roads within the layouts will connect with the service roads linking to
the PRR. In spite of such developmental projects being announced,
their execution has been delayed. If these projects were to progress on
schedule, it would make peripheral locations more attractive and the
prospect of affordable housing far more realistic.
Easier availability of home loans and construction finance are other
aspects that would dramatically improve the supply of affordable
housing. The economic downturn has witnessed loan defaults that
have piled financial pressure on banks. The financial institutions
interviewed by us revealed that in Bengaluru, more than 80% of
customers apply for a loan of Rs.20 lakh and fall in the middle income
bracket of Rs.4-7 lakh. Since early 2008, loan disbursements in the
city have reduced by 60-70% in spite of interest rate cuts. This has
adversely impacted banks. The lending institutions interviewed were of
the view that a lot of people were waiting for prices to correct even
further before committing to purchases. Unless developers show real
intent in coming out with genuinely affordable products, house buying
will remain low, especially considering the prevailing economic
conditions. Construction finance loans, which are given at a 15%
interest rate, are based on the grade of the developer, location of the
project, target segment and time of completion.
Currently, upcoming projects by even premier developers are being
closely scrutinized, and most banks are very cautious in their lending.
Most affordable housing projects, an example being the Commune off
Kanakpura road, are witnessing dismal sales after keen initial interest.
Banks view most affordable housing schemes as being high risk due to
the fact that a majority of such projects are coming up in peripheral
areas where infrastructural deficiencies greatly hinder demand. Most
financial institutions believe that unless developers take the lead and
come up with products that overcome various demand hindering
factors, the lull in the Bengaluru residential market can be expected to
persist for the foreseeable future.
Table 27 depicts in detail the maximum affordable EMI of households
of various income levels. Significantly, the results of the survey
revealed that the preference for size of residential units ranges from
850-1050 sq.ft. across all income categories surveyed. Unsurprisingly,
given this preference for larger unit sizes, very few locations in
Bengaluru would be affordable for consumers in the
Rs.5-6 lakh and Rs.6-8 lakh income categories. Amongst the
residential micro markets of Bengaluru, only Whitefield, Banerghatta
and Hebbal, all located at a distance of at least 10 kms from the city
centre of MG Road, would be affordable for the aforementioned income
groups. In fact, given size preferences, the residential locations of MG
Road, Sadashiv Nagar, Malleshwaram, Basavangudi, Indira Nagar,
Rajaji Nagar and Koramangala are beyond the affordability of even the
Rs.8-10 lakh income group. Thus, affordability is a serious
consideration for the residents of the city.
Identifying Affordability
Household income (per annum)
Maximum EMI (Rs.) 10,000 - 14,000 14,000 - 18,500 18,500 - 22,000 25,500 - 28,000
Maximum loan eligibility (Rs.) 11,00,000 - 15,38,000 15,85,000 - 20,48,000 20,32,000 - 24,19,000 28,30,000 - 31,23,000
(9% interest rate, 20 year loan tenure)
Buyer's own contribution (Rs.) 1,94,000 - 2,71,000 2,80,000 - 3,61,000 3,59,000 - 4,27,000 5,00,000 - 5,51,000
(Assuming 85% loan)
Affordable house property value (Rs.) 12,95,000 - 18,10,000 18,65,000 - 24,09,000 23,90,000 - 28,45,000 33,29,000 - 36,75,000
Preferred size (sq.ft.) 900 - 1,000 900 - 1,000 850 - 1,050 950 - 1,050
Price (Rs./sq.ft.) 1,500 - 1,850 2,050 - 2,600 2,700 - 2,850 3,450 - 3,600
Rs. 3 lakh - 5 lakh Rs. 5 lakh - 6 lakh Rs. 6 lakh - 8 lakh Rs. 8 lakh - 10 lakh
Table 27
Affordability in Bengaluru
Source: Knight Frank Research
Locations available
considering preferred size
and few residential areas
None Whitefield
Bannerghatta Road
Hebbal
Banswadi
BTM
Old Airport Road
Jayanagar
Old Madras Road
J.P. Nagar
Whitefield
Bannerghatta Road
Hebbal
Whitefield
Bannerghatta Road
Hebbal
33
Most such projects are being developed towards the southern and
eastern parts of the city, which comprise strong middle income end
user demand. Locations where developers are looking to come up with
affordable housing projects include Kanakpura Road, Hebbal,
Electronic City, BTM Layout and Whitefield. The cost of an affordable
unit would vary from Rs.15-30 lakh depending on the location. Most
builders in the city are concentrating on constructing 1 and 2 BHK
apartments as affordable homes, with sizes varying from
500-900 sq.ft. and cost varying from Rs.1200-2500/sq.ft. The cost of
construction for these projects is expected to vary between
Rs.1500-2000/sq.ft., which represents an increase from the normal
cost by Rs.300-500/sq.ft. This is primarily due to the higher number of
internal walls in these projects.
Builders are of the view that although there is not much reduction in
price, the absolute reduction in unit cost would be sufficient to drive
affordable housing demand. The builders' reputation, along with
facilities and amenities such as swimming pools and gymnasiums on
offer, is expected to create genuine interest in upcoming affordable
housing projects. Developers consider high land cost and a lack of
proper incentives by the state the primary obstacles impeding the
development of affordable housing in suburban locations of Bengaluru.
Since most of the land in these locations was bought at inflated prices,
affordable housing projects are not financially viable. Most projects
that are being launched constitute hidden charges like higher
maintenance cost and corpus funds that would offset the lower price
for a unit. Hence, a product advertised for Rs.20 lakh would ultimately
cost close to Rs.7-8 lakh more. As their existing projects are not
fetching any revenue, some Grade A developers are looking to the
affordable housing segment as an opportunity to boost their cash
flows in the prevailing dormant economic climate.
The Bengaluru Development Authority (BDA) and Bruhat Bengaluru
Mahanagara Palike (BBMP) are the local agencies that regulate
development in the city. Any construction activity in the city requires
prior approvals from these bodies. In certain instances, in order to
promote housing in peripheral locations, the BDA auctions plots in
various parts of the city, some of which are decided through a lottery.
Among infrastructure projects, the development of the NICE corridor
towards Mysore, the Peripheral Ring Road and the elevated highway at
Electronic City are expected to give a major boost to connectivity in
southern parts of the city. The Government of Karnataka's initiatives,
which are based on the public-private partnership model, have
resulted in a range of successful projects being completed in record
time, an example being the four-lane conversion of the existing State
Highway No.17 that passes through Kengeri, Bidadi, Ramanagaram,
Chennapatna, Maddur, Mandya and Srirangapatna. The government's
focus on realty development will be concentrated on Bengaluru's
periphery, with five integrated thematic townships coming up in
Kengeri, Bidadi, Ramanagaram, Chennapatna and Maddur. The
concept of integrated townships, which is being heavily promoted, is
expected to encourage the 'walk-to-work' culture, especially in
peripheral areas. According to the Bangalore Metropolitan and Rural
Development Authority (BMRDA), each of these townships will be built
around a specific theme. Currently, Bidadi Township has been
earmarked as an IT centre. Ramanagaram, which is a proposed
heritage hub, will also be an IT centre if the demand from the Bidadi
Township spills over. The profile of other townships will be dictated by
demand.
The proposed Peripheral Ring Road (PRR) will connect the new
international airport in Devanahalli with other radial roads in the city,
especially those within the north and east zones. The PRR will connect
with all the highways and radial roads at several junctions. Phase I of
the PRR, a 65 km. stretch, will link Hosur Road in Bangalore South to
Tumkur Road in Bangalore North. Phase II, spread across 51 km., will
connect Bangalore South to the West. This stretch will cross
Kanakapura Road, Mysore Road and Magadi Road. The BDA has
planned five major residential layouts along the Peripheral Ring Road
route to meet the housing requirements of Bengaluru's growing
population. A total of 1.74 lakh plots have been planned. In Phase I of
the PRR, the layouts earmarked are Dr Shivarama Karanth Layout, D
Devaraj Urs Layout, S Nijalingappa Layout and K C Reddy Layout. Phase
II of the PRR will have the Nadaprabhu Kempegowda Layout, which is
envisaged to be the model on which the other four layouts will be
based. The layouts will also feature 60,000 flats especially for the
economically weaker sections. The Kempegowda Layout was the first
one to be approved under Master Plan 2015, and has now been notified.
Sr.No Project Name Developer Location May '09 Rate (Rs./sq.ft.) Unit Size Range (sq.ft.)
1 Janapriya Greenwoods Janapriya Haserghatta 1,400 925-1,400
2 Commune Golden Gate Kanakpura Road 1,700 900-1,120
3 Westend Heights DLF BTM Layout 1,850 1,000-1,800
4 Vakil Townscape Vakil Housing Jigani 3,000 1,200-1,400
5 Evergreens Ozone Off Sarjapur Road 3,000 600-920
Table 26
Select Affordable Housing Projects in Bengaluru
Source: Knight Frank Research
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
36
Reduced expectations on the end user's side and readiness for price
negotiation on the developers' front can lead to housing demand
satiation for Bengaluru's mid-income segment. Another interesting fact
observed during the survey is that respondents belonging to the upper
income category of Rs.8-10 lakh preferred to quote a budget far lower
than their actual affordability. The maximum affordable house value
arrived at for this income group falls between Rs.33-36 lakh, while the
house value computed based on the respondents' preferred budget is
Rs.22 lakh. This reflects a cautious approach by consumers in this
income group that can be attributed to uncertainty owing to prevailing
economic conditions.
Bengaluru, with a population of approximately 7 mn., has been
growing at the rate of 3.2% per annum. This growth can be largely
attributed to the migratory population whose shift into the city has
been the result of strong IT/ITES development. The result of this
population growth has been enormous pressure on the city's housing
stock. Figure 23 specifies the housing requirement for the middle
income segment in Bengaluru in 2009, 2010 and 2011.
City Outlook
look at reducing existing profit margins and building housing units
within the affordability of the Rs.3-5 lakh income segment, while
potential home buyers would have to be willing to compromise on
house sizes. A very important consideration in assessing the demand
for houses in the middle income segment is the consumers' purchase
timelines, as even if 100% of the requirement translates to demand,
how this demand pans out depends on when consumers are willing to
incur the financial burden of purchasing a house. Figure 24 details the
preferred purchase timelines of rental households surveyed.
0-6 months - 5%
6-12 months - 32%
1-2 years - 63%
Figure 24
Household Purchase Timelines
Source: Knight Frank Research
Given the current economic instability and decline of property prices in
the recent past, it is not surprising that around 63% of buyers are
planning to purchase a new house in 1-2 years. The remaining 33% of
prospective buyers are looking at purchasing a new house within the
next year. The growth of potential residential locations in Bengaluru
has been tempered by a lack of good social and physical infrastructure
facilities. The sudden spurt of real estate development in the city has
put a lot of pressure on existing infrastructure, and the delayed
implementation of ongoing infrastructure projects has substantially
slowed down development plans. Peripheral locations of Bengaluru
have been deeply affected by the lack of proper connectivity and basic
utility services, thus rendering them less attractive as dwelling
locations. Whitefield, located towards the east of the city, lacks social
infrastructure and is afflicted by power outage issues and low
accessibility. Similarly, Bannerghatta Road and BTM Layout have
limitations pertaining to physical infrastructure, an example being
sub-par road development. In addition to the aforementioned issues,
the distance of these micro markets from Bengaluru's CBD is a major
deterrent for people working around the city centre. Hebbal, situated
towards north Bengaluru, has an inherent location advantage due to
its relative proximity to the Bengaluru International Airport. However,
the prevailing economic downturn has slowed the development of this
particular region. The location has good connectivity and quality of
infrastructure, but suffers from inefficient public transport facilities
that hinder its accessibility. Power outage is also a regular feature in
Hebbal. Unless Bengaluru's infrastructure is developed to match the
needs of its population, it will continue to hinder the development of
genuine affordable housing locations around the city.
Knight Frank research estimates that the middle income population in
Bengaluru will require approximately 3.27 lakh housing units by 2011,
which assuming an average unit size of 800 sq.ft. translates to
approximately 262 mn.sq.ft. of residential space. Approximately 80%
of this total middle income housing requirement will be accounted for
by the Rs.3-5 lakh income segment. As per survey results, this income
group prefers property prices in the range of Rs.13-18 Lakh. In order to
convert potential demand to actual demand, developers would have to
Figure 23
Total Housing Unit Requirement for Rs. 3-10 lakh
Income Category
330,000
20
09
20
10
20
11
3,07,687
325,000
320,000
315,000
310,000
305,000
300,000
295,000
3,17,533
3,27,694
Source: Knight Frank Research
Previous Years’ Cumulative Requirement Incremental Requirement
35
As a matter of fact, judging by the prevailing rates in most residential
locations and preferred unit sizes, no residential market caters to the
Rs.3-5 lakh income group. With its preference for 900-1000 sq.ft. units,
this income group may not be able to stretch beyond a price range of
Rs.1500-1850/sq.ft., which is below prevailing rates in most residential
locations. Alternatively, consumers in the Rs.3-5 lakh income group
can own a house only if they are willing to compromise on their size
requirement. For instance, consumers in this income group opting for a
unit size of 600 sq.ft. as opposed to the preferred 900 sq.ft. can
purchase a property worth Rs.3000/sq.ft. in locations like Jayanagar,
Locations May '09 Rate Max Size (in sq.ft.) & Total Property Value (in Rs.lakh)
(in Rs./sq.ft.)
500 600 700 800 900 1000 1100 1200
sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft.
Min 7,000 35.0 42.0 49.0 56.0 63.0 70.0 77.0 84.0MG Road
Max 12,000 60.0 72.0 84.0 96.0 108.0 120.0 132.0 144.0
Min 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0Sadashiv nagar
Max 8,000 40.0 48.0 56.0 64.0 72.0 80.0 88.0 96.0
Min 5,400 27.0 32.4 37.8 43.2 48.6 54.0 59.4 64.8Malleshwaram
Max 5,500 27.5 33.0 38.5 44.0 49.5 55.0 60.5 66.0
Min 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0Basavangudi
Max 5,700 28.5 34.2 39.9 45.6 51.3 57.0 62.7 68.4
Min 4,500 22.5 27.0 31.5 36.0 40.5 45.0 49.5 54.0Indira nagar
Max 5,800 29.0 34.8 40.6 46.4 52.2 58.0 63.8 69.6
Min 4,500 22.5 27.0 31.5 36.0 40.5 45.0 49.5 54.0Rajaji Nagar
Max 5,500 27.5 33.0 38.5 44.0 49.5 55.0 60.5 66.0
Min 4,400 22.0 26.4 30.8 35.2 39.6 44.0 48.4 52.8Koramangala
Max 5,500 27.5 33.0 38.5 44.0 49.5 55.0 60.5 66.0
Min 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0Banswadi
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0BTM
Max 4,800 24.0 28.8 33.6 38.4 43.2 48.0 52.8 57.6
Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0Old Airport Road
Max 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0Jayanagar
Max 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0Old Madras Road
Max 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0
Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0J.P. Nagar
Max 4,500 22.5 27.0 31.5 36.0 40.5 45.0 49.5 54.0
Min 2,400 12.0 14.4 16.8 19.2 21.6 24.0 26.4 28.8Whitefield
Max 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
Min 2,000 10.0 12.0 14.0 16.0 18.0 20.0 22.0 24.0Bannerghatta Road
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Min 2,000 10.0 12.0 14.0 16.0 18.0 20.0 22.0 24.0Hebbal
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Table 28
Size Preference in Bengaluru - Min-850 sq.ft. Max-1050 sq.ft.
Affordable House Property in Bengaluru - Min 12.95 lakh Max 36.75 lakh Not Affordable
Source: Knight Frank Research
JP Nagar and Banswadi, all of which are considered amongst the more
favoured residential pockets in the city.
Similarly, compromising on unit size can increase affordability for
consumers in other income groups as well. Table 28 illustrates this fact
based on the willingness of the buyer to compromise on the size of the
residential unit. The results as shown in the table prove that while
much has been written about the vast gap between end-user
affordability and prices quoted by developers, a balance can be
brought about if there is some concession from both sides.
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
36
Reduced expectations on the end user's side and readiness for price
negotiation on the developers' front can lead to housing demand
satiation for Bengaluru's mid-income segment. Another interesting fact
observed during the survey is that respondents belonging to the upper
income category of Rs.8-10 lakh preferred to quote a budget far lower
than their actual affordability. The maximum affordable house value
arrived at for this income group falls between Rs.33-36 lakh, while the
house value computed based on the respondents' preferred budget is
Rs.22 lakh. This reflects a cautious approach by consumers in this
income group that can be attributed to uncertainty owing to prevailing
economic conditions.
Bengaluru, with a population of approximately 7 mn., has been
growing at the rate of 3.2% per annum. This growth can be largely
attributed to the migratory population whose shift into the city has
been the result of strong IT/ITES development. The result of this
population growth has been enormous pressure on the city's housing
stock. Figure 23 specifies the housing requirement for the middle
income segment in Bengaluru in 2009, 2010 and 2011.
City Outlook
look at reducing existing profit margins and building housing units
within the affordability of the Rs.3-5 lakh income segment, while
potential home buyers would have to be willing to compromise on
house sizes. A very important consideration in assessing the demand
for houses in the middle income segment is the consumers' purchase
timelines, as even if 100% of the requirement translates to demand,
how this demand pans out depends on when consumers are willing to
incur the financial burden of purchasing a house. Figure 24 details the
preferred purchase timelines of rental households surveyed.
0-6 months - 5%
6-12 months - 32%
1-2 years - 63%
Figure 24
Household Purchase Timelines
Source: Knight Frank Research
Given the current economic instability and decline of property prices in
the recent past, it is not surprising that around 63% of buyers are
planning to purchase a new house in 1-2 years. The remaining 33% of
prospective buyers are looking at purchasing a new house within the
next year. The growth of potential residential locations in Bengaluru
has been tempered by a lack of good social and physical infrastructure
facilities. The sudden spurt of real estate development in the city has
put a lot of pressure on existing infrastructure, and the delayed
implementation of ongoing infrastructure projects has substantially
slowed down development plans. Peripheral locations of Bengaluru
have been deeply affected by the lack of proper connectivity and basic
utility services, thus rendering them less attractive as dwelling
locations. Whitefield, located towards the east of the city, lacks social
infrastructure and is afflicted by power outage issues and low
accessibility. Similarly, Bannerghatta Road and BTM Layout have
limitations pertaining to physical infrastructure, an example being
sub-par road development. In addition to the aforementioned issues,
the distance of these micro markets from Bengaluru's CBD is a major
deterrent for people working around the city centre. Hebbal, situated
towards north Bengaluru, has an inherent location advantage due to
its relative proximity to the Bengaluru International Airport. However,
the prevailing economic downturn has slowed the development of this
particular region. The location has good connectivity and quality of
infrastructure, but suffers from inefficient public transport facilities
that hinder its accessibility. Power outage is also a regular feature in
Hebbal. Unless Bengaluru's infrastructure is developed to match the
needs of its population, it will continue to hinder the development of
genuine affordable housing locations around the city.
Knight Frank research estimates that the middle income population in
Bengaluru will require approximately 3.27 lakh housing units by 2011,
which assuming an average unit size of 800 sq.ft. translates to
approximately 262 mn.sq.ft. of residential space. Approximately 80%
of this total middle income housing requirement will be accounted for
by the Rs.3-5 lakh income segment. As per survey results, this income
group prefers property prices in the range of Rs.13-18 Lakh. In order to
convert potential demand to actual demand, developers would have to
Figure 23
Total Housing Unit Requirement for Rs. 3-10 lakh
Income Category
330,000
20
09
20
10
20
11
3,07,687
325,000
320,000
315,000
310,000
305,000
300,000
295,000
3,17,533
3,27,694
Source: Knight Frank Research
Previous Years’ Cumulative Requirement Incremental Requirement
35
As a matter of fact, judging by the prevailing rates in most residential
locations and preferred unit sizes, no residential market caters to the
Rs.3-5 lakh income group. With its preference for 900-1000 sq.ft. units,
this income group may not be able to stretch beyond a price range of
Rs.1500-1850/sq.ft., which is below prevailing rates in most residential
locations. Alternatively, consumers in the Rs.3-5 lakh income group
can own a house only if they are willing to compromise on their size
requirement. For instance, consumers in this income group opting for a
unit size of 600 sq.ft. as opposed to the preferred 900 sq.ft. can
purchase a property worth Rs.3000/sq.ft. in locations like Jayanagar,
Locations May '09 Rate Max Size (in sq.ft.) & Total Property Value (in Rs.lakh)
(in Rs./sq.ft.)
500 600 700 800 900 1000 1100 1200
sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft.
Min 7,000 35.0 42.0 49.0 56.0 63.0 70.0 77.0 84.0MG Road
Max 12,000 60.0 72.0 84.0 96.0 108.0 120.0 132.0 144.0
Min 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0Sadashiv nagar
Max 8,000 40.0 48.0 56.0 64.0 72.0 80.0 88.0 96.0
Min 5,400 27.0 32.4 37.8 43.2 48.6 54.0 59.4 64.8Malleshwaram
Max 5,500 27.5 33.0 38.5 44.0 49.5 55.0 60.5 66.0
Min 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0Basavangudi
Max 5,700 28.5 34.2 39.9 45.6 51.3 57.0 62.7 68.4
Min 4,500 22.5 27.0 31.5 36.0 40.5 45.0 49.5 54.0Indira nagar
Max 5,800 29.0 34.8 40.6 46.4 52.2 58.0 63.8 69.6
Min 4,500 22.5 27.0 31.5 36.0 40.5 45.0 49.5 54.0Rajaji Nagar
Max 5,500 27.5 33.0 38.5 44.0 49.5 55.0 60.5 66.0
Min 4,400 22.0 26.4 30.8 35.2 39.6 44.0 48.4 52.8Koramangala
Max 5,500 27.5 33.0 38.5 44.0 49.5 55.0 60.5 66.0
Min 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0Banswadi
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0BTM
Max 4,800 24.0 28.8 33.6 38.4 43.2 48.0 52.8 57.6
Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0Old Airport Road
Max 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0Jayanagar
Max 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0Old Madras Road
Max 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0
Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0J.P. Nagar
Max 4,500 22.5 27.0 31.5 36.0 40.5 45.0 49.5 54.0
Min 2,400 12.0 14.4 16.8 19.2 21.6 24.0 26.4 28.8Whitefield
Max 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
Min 2,000 10.0 12.0 14.0 16.0 18.0 20.0 22.0 24.0Bannerghatta Road
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Min 2,000 10.0 12.0 14.0 16.0 18.0 20.0 22.0 24.0Hebbal
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Table 28
Size Preference in Bengaluru - Min-850 sq.ft. Max-1050 sq.ft.
Affordable House Property in Bengaluru - Min 12.95 lakh Max 36.75 lakh Not Affordable
Source: Knight Frank Research
JP Nagar and Banswadi, all of which are considered amongst the more
favoured residential pockets in the city.
Similarly, compromising on unit size can increase affordability for
consumers in other income groups as well. Table 28 illustrates this fact
based on the willingness of the buyer to compromise on the size of the
residential unit. The results as shown in the table prove that while
much has been written about the vast gap between end-user
affordability and prices quoted by developers, a balance can be
brought about if there is some concession from both sides.
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Our survey reveals that within the middle income segment, people
earning between Rs.6-8 lakh per annum constitute a major proportion,
accounting for 53% of the total respondents. A majority of this segment
is employed in the service sector and represent a relatively recent
addition to the population. About 25% of the surveyed respondents are
in the income bracket of Rs.5-6 lakh per annum and these people
mainly represent a mix of the service and manufacturing sector. The
middle income segment in the city consists of people having a mix of
traditional values with a modern outlook. Despite a steep rise in
income levels over the last five years the Chennai consumer continues
to be conservative. They are more comfortable with local builders and
are indifferent to projects by national developers.
The dominance of 2 BHK apartments with an average size of
approximately 800 sq.ft. and average rental values of about
Rs.9000/month indicates the willingness of the buyer for spending a
considerable amount on accomodation.
In Chennai people have a traditional mindset with most major
decisions being collective family decisions. This attitude reflects
predominantly in their property purchasing decision. Property price,
good physical and social infrastructure are valued more by the buyers
than apartment size. A person in Chennai in the income category of
Rs.3-5 lakh per annum would be comfortable investing about
Rs.15 lakh for an apartment or an independent home with an average
size of 650 sq.ft. which is an average 35 sq.ft. larger than the current
residence. The household segment earning Rs.5-8 lakh per annum is
willing to spend between Rs.19-22 lakh for houses with sizes varying
between 840 sq.ft. to 920 sq.ft. and the Rs.8-10 lakh income segment
is willing to spend about Rs.31 lakh for apartments close to 1100 sq.ft.
in size. Clearly apartment size is not a major factor as the increase from
their current residence ranges from 35 to 120 sq.ft. With higher income
levels the property budget is also increasing, indicating a positive
relation between income and house budget.
Buyers Preferences
Figure 26
Distribution of Sample Households According to
Total Annual Income
Source: Knight Frank Research
Rs. 3-5 lakh - 14%
Rs. 5-6 lakh - 25%
Rs. 6-8 lakh - 53%
Rs. 8-10 lakh - 8%
It is observed that about 38% of people from the Rs.3-5 lakh per annum
income bracket are staying in Independent houses with 33% in 1 BHK
apartment. Around 73% of the households from the Rs.6-8 lakh per
annum income segment and 47% of the Rs.5-6 lakh per annum income
group stay in 2 BHK apartments.
Table 29
Percentage Distribution of Current Residence Type
Based on Annual Income
Annual Income 1 BHK 2 BHK 3 BHK Independent
House
Rs. 3-5 lakh 33% 24% 5% 38%
Rs. 5-6 lakh 29% 47% 10% 13%
Rs. 6-8 lakh 6% 73% 7% 13%
Rs. 8-10 lakh 8% 50% 25% 17%
Source: Knight Frank Research
Current Residence type Average Size Average Rental
(sq.ft.) (Rs./month)
1 BHK 615 6,583
2 BHK 791 9,289
3 BHK 1,055 12,071
Table 30
Current Residence Type W.R.TAverage Size and Rentals
Source: Knight Frank Research
Annual Income Average Budget Average Preferred
(Rs. lakh) Size (sq.ft.)
Rs.
Rs.
Rs.
Rs.
3-5 lakh 14 649
5-6 lakh 19 843
6-8 lakh 22 919
8-10 lakh 31 1,095
Table 31
Average Preferred Budget and Size
Source: Knight Frank Research
Acceptable locations for a potential home buyer in Chennai depend on
good infrastructure provisions with a future potential for development
and presence of good social network. Although the middle income
segment in Chennai consists of predominantly end users, they prefer
their property to have a steady appreciation. Connectivity as a factor
does not rank high amongst the potential demand segment as the city
is very well connected to most locations.
Amongst the various peripheral and suburban micro markets in
Chennai, our survey has revealed that locations like Rajiv Gandhi Salai
and Velachery are preferred by the middle income segment with 39%
of the respondents opting for these locations. This reflects a clear
preference for South Chennai amongst the prospective buyers. The
reasons for the same can be attributed to good infrastructure
development in the area with connectivity to important locations within
the city. The development of the monorail at Rajiv Gandhi Salai and
Velachery has made these locations more attractive to the buyer.
3837
Chennai is the fourth largest city in India by area and the capital city of Tamil Nadu. Located on the
Coromandel Coast of the Bay of Bengal, Chennai's economy has a broad industrial base in the automobile,
technology, hardware manufacturing, and healthcare industries. The city is India's second largest exporter of
software, information technology (IT) and information-technology-enabled services (ITES). A major portion of
India's automobile manufacturing industry is based in and around the city. The city also contributes 39% to
the state's GDP.
The Chennai Metropolitan Area comprises of the city of Chennai and contiguous area namely parts of
Kanchipuram and Thiruvallur and is governed by the Corporation of Chennai, representing the 155 Wards. The
larger suburbs are governed by town municipalities while the smaller ones are governed by town councils
called panchayats. Satellite towns include Mahabalipuram to the south, Chengalpattu to the south-west, and
Kanchipuram, Sriperumpudur, Tiruvallur and Arakkonam to the west.
The city is generally classified in to four major areas namely the North, Central, South and Western regions.
North Chennai is predominantly an industrial region. Central Chennai is the most developed part of the city
with established commercial and residential markets. South and West Chennai, previously predominantly
residential areas are fast turning into commercial areas, hosting a large number of IT and financial services
companies.
Chennai is a base for the automobile and auto ancillary industry in the country and is acknowledged as the
largest contributor to the growth in this sector. It is also one of the premier port cities in the country, which
has always been a major source of employment. The focus on the manufacturing sector has led to strong
infrastructure development in the city. Strong intra city connectivity and presence of a good air, road and rail
network with other cities has added to the attractiveness of the city. Of late it has been witnessing the entry
of a host of new sectors which are believed to be causing radical changes to the city's landscape.The
residential development in the city has picked up in the last few years and is turning out to be an attractive
investment opportunity for buyers.
CHENNAI
A typical resident of Chennai, unlike other cities, is very conservative in
his buying behaviour. A majority of the population in the city comprises
the middle income group which predominantly constitute the end user
segment. Consumers, including house buyers, are value driven and
closely evaluate all possible factors and options before deciding on a
product. The household survey results reveal that 88% of the
respondents are from the salaried class working in the private sector,
which shows the dominance of this segment. The migrant population
in Chennai is relatively lower, with about 70% of the population being
local residents. The average household size in the city is around 5
members. Apartment complexes have a lower acceptance compared to
other cities and given a choice, potential home buyers would prefer
individual houses.
City Overview
Demand PerspectiveBuyer Profile
Figure 25
Distribution of Sample Households According to
Type of Occupation
Source: Knight Frank Research
Salaried Govt - 2%
Salaried Private - 88%
Self employed (business) - 10%
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Our survey reveals that within the middle income segment, people
earning between Rs.6-8 lakh per annum constitute a major proportion,
accounting for 53% of the total respondents. A majority of this segment
is employed in the service sector and represent a relatively recent
addition to the population. About 25% of the surveyed respondents are
in the income bracket of Rs.5-6 lakh per annum and these people
mainly represent a mix of the service and manufacturing sector. The
middle income segment in the city consists of people having a mix of
traditional values with a modern outlook. Despite a steep rise in
income levels over the last five years the Chennai consumer continues
to be conservative. They are more comfortable with local builders and
are indifferent to projects by national developers.
The dominance of 2 BHK apartments with an average size of
approximately 800 sq.ft. and average rental values of about
Rs.9000/month indicates the willingness of the buyer for spending a
considerable amount on accomodation.
In Chennai people have a traditional mindset with most major
decisions being collective family decisions. This attitude reflects
predominantly in their property purchasing decision. Property price,
good physical and social infrastructure are valued more by the buyers
than apartment size. A person in Chennai in the income category of
Rs.3-5 lakh per annum would be comfortable investing about
Rs.15 lakh for an apartment or an independent home with an average
size of 650 sq.ft. which is an average 35 sq.ft. larger than the current
residence. The household segment earning Rs.5-8 lakh per annum is
willing to spend between Rs.19-22 lakh for houses with sizes varying
between 840 sq.ft. to 920 sq.ft. and the Rs.8-10 lakh income segment
is willing to spend about Rs.31 lakh for apartments close to 1100 sq.ft.
in size. Clearly apartment size is not a major factor as the increase from
their current residence ranges from 35 to 120 sq.ft. With higher income
levels the property budget is also increasing, indicating a positive
relation between income and house budget.
Buyers Preferences
Figure 26
Distribution of Sample Households According to
Total Annual Income
Source: Knight Frank Research
Rs. 3-5 lakh - 14%
Rs. 5-6 lakh - 25%
Rs. 6-8 lakh - 53%
Rs. 8-10 lakh - 8%
It is observed that about 38% of people from the Rs.3-5 lakh per annum
income bracket are staying in Independent houses with 33% in 1 BHK
apartment. Around 73% of the households from the Rs.6-8 lakh per
annum income segment and 47% of the Rs.5-6 lakh per annum income
group stay in 2 BHK apartments.
Table 29
Percentage Distribution of Current Residence Type
Based on Annual Income
Annual Income 1 BHK 2 BHK 3 BHK Independent
House
Rs. 3-5 lakh 33% 24% 5% 38%
Rs. 5-6 lakh 29% 47% 10% 13%
Rs. 6-8 lakh 6% 73% 7% 13%
Rs. 8-10 lakh 8% 50% 25% 17%
Source: Knight Frank Research
Current Residence type Average Size Average Rental
(sq.ft.) (Rs./month)
1 BHK 615 6,583
2 BHK 791 9,289
3 BHK 1,055 12,071
Table 30
Current Residence Type W.R.TAverage Size and Rentals
Source: Knight Frank Research
Annual Income Average Budget Average Preferred
(Rs. lakh) Size (sq.ft.)
Rs.
Rs.
Rs.
Rs.
3-5 lakh 14 649
5-6 lakh 19 843
6-8 lakh 22 919
8-10 lakh 31 1,095
Table 31
Average Preferred Budget and Size
Source: Knight Frank Research
Acceptable locations for a potential home buyer in Chennai depend on
good infrastructure provisions with a future potential for development
and presence of good social network. Although the middle income
segment in Chennai consists of predominantly end users, they prefer
their property to have a steady appreciation. Connectivity as a factor
does not rank high amongst the potential demand segment as the city
is very well connected to most locations.
Amongst the various peripheral and suburban micro markets in
Chennai, our survey has revealed that locations like Rajiv Gandhi Salai
and Velachery are preferred by the middle income segment with 39%
of the respondents opting for these locations. This reflects a clear
preference for South Chennai amongst the prospective buyers. The
reasons for the same can be attributed to good infrastructure
development in the area with connectivity to important locations within
the city. The development of the monorail at Rajiv Gandhi Salai and
Velachery has made these locations more attractive to the buyer.
3837
Chennai is the fourth largest city in India by area and the capital city of Tamil Nadu. Located on the
Coromandel Coast of the Bay of Bengal, Chennai's economy has a broad industrial base in the automobile,
technology, hardware manufacturing, and healthcare industries. The city is India's second largest exporter of
software, information technology (IT) and information-technology-enabled services (ITES). A major portion of
India's automobile manufacturing industry is based in and around the city. The city also contributes 39% to
the state's GDP.
The Chennai Metropolitan Area comprises of the city of Chennai and contiguous area namely parts of
Kanchipuram and Thiruvallur and is governed by the Corporation of Chennai, representing the 155 Wards. The
larger suburbs are governed by town municipalities while the smaller ones are governed by town councils
called panchayats. Satellite towns include Mahabalipuram to the south, Chengalpattu to the south-west, and
Kanchipuram, Sriperumpudur, Tiruvallur and Arakkonam to the west.
The city is generally classified in to four major areas namely the North, Central, South and Western regions.
North Chennai is predominantly an industrial region. Central Chennai is the most developed part of the city
with established commercial and residential markets. South and West Chennai, previously predominantly
residential areas are fast turning into commercial areas, hosting a large number of IT and financial services
companies.
Chennai is a base for the automobile and auto ancillary industry in the country and is acknowledged as the
largest contributor to the growth in this sector. It is also one of the premier port cities in the country, which
has always been a major source of employment. The focus on the manufacturing sector has led to strong
infrastructure development in the city. Strong intra city connectivity and presence of a good air, road and rail
network with other cities has added to the attractiveness of the city. Of late it has been witnessing the entry
of a host of new sectors which are believed to be causing radical changes to the city's landscape.The
residential development in the city has picked up in the last few years and is turning out to be an attractive
investment opportunity for buyers.
CHENNAI
A typical resident of Chennai, unlike other cities, is very conservative in
his buying behaviour. A majority of the population in the city comprises
the middle income group which predominantly constitute the end user
segment. Consumers, including house buyers, are value driven and
closely evaluate all possible factors and options before deciding on a
product. The household survey results reveal that 88% of the
respondents are from the salaried class working in the private sector,
which shows the dominance of this segment. The migrant population
in Chennai is relatively lower, with about 70% of the population being
local residents. The average household size in the city is around 5
members. Apartment complexes have a lower acceptance compared to
other cities and given a choice, potential home buyers would prefer
individual houses.
City Overview
Demand PerspectiveBuyer Profile
Figure 25
Distribution of Sample Households According to
Type of Occupation
Source: Knight Frank Research
Salaried Govt - 2%
Salaried Private - 88%
Self employed (business) - 10%
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Depending on the location, prime developers in Chennai regard homes
in the price range of Rs.15-30 lakh as affordable for the middle income
segment. Most of such projects are being developed in peripheral
locations of the city.
Prominent local and national developers have either launched new
products for the MIG segment or converted ongoing projects to make
them affordable. These projects are concentrated towards the southern
and the western parts of the city in locations like Rajiv Gandhi Salai,
Velachery, GST Road, Vadapalani, Ambattur and Sriperumbudbur.
The size of these apartments vary from 500-700 sq.ft. for 1 BHK homes
to 700-900 sq.ft. for 2 BHK homes. The cost of these dwelling units is
expected to range from Rs.1200 to 2500/sq.ft. which is a variance of
Rs.200-300/sq.ft. from normal housing units in their respective
locations. The cost of constructing affordable homes is expected to
range from Rs.900-1700/sq.ft., with the higher cost on partition walls
to be offset by lower material costs. The facilities being provided, have
also been scaled down to accommodate the price.
Inspite of economic pressures, the land rates in the city continue to
remain high, making it difficult to commence affordable housing
projects in emerging residential pockets. To add to the problem the
residents of Chennai are very particular on where they choose to buy a
home. The developers are demanding pro-active legislation from the
state government that alleviates this crisis, like provision of additional
FSI and TDR rights.
The Chennai Metropolitan Development Authority (CMDA) is
responsible for regulating physical developments within Chennai
Metropolitan Area .For this purpose, CMDA has prepared a Master Plan
which designates the land use permissible in every part of the city.
The development of the Outer Ring Road (ORR) which will connect
western and southern locations of the city is expected to provide a
major impetus to housing development in the area The ORR will
connect Vandalur (NH-45) to Tiruvottiyur Ponneri Panjetty (TPP) road.
The project will come up in four stages .The six-lane ORR will include a
provision for 22-metre-wide corridor for public transport.
The new satellite towns promoted by The Tamil Nadu Housing Board
(TNHB) around Chennai are expected to be self-sufficient with the
provision of basic utilities along with strong social and physical
infrastructure. The developmental projects at these satellite townships
would cost about Rs 500 crore, and cover close to 1500 acres of land.
These townships, which would develop around Outer Ring Road (ORR),
Old Mahabalipuram and Poonamallee High Road, would have
provision for the development of commercial spaces along with
residential development. This will also help in meeting future needs of
housing in Chennai and also result in the development of road and rail
transport. It is expected to greatly improve the profile of locations
around the south-west part of the city over the next couple of years.
The business opportunities created by the modernisation of airport
would boost the property values in the areas around the facility. It is
expected to fuel the interest of property investors in locking properties
around Inner Ring Road in expectation of high returns. The Inner Ring
Road connects the central city localities like Kodambakkam and
Mambalam with the airport. The proposed airport at Sriperumbudur on
the NH-4 is also expected to entice residential development towards
the west.
Sr.No Project Name Developer Location May '09 Rate (Rs./sq.ft.) Unit Size Range (sq.ft.)
1 Mantri Synergy II Mantri Developers Rajiv Gandhi Salai 2,800 870-1,140
2 Cosmo City Provident Housing Rajiv Gandhi Salai 1,780 983-1,062
3 Pushpadhruma Marg Construcions Rajiv Gandhi Salai 2,099 847-1,077
4 India Bulls Greens India Bulls Properties Rajiv Gandhi Salai 3,000 650-1,700
5 Bollineri Hillside View BSCPL Rajiv Gandhi Salai 2,500 800-1,000
6 Gold City Duggar Housing Rajiv Gandhi Salai 1,790 444-1,069
Table 33
Select Affordable Housing Projects in Chennai
Source: Knight Frank Research
40
Affordable housing
projects are
concentrated
towards the southern
and western parts in
locations like Rajiv
Gandhi Salai,
Velachery, GST Road,
Vadapalani, Ambattur
and Sriperumbudbur
Lower prices compared to other developed locations in the city and
focus on development have resulted in high buyer interest in these
locations. Other locations of interest like Tambaram, Chilapakkam and
Adayar also attest the buyer preference for southern Chennai.
The sample household survey clarifies that along with price of the
product, factors like water supply, noise and traffic congestion and
home security are also important determinants for the potential buyer
in the middle income segment. This highlights a direct reflection of the
city characteristics where there has been an inherent water problem
with houses and apartments being prone to relatively more security
problems in peripheral locations. Home buyers in Chennai are not
specific about the apartment size and facilities as long as the basic
infrastructure is strong. The disturbance caused by traffic and noise
congestion ranks high among the key factors influencing the buying
behaviour of the sampled middle income household. This indicates a
strong influence of good neighbourhood in home buying decisions.
Potential buyers in Chennai place a lot of importance on basic facilities
like un-interrupted water supply and power back- up along with good
security systems instead of facilities like swimming pool and club
Houses. It shows that the middle income segment in Chennai does not
place a lot of importance on luxury facilities. If the developer can
ensure uninterrupted supply of water and power, it would ensure a
higher demand for the housing project.
Factors Rank
Water supply 1
Disturbance caused by traffic/noise/congestion 2
Safety & security 3
Price 4
Un-interrupted power supply 5
Apartment size 6
Facilities available 7
Developer goodwill 8
Table 32
Factors Influencing Choice of Residential Project
Source: Knight Frank Research
Supply Prespective
The Chennai residential sector has always witnessed steady growth.
The recent development of Rajiv Gandhi Salai as the IT-corridor and
Sriperumbudur as the Electronic Corridor has been the primary reason
for the sudden spurt of real estate development in the city. The influx of
capital into the residential sector, contributed primarily by speculator
demand, fueled builder concentration in premium residential
development and resulted in the astronomical increase in property
prices across the city. The increased potential of the sector attracted
several national developers to foray into the city with their lifestyle
projects. The focus on developing premium property had an adverse
impact on the middle income segment with house buying capability
being drastically reduced.
The slowdown in the economy has put a sudden halt to house
development activity in the city, with most ongoing residential projects
being stalled. Developers have witnessed close to 50% reduction in
sale volumes. Inflated land and property prices combined with a lull in
the job market have resulted in creating further strain on the
developers. Now with the real demand only coming from the middle
income segment builders have turned their focus towards affordable
housing projects to boost their sale volumes.
In the current scenario developers are either launching new housing
projects as affordable homes or modifying under construction projects
to market it as affordable housing development.
Knight Frank Research conducted interviews with prominent
developers, relevant developmental authorities and financial
institutions in the city, which has contributed in understanding of
supply dynamics in the city.
Figure 27
Factors Influencing Preference for Location
13%
15%
21%
22%
29%
0% 10% 20% 30% 35%
Favourable demographics
Presence of social circle
(friends, relatives)
Good infrastructure
Good potential for development
Good connectivity to frequently
travelled places
Source: Knight Frank Research
25%15%5%
Percentage of Responses
Figure 28
Preferred Amenities within a Residential Project
Source: Knight Frank Research
0 100 120 140
Creche
Servant quarters
Modular Kitchen
Multipurpose hall
Club house
Interior fixtures
Swimming pool
GymnasiumSpa
Finishing
Power Back-up
High level of security systems
Un-interrupted water supply
No. of Responses
80604020
39
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Depending on the location, prime developers in Chennai regard homes
in the price range of Rs.15-30 lakh as affordable for the middle income
segment. Most of such projects are being developed in peripheral
locations of the city.
Prominent local and national developers have either launched new
products for the MIG segment or converted ongoing projects to make
them affordable. These projects are concentrated towards the southern
and the western parts of the city in locations like Rajiv Gandhi Salai,
Velachery, GST Road, Vadapalani, Ambattur and Sriperumbudbur.
The size of these apartments vary from 500-700 sq.ft. for 1 BHK homes
to 700-900 sq.ft. for 2 BHK homes. The cost of these dwelling units is
expected to range from Rs.1200 to 2500/sq.ft. which is a variance of
Rs.200-300/sq.ft. from normal housing units in their respective
locations. The cost of constructing affordable homes is expected to
range from Rs.900-1700/sq.ft., with the higher cost on partition walls
to be offset by lower material costs. The facilities being provided, have
also been scaled down to accommodate the price.
Inspite of economic pressures, the land rates in the city continue to
remain high, making it difficult to commence affordable housing
projects in emerging residential pockets. To add to the problem the
residents of Chennai are very particular on where they choose to buy a
home. The developers are demanding pro-active legislation from the
state government that alleviates this crisis, like provision of additional
FSI and TDR rights.
The Chennai Metropolitan Development Authority (CMDA) is
responsible for regulating physical developments within Chennai
Metropolitan Area .For this purpose, CMDA has prepared a Master Plan
which designates the land use permissible in every part of the city.
The development of the Outer Ring Road (ORR) which will connect
western and southern locations of the city is expected to provide a
major impetus to housing development in the area The ORR will
connect Vandalur (NH-45) to Tiruvottiyur Ponneri Panjetty (TPP) road.
The project will come up in four stages .The six-lane ORR will include a
provision for 22-metre-wide corridor for public transport.
The new satellite towns promoted by The Tamil Nadu Housing Board
(TNHB) around Chennai are expected to be self-sufficient with the
provision of basic utilities along with strong social and physical
infrastructure. The developmental projects at these satellite townships
would cost about Rs 500 crore, and cover close to 1500 acres of land.
These townships, which would develop around Outer Ring Road (ORR),
Old Mahabalipuram and Poonamallee High Road, would have
provision for the development of commercial spaces along with
residential development. This will also help in meeting future needs of
housing in Chennai and also result in the development of road and rail
transport. It is expected to greatly improve the profile of locations
around the south-west part of the city over the next couple of years.
The business opportunities created by the modernisation of airport
would boost the property values in the areas around the facility. It is
expected to fuel the interest of property investors in locking properties
around Inner Ring Road in expectation of high returns. The Inner Ring
Road connects the central city localities like Kodambakkam and
Mambalam with the airport. The proposed airport at Sriperumbudur on
the NH-4 is also expected to entice residential development towards
the west.
Sr.No Project Name Developer Location May '09 Rate (Rs./sq.ft.) Unit Size Range (sq.ft.)
1 Mantri Synergy II Mantri Developers Rajiv Gandhi Salai 2,800 870-1,140
2 Cosmo City Provident Housing Rajiv Gandhi Salai 1,780 983-1,062
3 Pushpadhruma Marg Construcions Rajiv Gandhi Salai 2,099 847-1,077
4 India Bulls Greens India Bulls Properties Rajiv Gandhi Salai 3,000 650-1,700
5 Bollineri Hillside View BSCPL Rajiv Gandhi Salai 2,500 800-1,000
6 Gold City Duggar Housing Rajiv Gandhi Salai 1,790 444-1,069
Table 33
Select Affordable Housing Projects in Chennai
Source: Knight Frank Research
40
Affordable housing
projects are
concentrated
towards the southern
and western parts in
locations like Rajiv
Gandhi Salai,
Velachery, GST Road,
Vadapalani, Ambattur
and Sriperumbudbur
Lower prices compared to other developed locations in the city and
focus on development have resulted in high buyer interest in these
locations. Other locations of interest like Tambaram, Chilapakkam and
Adayar also attest the buyer preference for southern Chennai.
The sample household survey clarifies that along with price of the
product, factors like water supply, noise and traffic congestion and
home security are also important determinants for the potential buyer
in the middle income segment. This highlights a direct reflection of the
city characteristics where there has been an inherent water problem
with houses and apartments being prone to relatively more security
problems in peripheral locations. Home buyers in Chennai are not
specific about the apartment size and facilities as long as the basic
infrastructure is strong. The disturbance caused by traffic and noise
congestion ranks high among the key factors influencing the buying
behaviour of the sampled middle income household. This indicates a
strong influence of good neighbourhood in home buying decisions.
Potential buyers in Chennai place a lot of importance on basic facilities
like un-interrupted water supply and power back- up along with good
security systems instead of facilities like swimming pool and club
Houses. It shows that the middle income segment in Chennai does not
place a lot of importance on luxury facilities. If the developer can
ensure uninterrupted supply of water and power, it would ensure a
higher demand for the housing project.
Factors Rank
Water supply 1
Disturbance caused by traffic/noise/congestion 2
Safety & security 3
Price 4
Un-interrupted power supply 5
Apartment size 6
Facilities available 7
Developer goodwill 8
Table 32
Factors Influencing Choice of Residential Project
Source: Knight Frank Research
Supply Prespective
The Chennai residential sector has always witnessed steady growth.
The recent development of Rajiv Gandhi Salai as the IT-corridor and
Sriperumbudur as the Electronic Corridor has been the primary reason
for the sudden spurt of real estate development in the city. The influx of
capital into the residential sector, contributed primarily by speculator
demand, fueled builder concentration in premium residential
development and resulted in the astronomical increase in property
prices across the city. The increased potential of the sector attracted
several national developers to foray into the city with their lifestyle
projects. The focus on developing premium property had an adverse
impact on the middle income segment with house buying capability
being drastically reduced.
The slowdown in the economy has put a sudden halt to house
development activity in the city, with most ongoing residential projects
being stalled. Developers have witnessed close to 50% reduction in
sale volumes. Inflated land and property prices combined with a lull in
the job market have resulted in creating further strain on the
developers. Now with the real demand only coming from the middle
income segment builders have turned their focus towards affordable
housing projects to boost their sale volumes.
In the current scenario developers are either launching new housing
projects as affordable homes or modifying under construction projects
to market it as affordable housing development.
Knight Frank Research conducted interviews with prominent
developers, relevant developmental authorities and financial
institutions in the city, which has contributed in understanding of
supply dynamics in the city.
Figure 27
Factors Influencing Preference for Location
13%
15%
21%
22%
29%
0% 10% 20% 30% 35%
Favourable demographics
Presence of social circle
(friends, relatives)
Good infrastructure
Good potential for development
Good connectivity to frequently
travelled places
Source: Knight Frank Research
25%15%5%
Percentage of Responses
Figure 28
Preferred Amenities within a Residential Project
Source: Knight Frank Research
0 100 120 140
Creche
Servant quarters
Modular Kitchen
Multipurpose hall
Club house
Interior fixtures
Swimming pool
GymnasiumSpa
Finishing
Power Back-up
High level of security systems
Un-interrupted water supply
No. of Responses
80604020
39
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
It highlights the options available to the various income groups (Rs.3 -
10 lakh) in case they are ready to go for smaller sized units, provided
such units are offered by developers in the said locations. For instance,
the scenario presented in the table provides a number of residential
locations for the Rs.3-5 lakh income group. While previously this
income group could afford housing only in one location, ie,
Chitlapakkam, with lower unit size they have an enhanced ability to
buy property in relatively prime residential micro-markets like
Mogappair and Guindy with price range of Rs.3,500-4,200/sq.ft.
In case of the higher income categories, who could previously afford
residential micro-markets of Velachary, Rajiv Gandhi Salai and
Locations May '09 Rates Max Size (in sq.ft.) & Total Property Value (in Rs.lakh)
(in Rs./sq.ft.)
500 600 700 800 900 1000 1100 1200
sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft.
Min 15,000 75.0 90.0 105.0 120.0 135.0 150.0 165.0 180.0Boat Club
Max 17,000 85.0 102.0 119.0 136.0 153.0 170.0 187.0 204.0
Min 13,500 67.5 81.0 94.5 108.0 121.5 135.0 148.5 162.0Poes Garden
Max 14,000 70.0 84.0 98.0 112.0 126.0 140.0 154.0 168.0
Min 8,000 40.0 48.0 56.0 64.0 72.0 80.0 88.0 96.0R A Puram
Max 9,000 45.0 54.0 63.0 72.0 81.0 90.0 99.0 108.0
Min 7,000 35.0 42.0 49.0 56.0 63.0 70.0 77.0 84.0Anna Nagar
Max 8,000 40.0 48.0 56.0 64.0 72.0 80.0 88.0 96.0
Min 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0T Nagar
Max 8,000 40.0 48.0 56.0 64.0 72.0 80.0 88.0 96.0
Min 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0Ashok nagar
Max 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
Min 4,500 22.5 27.0 31.5 36.0 40.5 45.0 49.5 54.0Egmore/Kilpauk
Max 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
Min 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0Moggapair
Max 4,200 21.0 25.2 29.4 33.6 37.8 42.0 46.2 50.4
Min 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0Guindy
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Min 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0Vadapalani
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Min 2,800 14.0 16.8 19.6 22.4 25.2 28.0 30.8 33.6Velachery
Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Min 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0Rajiv Gandhi Salai
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Min 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0Tambaram
Max 3,200 16.0 19.2 22.4 25.6 28.8 32.0 35.2 38.4
Min 2,200 11.0 13.2 15.4 17.6 19.8 22.0 24.2 26.4Chitlapakkam
Max 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
Table 35
Size Preference in Chennai - Min-550 sq.ft. Max-1200 sq.ft.
Affordable House Property in Chennai - Min 13.89 lakh Max 45.10 lakh Not Affordable
Source: Knight Frank Research
Tambaram at a distance of 20-25 kms from the city centre, with unit
size compromise, they become eligible to purchase property in
upmarket residential locations like RA Puram, Anna Nagar, T Nagar,
Ashok Nagar and Egmore. These locations have residential capital
values in the range of Rs.4,500-9,000/sq.ft. However, it is to be seen if
developers would be willing to come up with products comprising
smaller sized units and lower prices in these locations.
Meanwhile, not surprisingly, the city's inherent conservative nature
showed up in the survey regarding their willingness to spend on a
property.
42
Household income (per annum)
Maximum EMI (Rs.) 10,500 - 16,500 14,500 - 21,000 21,000 - 24,500 27,000 - 34,500
Maximum loan eligibility (Rs.) 11,81,000 - 18,16,000 16,32,000 - 23,09,000 23,57,000 - 27,16,000 30,17,000 - 38,34,000
(9% interest rate, 20 year loan tenure)
Buyer's own contribution (Rs.) 2,08,000 - 3,20,000 2,88,000 - 4,07,000 4,16,000 - 4,80,000 5,30,000 - 6,77,000
(Assuming 85% loan)
Affordable house property value (Rs.) 13,89,000 - 21,36,000 19,20,000 - 27,16,000 27,73,000 - 31,96,000 35,49,000 - 45,10,000
Preferred size (sq.ft.) 550 - 900 800 - 850 900 - 1,000 1,050 - 1,200
Price (Rs./sq.ft.) 2,400 - 2,500 2,200 - 3,400 3,000 - 3,200 3,400 - 3,800
Rs. 3 lakh - 5 lakh Rs. 5 lakh - 6 lakh Rs. 6 lakh - 8 lakh Rs. 8 lakh - 10 lakh
Table 34
Affordability in Chennai
Source: Knight Frank Research
Locations available
considering preferred size
and few residential areas
Chitlapakkam Velachery
Rajiv Gandhi Salai
Tambaram
Chitlapakkam
Moggapair
Guindy
Vadapalani
Velachery
Rajiv Gandhi Salai
Tambaram
Chitlapakkam
Velachery
Rajiv Gandhi Salai
Tambaram
Chitlapakkam
The home loan market in the city has always seen a steady demand
which can be attributed to consistent property growth in the city. The
soaring growth in the real estate sector over the last 3-4 years
translated in to a high growth for the home loan players in the city. The
loan size and volumes have increased with banks promoting home
buying on a large scale. The financial institutions revealed that in
Chennai around 70% of the applications are for loans in the
Rs.10-30 lakh range. While the recently reduced interest rates have
elicited home loan enquiries, the buyer's would wait until the property
prices come down further.
The banking sector is apprehensive in providing construction finance
loans to developers but the recent market recovery is expected to
entice them to have a relook in the sector. With most banks turning
extremely cautious, the affordable housing projects of the premier
developers as well is being closely scrutinised. Banks view most
affordable housing projects as a high risk exposure because these
projects are coming up in the far flung areas which make them diffiult
to sell.
As with the other cities, the household survey carried out in Chennai to
ascertain the affordability of households, brought in to light a number
of interesting features pertaining to the city's buyer profile. Table 34
depicts in detail the maximum affordable EMI of households at various
income levels. This EMI has been estimated from the annual income of
household and its spending and saving behaviour. The maximum EMI
has been translated into affordable house property value based on
assumed interest rates, loan tenure and loan to value ratio.
Identifying Affordability
The table also shows the capital rates that the households will have to
pay keeping in view the preferred house size and the affordable house
property value.
The survey reveals that although the preferred size of residential unit
for the Rs.3-5 lakh income group begins at 550 sq.ft., it goes up to a
range of 900 sq.ft. Meanwhile, the higher income categories i.e.
Rs.6 lakh and above has preference for unit size in excess of 800 sq.ft.,
with the Rs.8-10 lakh income group opting for units as large as
1200 sq.ft. It is to be noted that as the preference for larger unit sizes is
predominant amongst the city's residents, especially amongst the
higher income category, the rise in payable rates may still not be
enough to match the growth in residential capital values. As the
preference for larger unit sizes is prominent with higher income levels,
the proportion of rise in payable rates may not match the proportion of
rise in the affordable house value.
The survey of households in Chennai confirms that on the basis of the
preferred unit sizes, the capital values for affordable houses for the
income category Rs.3-5 lakh should not be more than Rs.2500/sq.ft.
This leaves Chitlapakkam at a price range of Rs.2200-2500/sq.ft. and
located around 20 kms away from the city centre of Mount Road, as the
only affordable residential micro-market for this income group.
However, if the households are willing to compromise on the unit sizes
they will have more location options and may also be able to afford a
property in premium locations. Table 35 illustrates this fact based on
the willingness of the buyer to compromise on the size of the
residential unit.
41
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
It highlights the options available to the various income groups (Rs.3 -
10 lakh) in case they are ready to go for smaller sized units, provided
such units are offered by developers in the said locations. For instance,
the scenario presented in the table provides a number of residential
locations for the Rs.3-5 lakh income group. While previously this
income group could afford housing only in one location, ie,
Chitlapakkam, with lower unit size they have an enhanced ability to
buy property in relatively prime residential micro-markets like
Mogappair and Guindy with price range of Rs.3,500-4,200/sq.ft.
In case of the higher income categories, who could previously afford
residential micro-markets of Velachary, Rajiv Gandhi Salai and
Locations May '09 Rates Max Size (in sq.ft.) & Total Property Value (in Rs.lakh)
(in Rs./sq.ft.)
500 600 700 800 900 1000 1100 1200
sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft.
Min 15,000 75.0 90.0 105.0 120.0 135.0 150.0 165.0 180.0Boat Club
Max 17,000 85.0 102.0 119.0 136.0 153.0 170.0 187.0 204.0
Min 13,500 67.5 81.0 94.5 108.0 121.5 135.0 148.5 162.0Poes Garden
Max 14,000 70.0 84.0 98.0 112.0 126.0 140.0 154.0 168.0
Min 8,000 40.0 48.0 56.0 64.0 72.0 80.0 88.0 96.0R A Puram
Max 9,000 45.0 54.0 63.0 72.0 81.0 90.0 99.0 108.0
Min 7,000 35.0 42.0 49.0 56.0 63.0 70.0 77.0 84.0Anna Nagar
Max 8,000 40.0 48.0 56.0 64.0 72.0 80.0 88.0 96.0
Min 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0T Nagar
Max 8,000 40.0 48.0 56.0 64.0 72.0 80.0 88.0 96.0
Min 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0Ashok nagar
Max 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
Min 4,500 22.5 27.0 31.5 36.0 40.5 45.0 49.5 54.0Egmore/Kilpauk
Max 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
Min 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0Moggapair
Max 4,200 21.0 25.2 29.4 33.6 37.8 42.0 46.2 50.4
Min 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0Guindy
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Min 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0Vadapalani
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Min 2,800 14.0 16.8 19.6 22.4 25.2 28.0 30.8 33.6Velachery
Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Min 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0Rajiv Gandhi Salai
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Min 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0Tambaram
Max 3,200 16.0 19.2 22.4 25.6 28.8 32.0 35.2 38.4
Min 2,200 11.0 13.2 15.4 17.6 19.8 22.0 24.2 26.4Chitlapakkam
Max 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
Table 35
Size Preference in Chennai - Min-550 sq.ft. Max-1200 sq.ft.
Affordable House Property in Chennai - Min 13.89 lakh Max 45.10 lakh Not Affordable
Source: Knight Frank Research
Tambaram at a distance of 20-25 kms from the city centre, with unit
size compromise, they become eligible to purchase property in
upmarket residential locations like RA Puram, Anna Nagar, T Nagar,
Ashok Nagar and Egmore. These locations have residential capital
values in the range of Rs.4,500-9,000/sq.ft. However, it is to be seen if
developers would be willing to come up with products comprising
smaller sized units and lower prices in these locations.
Meanwhile, not surprisingly, the city's inherent conservative nature
showed up in the survey regarding their willingness to spend on a
property.
42
Household income (per annum)
Maximum EMI (Rs.) 10,500 - 16,500 14,500 - 21,000 21,000 - 24,500 27,000 - 34,500
Maximum loan eligibility (Rs.) 11,81,000 - 18,16,000 16,32,000 - 23,09,000 23,57,000 - 27,16,000 30,17,000 - 38,34,000
(9% interest rate, 20 year loan tenure)
Buyer's own contribution (Rs.) 2,08,000 - 3,20,000 2,88,000 - 4,07,000 4,16,000 - 4,80,000 5,30,000 - 6,77,000
(Assuming 85% loan)
Affordable house property value (Rs.) 13,89,000 - 21,36,000 19,20,000 - 27,16,000 27,73,000 - 31,96,000 35,49,000 - 45,10,000
Preferred size (sq.ft.) 550 - 900 800 - 850 900 - 1,000 1,050 - 1,200
Price (Rs./sq.ft.) 2,400 - 2,500 2,200 - 3,400 3,000 - 3,200 3,400 - 3,800
Rs. 3 lakh - 5 lakh Rs. 5 lakh - 6 lakh Rs. 6 lakh - 8 lakh Rs. 8 lakh - 10 lakh
Table 34
Affordability in Chennai
Source: Knight Frank Research
Locations available
considering preferred size
and few residential areas
Chitlapakkam Velachery
Rajiv Gandhi Salai
Tambaram
Chitlapakkam
Moggapair
Guindy
Vadapalani
Velachery
Rajiv Gandhi Salai
Tambaram
Chitlapakkam
Velachery
Rajiv Gandhi Salai
Tambaram
Chitlapakkam
The home loan market in the city has always seen a steady demand
which can be attributed to consistent property growth in the city. The
soaring growth in the real estate sector over the last 3-4 years
translated in to a high growth for the home loan players in the city. The
loan size and volumes have increased with banks promoting home
buying on a large scale. The financial institutions revealed that in
Chennai around 70% of the applications are for loans in the
Rs.10-30 lakh range. While the recently reduced interest rates have
elicited home loan enquiries, the buyer's would wait until the property
prices come down further.
The banking sector is apprehensive in providing construction finance
loans to developers but the recent market recovery is expected to
entice them to have a relook in the sector. With most banks turning
extremely cautious, the affordable housing projects of the premier
developers as well is being closely scrutinised. Banks view most
affordable housing projects as a high risk exposure because these
projects are coming up in the far flung areas which make them diffiult
to sell.
As with the other cities, the household survey carried out in Chennai to
ascertain the affordability of households, brought in to light a number
of interesting features pertaining to the city's buyer profile. Table 34
depicts in detail the maximum affordable EMI of households at various
income levels. This EMI has been estimated from the annual income of
household and its spending and saving behaviour. The maximum EMI
has been translated into affordable house property value based on
assumed interest rates, loan tenure and loan to value ratio.
Identifying Affordability
The table also shows the capital rates that the households will have to
pay keeping in view the preferred house size and the affordable house
property value.
The survey reveals that although the preferred size of residential unit
for the Rs.3-5 lakh income group begins at 550 sq.ft., it goes up to a
range of 900 sq.ft. Meanwhile, the higher income categories i.e.
Rs.6 lakh and above has preference for unit size in excess of 800 sq.ft.,
with the Rs.8-10 lakh income group opting for units as large as
1200 sq.ft. It is to be noted that as the preference for larger unit sizes is
predominant amongst the city's residents, especially amongst the
higher income category, the rise in payable rates may still not be
enough to match the growth in residential capital values. As the
preference for larger unit sizes is prominent with higher income levels,
the proportion of rise in payable rates may not match the proportion of
rise in the affordable house value.
The survey of households in Chennai confirms that on the basis of the
preferred unit sizes, the capital values for affordable houses for the
income category Rs.3-5 lakh should not be more than Rs.2500/sq.ft.
This leaves Chitlapakkam at a price range of Rs.2200-2500/sq.ft. and
located around 20 kms away from the city centre of Mount Road, as the
only affordable residential micro-market for this income group.
However, if the households are willing to compromise on the unit sizes
they will have more location options and may also be able to afford a
property in premium locations. Table 35 illustrates this fact based on
the willingness of the buyer to compromise on the size of the
residential unit.
41
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Hyderabad, the capital city of Andhra Pradesh, is the fifth largest and seventh most populated city in India.
The capital city comprises the twin cities of Hyderabad and Secunderabad separated by an artificial lake
called Husain Sagar. The development of a township called HITEC City with state-of-the-art facilities
prompted several IT and ITES companies to set up operations in the city. Aggressive promotion of growth in
this area has led civic boosters to call the city "Cyberabad". Hyderabad has also been referred to as the
second Silicon Valley of India after Bengaluru.
Recently, the Government of Andhra Pradesh has constituted Greater Hyderabad Municipal Corporation
(GHMC) with the merger of the surrounding 12 municipalities and eight villages. The population of GHMC
increased from 4.3 million in 1991 to 5.75 million in 2001 with a decadal growth rate of 32%. The city has
expanded from about 175 sq.km. to 725 sq.km. The urban development area is constituted as Hyderabad
Metropolitan Development Authority (HMDA) over 6300 sq.km. with a population of 60 lakh. This move was
taken in order to obtain funds from the central government to improve the infrastructure within the city and
speed up its development.
The city authorities have been instrumental in the development of a widespread network of rail, road and air
infrastructure over the last decade. The NH-7 and NH-9 form the core of interstate connectivity and the MMTS
strengthens a local communication within the city. Ongoing/Proposed infrastructure developments like
outer ring road, which is partly operational, and Mass Rapid Transit System (MRTS), were initiated with the
basic objective to decongest the city by improving connectivity between the twin cities and cutting down the
travel time. The 11.5 km long P. V. Narasimha Rao Elevated Expressway project will facilitate better
connectivity of the city to the new airport at Shamshabad. The government is building a skyscraper business
district at Manchirevula with a 450m Andhra Pradesh Industrial Infrastructure Corporation Ltd. (APIIC) Tower
at its centre . This tower upon its completion will be the tallest building in India.
In the recent years the economy of the city has transformed, with the service industry becoming the major
growth driver of economic development. This sector has emerged as the city's single largest employer,
contributing almost 75% of its total workforce. Currently the economy is also diversifying to include other
sectors such as the bio-technology, industry, trade, commerce, transportation, storage, communication and
construction sectors. Proactive state government policies, vast resource pools of skilled manpower and real
estate development by local, national and foreign developers have been instrumental in making Hyderabad a
preferred destination for global corporates.
Hyderabad
In the city of Hyderabad, 77% of the prospective home buyers (tenant
households) live in nuclear families, and the rest live in joint families.
The average household size stands at around 4.5 persons per
household. Among the tenant households surveyed, 86% represent
the migratory population of the city. Of this, 59% of households have
migrated to the city for job purposes, 26% have migrated for business
purposes and about 15% after marriage. Migrant households have
been living in the city on average about 6 years.
City Overview
Demand PerspectiveBuyer Profile
Figure 31
Distribution of Sample Households According to
Type of Occupation
Source: Knight Frank Research
Salaried Govt - 2%
Salaried Private - 67%
Self employed (business) - 31%
44
0-6 months - 3%
6-12 months - 19%
1-2 years - 78%
Figure 30
Household Purchase Timelines
Source: Knight Frank Research
middle income segment is the consumers' purchase timelines, as even
if 100% of the requirement translates to demand, how this demand
pans out depends on when consumers are willing to incur the financial
burden of purchasing a house. Figure 30 details the preferred purchase
timelines of rental households surveyed.
While the average budget expressed by the income groups in the range
of Rs.3-6 lakh remained within their calculated affordability, the Rs.6-
10 lakh income groups were found to be more conservative. In Chennai,
the calculated affordable property value for a household with an
income of Rs.6-8 lakh is between Rs.28-32 lakh. However, the survey
revealed that respondents from this income category preferred to have
an average budget of only Rs.22 lakh for the property, much lower
compared to what they can afford as per Knight Frank research
calculations. Similar trend was observed in case of the Rs.8-10 lakh
income category.
Chennai has a population of approximately 4 million that has been
growing at approximately 2.58% per annum. The city's population is
vastly spread, and consequently, the development of peripheral areas
has become increasingly important. Most of the residential units in the
city are independent houses, and the concept of apartment housing
has only been indulged over the past four years. Figure 29 specifies the
housing requirement for the middle income segment in Chennai in
2009, 2010 and 2011.
City Outlook
44
Knight Frank research estimates that the middle income population in
Chennai will require approximately 1.57 lakh housing units by 2011,
which assuming an average unit size of 800 sq.ft. translates to
approximately 126 mn.sq.ft. of residential space. Approximately 91% of
this total middle income housing requirement will be accounted for by
the Rs.3-5 lakh income segment. As per survey results, this income
group prefers property prices in the range of Rs.14-21 lakh. A very
important consideration in assessing the demand for houses in the
The survey results revealed that only one-fifth of the middle income
households desire to purchase a house within a year. The rest of the
households surveyed would consider purchasing a house within a
longer time frame of 2 years.
In spite of the current focus on affordable housing and the evident
need for the same, its development is being hindered by certain
constraints. Firstly, high land costs have greatly diminished the
attractiveness of potential locations to developers. Despite the good
connectivity and accessibility of most of these locations, a deficiency
of surface water sources and ground water reserves has hampered
their growth to a great extent. Rajiv Gandhi Salai, the most preferred
location for affordable housing, suffers from an acute scarcity of water
due to a low ground water table. A lack of avenues for entertainment,
for example organized retail outlets, and healthcare facilities have also
hampered the growth of residential development in this particular
location. The location of Guindy is very well connected within the city
and has good accessibility, but being a commercial hub often faces
traffic and noise congestion. In Velachery, the distance from the CBD
and water shortage issues are factors that deter potential house buyers.
Locations towards the west, examples being Ambattur and Moggapair,
are fairly close to the city centre and have proper infrastructure, but are
relatively costlier as compared to southern locations. The
aforementioned issues need to be addressed if the demand for middle
income housing in Chennai is to be satiated.
Source: Knight Frank Research
Figure 29
Total Housing Unit Requirement for Rs. 3-10 lakh
Income Category
158,000
20
09
20
10
20
11
1,53,667
157,000
156,000
155,000
154,000
153,000
152,000
151,000
1,55,557
1,57,471
Previous Years’ Cumulative Requirement Incremental Requirement
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Hyderabad, the capital city of Andhra Pradesh, is the fifth largest and seventh most populated city in India.
The capital city comprises the twin cities of Hyderabad and Secunderabad separated by an artificial lake
called Husain Sagar. The development of a township called HITEC City with state-of-the-art facilities
prompted several IT and ITES companies to set up operations in the city. Aggressive promotion of growth in
this area has led civic boosters to call the city "Cyberabad". Hyderabad has also been referred to as the
second Silicon Valley of India after Bengaluru.
Recently, the Government of Andhra Pradesh has constituted Greater Hyderabad Municipal Corporation
(GHMC) with the merger of the surrounding 12 municipalities and eight villages. The population of GHMC
increased from 4.3 million in 1991 to 5.75 million in 2001 with a decadal growth rate of 32%. The city has
expanded from about 175 sq.km. to 725 sq.km. The urban development area is constituted as Hyderabad
Metropolitan Development Authority (HMDA) over 6300 sq.km. with a population of 60 lakh. This move was
taken in order to obtain funds from the central government to improve the infrastructure within the city and
speed up its development.
The city authorities have been instrumental in the development of a widespread network of rail, road and air
infrastructure over the last decade. The NH-7 and NH-9 form the core of interstate connectivity and the MMTS
strengthens a local communication within the city. Ongoing/Proposed infrastructure developments like
outer ring road, which is partly operational, and Mass Rapid Transit System (MRTS), were initiated with the
basic objective to decongest the city by improving connectivity between the twin cities and cutting down the
travel time. The 11.5 km long P. V. Narasimha Rao Elevated Expressway project will facilitate better
connectivity of the city to the new airport at Shamshabad. The government is building a skyscraper business
district at Manchirevula with a 450m Andhra Pradesh Industrial Infrastructure Corporation Ltd. (APIIC) Tower
at its centre . This tower upon its completion will be the tallest building in India.
In the recent years the economy of the city has transformed, with the service industry becoming the major
growth driver of economic development. This sector has emerged as the city's single largest employer,
contributing almost 75% of its total workforce. Currently the economy is also diversifying to include other
sectors such as the bio-technology, industry, trade, commerce, transportation, storage, communication and
construction sectors. Proactive state government policies, vast resource pools of skilled manpower and real
estate development by local, national and foreign developers have been instrumental in making Hyderabad a
preferred destination for global corporates.
Hyderabad
In the city of Hyderabad, 77% of the prospective home buyers (tenant
households) live in nuclear families, and the rest live in joint families.
The average household size stands at around 4.5 persons per
household. Among the tenant households surveyed, 86% represent
the migratory population of the city. Of this, 59% of households have
migrated to the city for job purposes, 26% have migrated for business
purposes and about 15% after marriage. Migrant households have
been living in the city on average about 6 years.
City Overview
Demand PerspectiveBuyer Profile
Figure 31
Distribution of Sample Households According to
Type of Occupation
Source: Knight Frank Research
Salaried Govt - 2%
Salaried Private - 67%
Self employed (business) - 31%
44
0-6 months - 3%
6-12 months - 19%
1-2 years - 78%
Figure 30
Household Purchase Timelines
Source: Knight Frank Research
middle income segment is the consumers' purchase timelines, as even
if 100% of the requirement translates to demand, how this demand
pans out depends on when consumers are willing to incur the financial
burden of purchasing a house. Figure 30 details the preferred purchase
timelines of rental households surveyed.
While the average budget expressed by the income groups in the range
of Rs.3-6 lakh remained within their calculated affordability, the Rs.6-
10 lakh income groups were found to be more conservative. In Chennai,
the calculated affordable property value for a household with an
income of Rs.6-8 lakh is between Rs.28-32 lakh. However, the survey
revealed that respondents from this income category preferred to have
an average budget of only Rs.22 lakh for the property, much lower
compared to what they can afford as per Knight Frank research
calculations. Similar trend was observed in case of the Rs.8-10 lakh
income category.
Chennai has a population of approximately 4 million that has been
growing at approximately 2.58% per annum. The city's population is
vastly spread, and consequently, the development of peripheral areas
has become increasingly important. Most of the residential units in the
city are independent houses, and the concept of apartment housing
has only been indulged over the past four years. Figure 29 specifies the
housing requirement for the middle income segment in Chennai in
2009, 2010 and 2011.
City Outlook
44
Knight Frank research estimates that the middle income population in
Chennai will require approximately 1.57 lakh housing units by 2011,
which assuming an average unit size of 800 sq.ft. translates to
approximately 126 mn.sq.ft. of residential space. Approximately 91% of
this total middle income housing requirement will be accounted for by
the Rs.3-5 lakh income segment. As per survey results, this income
group prefers property prices in the range of Rs.14-21 lakh. A very
important consideration in assessing the demand for houses in the
The survey results revealed that only one-fifth of the middle income
households desire to purchase a house within a year. The rest of the
households surveyed would consider purchasing a house within a
longer time frame of 2 years.
In spite of the current focus on affordable housing and the evident
need for the same, its development is being hindered by certain
constraints. Firstly, high land costs have greatly diminished the
attractiveness of potential locations to developers. Despite the good
connectivity and accessibility of most of these locations, a deficiency
of surface water sources and ground water reserves has hampered
their growth to a great extent. Rajiv Gandhi Salai, the most preferred
location for affordable housing, suffers from an acute scarcity of water
due to a low ground water table. A lack of avenues for entertainment,
for example organized retail outlets, and healthcare facilities have also
hampered the growth of residential development in this particular
location. The location of Guindy is very well connected within the city
and has good accessibility, but being a commercial hub often faces
traffic and noise congestion. In Velachery, the distance from the CBD
and water shortage issues are factors that deter potential house buyers.
Locations towards the west, examples being Ambattur and Moggapair,
are fairly close to the city centre and have proper infrastructure, but are
relatively costlier as compared to southern locations. The
aforementioned issues need to be addressed if the demand for middle
income housing in Chennai is to be satiated.
Source: Knight Frank Research
Figure 29
Total Housing Unit Requirement for Rs. 3-10 lakh
Income Category
158,000
20
09
20
10
20
11
1,53,667
157,000
156,000
155,000
154,000
153,000
152,000
151,000
1,55,557
1,57,471
Previous Years’ Cumulative Requirement Incremental Requirement
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
In terms of the most preferred locations in the outskirts, the
households have a preference for Uppal and Nacharam due to their
strong representation of IT companies, proximity to Mindspace Raheja
at Pocharam and other industries in these areas and upcoming SEZ's in
the vicinity. Kukatpally, Miyapur and Madhapur are the next most
preferred locations as they provide good infrastructure and proximity
to work places and entertainment zones. The presence of education
institutions, proximity to airport and good connectivity make
Dilshuknagar and LB Nagar the next most preferred residential
locations. Some respondents preferred Kompally because of its
proximity to the CBD.
The study has captured the factors which influence the decision of a
buyer in the selection of residential projects in a preferred location.
Respondents have rated a set of factors on a scale of 1 to 4 (4 being the
most important and 1 the least). Based on the ratings, mean scores are
generated for each factor and the one with the highest mean score has
been identified as the most important factor and ranked 1.
Supply Perspective
The residential market in Hyderabad has seen a noticeable change in
development trend from 2005 onwards. Proactive government
initiatives, the growth of the IT, Pharma and Biotech industries and the
inception of SEZs, Industrial Parks and IT campuses have all
contributed to the residential boom in Hyderabad. This rapid
development, along with the sudden demand for quality housing, has
seen the entry of many national and international developers into the
local market. Thus, over a span of 2-3 years, Hyderabad has witnessed
extensive growth of premium and luxury segment housing, gated
communities and villas. Easy credit availability and high profit margins
of developers have led to a rise in property prices, which in turn has
driven speculation in Hyderabad's property market. Consequently,
property prices have escalated to unaffordable levels, resulting in the
reduced buying capacity of the MIG segment across Hyderabad.
The global economic slowdown has adversely impacted the demand
for housing in the Hyderabad residential market. Subdued interest by
end users and investors has led to a decline in property prices.
Meanwhile, high supply in the face of this reduced demand has
created a demand-supply mismatch in the luxury residential segment.
In order to understand the supply dynamics of the affordable housing
market in Hyderabad, Knight Frank research carried out primary
surveys of major stakeholders in the city's real estate sector, namely
developers, bankers and government authorities. Developers spoke of
a decline in residential enquires as well as conversion rates in the past
8-10 months. Market enquiries have decreased by around 40%, while
the conversion rate (i.e. actual demand) has declined by about 70% in
the last 8-10 months.
Safety and security, un-interrupted power and water supply and
disturbance caused by traffic are the most important factors
influencing a buyer's decision with respect to the choice of a
residential project in a particular location in Hyderabad. Amenities like
a gymnasium and spa were revealed to be moderately important, while
those such as a swimming pool, servant's quarter, multipurpose hall,
interior fixtures and crèche have insignificant influence in purchase
decisions. It was observed that the prospective buyers indicated a
willingness to compromise on factors like apartment size, price,
facilities and developer's goodwill. In today's market, the final price
and grade of the property has a direct bearing on its range of amenities
provided. Consumers' increasing market awareness and exposure to a
cosmopolitan lifestyle have greatly influenced the nature and number
of amenities provided by the developer.
Factors Rank
Safety & security 1
Un-interrupted power 2
Water supply 3
Disturbance caused by traffic/noise/congestion 4
Apartment/home size 5
Facilities available 6
Price 7
Developer goodwill 8
Table 39
Factors Influencing Choice of Residential Project
Source: Knight Frank Research
Figure 34
Preferred Amenities within a Residential Project
Source: Knight Frank Research
0 100 120 180
Creche
Servant quarters
Modular Kitchen
Multipurpose hall
Club house
Interior fixtures
Swimming pool
GymnasiumSpa
Finishing
Power Back-up
High level of security systems
Un-interrupted water supply
No. of Responses
80604020 140 160
46
In order to capture occupation-wise variations, the sample potential
home buyers have been selected from various sectors. The majority (i.e.
67%) of them are salaried and working in the private sector. Around
31% are self employed and the rest work in the government sector. As
the survey is restricted to middle income households with a Rs.3-10
lakh annual income, the entire sample is distributed within this income
group, and the Rs.3-6 lakh income group constitutes a large portion of
the survey respondents.
Buyer Preferences
A prospective buyer's decision to purchase property in Hyderabad is
influenced by a variety of factors like capital values, size of apartment,
location and amenities. The preferences of respondents in terms of
their budget and preferred house size were studied. It was observed
that the potential buyers in Hyderabad have a budget ranging between
Rs.16 lakh and Rs.25 lakh, with preferred sizes varying between 600 sq.
ft. and 1000 sq. ft. Higher income households have higher budgets and
a preference for larger apartment sizes.Figure 32
Distribution of Sample Households According to
Total Annual Income
Source: Knight Frank Research
Rs. 3-5 lakh - 52%
Rs. 5-6 lakh - 29%
Rs. 6-8 lakh - 6%
Rs. 8-10 lakh - 13%
The survey findings revealed that on average, tenant households have
been staying in their current residence for the last two and a half years.
A majority of the households are residing in 1 BHK and 2 BHK houses
irrespective of income. A good proportion of households in the income
range of Rs.8-10 lakh reside in independent houses. The average size
of a 1 BHK flat is around 540 sq.ft. that commands a monthly rental of
around Rs.6000/month. The average size and monthly rental of 3 BHK
and independent houses is very similar.
Table 36
Percentage Distribution of Current Residence Type
Based on Annual Income
Annual Income 1 BHK 2 BHK 3 BHK Independent
House
Rs. 3-5 lakh 56% 33% 7% 4%
Rs. 5-6 lakh 34% 56% 2% 8%
Rs. 6-8 lakh 45% 36% 18% 0%
Rs. 8-10 lakh 39% 9% 13% 39%
Source: Knight Frank Research
Current Residence type Average Size Average Rental
(sq.ft.) (Rs./month)
1 BHK 536 6,296
2 BHK 757 8,958
3 BHK 1,063 9,500
Independent house 938 9,147
Table 37
Current Residence Type W.R.TAverage Size and Rentals
Source: Knight Frank Research
Annual Income Average Budget Average Preferred
(Rs. lakh) Size (sq.ft.)
Rs. 3-5 lakh 16 715
Rs. 5-6 lakh 19 787
Rs. 6-8 lakh 23 906
Rs. 8-10 lakh 25 1,016
Table 38
Average Preferred Budget and Size
Source: Knight Frank Research
With the city limits expanding, there is a trend of relocation being
witnessed in the Hyderabad region. It was found that good
infrastructure and connectivity are the two major factors that influence
the choice of location of potential house buyers. The presence of a
social circle is the third most influential factor.
The soaring rates in and around the CBD areas have pushed the
potential buyers towards the outskirts of the city, where the capital
rates are lower compared to the other locations within the city limits.
Moreover, developers are launching new projects in the outskirts
where land is available at cheaper rates. The development of Outer
Ring Road provides good connectivity to these locations.
Figure 33
Factors Influencing Preference for Location
8%
13%
18%
23%
38%
0% 10% 20% 30% 40%
Favourable demographics
Presence of social circle
(friends, relatives)
Good infrastructure
Good potential for development
Good connectivity to frequently
travelled places
Source: Knight Frank Research
25%15%5% 35%
Percentage of Responses
45
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
In terms of the most preferred locations in the outskirts, the
households have a preference for Uppal and Nacharam due to their
strong representation of IT companies, proximity to Mindspace Raheja
at Pocharam and other industries in these areas and upcoming SEZ's in
the vicinity. Kukatpally, Miyapur and Madhapur are the next most
preferred locations as they provide good infrastructure and proximity
to work places and entertainment zones. The presence of education
institutions, proximity to airport and good connectivity make
Dilshuknagar and LB Nagar the next most preferred residential
locations. Some respondents preferred Kompally because of its
proximity to the CBD.
The study has captured the factors which influence the decision of a
buyer in the selection of residential projects in a preferred location.
Respondents have rated a set of factors on a scale of 1 to 4 (4 being the
most important and 1 the least). Based on the ratings, mean scores are
generated for each factor and the one with the highest mean score has
been identified as the most important factor and ranked 1.
Supply Perspective
The residential market in Hyderabad has seen a noticeable change in
development trend from 2005 onwards. Proactive government
initiatives, the growth of the IT, Pharma and Biotech industries and the
inception of SEZs, Industrial Parks and IT campuses have all
contributed to the residential boom in Hyderabad. This rapid
development, along with the sudden demand for quality housing, has
seen the entry of many national and international developers into the
local market. Thus, over a span of 2-3 years, Hyderabad has witnessed
extensive growth of premium and luxury segment housing, gated
communities and villas. Easy credit availability and high profit margins
of developers have led to a rise in property prices, which in turn has
driven speculation in Hyderabad's property market. Consequently,
property prices have escalated to unaffordable levels, resulting in the
reduced buying capacity of the MIG segment across Hyderabad.
The global economic slowdown has adversely impacted the demand
for housing in the Hyderabad residential market. Subdued interest by
end users and investors has led to a decline in property prices.
Meanwhile, high supply in the face of this reduced demand has
created a demand-supply mismatch in the luxury residential segment.
In order to understand the supply dynamics of the affordable housing
market in Hyderabad, Knight Frank research carried out primary
surveys of major stakeholders in the city's real estate sector, namely
developers, bankers and government authorities. Developers spoke of
a decline in residential enquires as well as conversion rates in the past
8-10 months. Market enquiries have decreased by around 40%, while
the conversion rate (i.e. actual demand) has declined by about 70% in
the last 8-10 months.
Safety and security, un-interrupted power and water supply and
disturbance caused by traffic are the most important factors
influencing a buyer's decision with respect to the choice of a
residential project in a particular location in Hyderabad. Amenities like
a gymnasium and spa were revealed to be moderately important, while
those such as a swimming pool, servant's quarter, multipurpose hall,
interior fixtures and crèche have insignificant influence in purchase
decisions. It was observed that the prospective buyers indicated a
willingness to compromise on factors like apartment size, price,
facilities and developer's goodwill. In today's market, the final price
and grade of the property has a direct bearing on its range of amenities
provided. Consumers' increasing market awareness and exposure to a
cosmopolitan lifestyle have greatly influenced the nature and number
of amenities provided by the developer.
Factors Rank
Safety & security 1
Un-interrupted power 2
Water supply 3
Disturbance caused by traffic/noise/congestion 4
Apartment/home size 5
Facilities available 6
Price 7
Developer goodwill 8
Table 39
Factors Influencing Choice of Residential Project
Source: Knight Frank Research
Figure 34
Preferred Amenities within a Residential Project
Source: Knight Frank Research
0 100 120 180
Creche
Servant quarters
Modular Kitchen
Multipurpose hall
Club house
Interior fixtures
Swimming pool
GymnasiumSpa
Finishing
Power Back-up
High level of security systems
Un-interrupted water supply
No. of Responses
80604020 140 160
46
In order to capture occupation-wise variations, the sample potential
home buyers have been selected from various sectors. The majority (i.e.
67%) of them are salaried and working in the private sector. Around
31% are self employed and the rest work in the government sector. As
the survey is restricted to middle income households with a Rs.3-10
lakh annual income, the entire sample is distributed within this income
group, and the Rs.3-6 lakh income group constitutes a large portion of
the survey respondents.
Buyer Preferences
A prospective buyer's decision to purchase property in Hyderabad is
influenced by a variety of factors like capital values, size of apartment,
location and amenities. The preferences of respondents in terms of
their budget and preferred house size were studied. It was observed
that the potential buyers in Hyderabad have a budget ranging between
Rs.16 lakh and Rs.25 lakh, with preferred sizes varying between 600 sq.
ft. and 1000 sq. ft. Higher income households have higher budgets and
a preference for larger apartment sizes.Figure 32
Distribution of Sample Households According to
Total Annual Income
Source: Knight Frank Research
Rs. 3-5 lakh - 52%
Rs. 5-6 lakh - 29%
Rs. 6-8 lakh - 6%
Rs. 8-10 lakh - 13%
The survey findings revealed that on average, tenant households have
been staying in their current residence for the last two and a half years.
A majority of the households are residing in 1 BHK and 2 BHK houses
irrespective of income. A good proportion of households in the income
range of Rs.8-10 lakh reside in independent houses. The average size
of a 1 BHK flat is around 540 sq.ft. that commands a monthly rental of
around Rs.6000/month. The average size and monthly rental of 3 BHK
and independent houses is very similar.
Table 36
Percentage Distribution of Current Residence Type
Based on Annual Income
Annual Income 1 BHK 2 BHK 3 BHK Independent
House
Rs. 3-5 lakh 56% 33% 7% 4%
Rs. 5-6 lakh 34% 56% 2% 8%
Rs. 6-8 lakh 45% 36% 18% 0%
Rs. 8-10 lakh 39% 9% 13% 39%
Source: Knight Frank Research
Current Residence type Average Size Average Rental
(sq.ft.) (Rs./month)
1 BHK 536 6,296
2 BHK 757 8,958
3 BHK 1,063 9,500
Independent house 938 9,147
Table 37
Current Residence Type W.R.TAverage Size and Rentals
Source: Knight Frank Research
Annual Income Average Budget Average Preferred
(Rs. lakh) Size (sq.ft.)
Rs. 3-5 lakh 16 715
Rs. 5-6 lakh 19 787
Rs. 6-8 lakh 23 906
Rs. 8-10 lakh 25 1,016
Table 38
Average Preferred Budget and Size
Source: Knight Frank Research
With the city limits expanding, there is a trend of relocation being
witnessed in the Hyderabad region. It was found that good
infrastructure and connectivity are the two major factors that influence
the choice of location of potential house buyers. The presence of a
social circle is the third most influential factor.
The soaring rates in and around the CBD areas have pushed the
potential buyers towards the outskirts of the city, where the capital
rates are lower compared to the other locations within the city limits.
Moreover, developers are launching new projects in the outskirts
where land is available at cheaper rates. The development of Outer
Ring Road provides good connectivity to these locations.
Figure 33
Factors Influencing Preference for Location
8%
13%
18%
23%
38%
0% 10% 20% 30% 40%
Favourable demographics
Presence of social circle
(friends, relatives)
Good infrastructure
Good potential for development
Good connectivity to frequently
travelled places
Source: Knight Frank Research
25%15%5% 35%
Percentage of Responses
45
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
6. Price of the product - As per the developers, given the earning
propensity of households in Hyderabad, a product in the price range of
Rs.1600 to 2300/ sq.ft., can be termed as affordable. The ongoing
rates are as follows.
a. Within corporation limits the price ranges from Rs.2500-4000/sq.ft.
b. Within municipal limits the price ranges from Rs.1800-2200/sq.ft.
c. Close to municipal limits the price ranges from Rs.1500-1800/sq.ft.
d. Distant locations from the city limits, the price should be around
Rs.1200-1400/sq.ft.
Officials of public and private banks were also interviewed to
understand the demand dynamics witnessed by the home loan sector
in the past few years. They feel that the average age of the house buyer
has come down as consumers are now buying for investment purposes
as well.
The upswing of the IT/ITES sector in Hyderabad has boosted the city's
real estate market by increasing the propensity to buy amongst
consumers. Though there is a tendency to buy independent houses,
affordability, availability in desired locations and convenience are the
major determinants of the same. Also, managing independent houses
can be a cumbersome prospect for nuclear families.
With the economic downturn, companies are resorting to job cuts that
affect home loan demand due to consequent job insecurity. Demand
for home loans was at its peak during the boom period from 2006-07
as investment in housing was rampant. The majority of buyers were
people working in software, and the average age of the buyer was
around 30 years. Property prices increased by an average of 200-300% ,
and enquiries and conversion rates soared. The global slowdown in
2008 adversely impacted the residential segment, with the number of
enquiries declining and the conversion rates dropping by around 33%
compared to 2006-07 rates.
The market for construction loans has lost pace in recent times. Banks
have become cautious and are reluctant to provide construction loans
to developers. The following criteria are considered before a
construction loan is approved.
• The feasibility of the project
• The promoter's market reputation
• The funding provided to the promoter
• Financial stability
• Product pricing
• Repayment
• Saleability
The recent reduction in home loan interest rates did not translate to
higher demand for houses as the property boom in the last two years
stretched prices to exorbitant levels. Now that the demand for
affordable housing is growing and governments have reduced
registration charges for units less than 1200 sq.ft., developers are
redrawing their plans to exploit this opportunity. Due to the economic
slowdown there has been a market correction, and developers should
introduce the right product mix in the market to cater to end user
demand.
The government authorities and officials from the housing board were
interviewed to understand their initiatives in affordable housing within
the city. The Hyderabad Metropolitan Development Authority (HMDA),
Greater Hyderabad Municipal Corporation (GHMC), Andhra Pradesh
Housing Board (APHB), Andhra Pradesh Rajiv Swagruha Corporation
(APRSC) and Rajiv Gruha Kalpa are the concerned authorities
responsible for housing and monitoring of real estate in the city. The
HMDA and GHMC are the permission providers for layouts and
regulatory authorities for building permissions within the Hyderabad
limits. Further to this initiative by the Central Government in providing
the guidelines for National Affordable Housing in Partnership under
JNNURM, the HMDA is planning to come up with an affordable housing
model for its land banks (catering to a budget segment of Rs.5-15 lakh)
on a partnership basis under this scheme.
The APHB provides housing on a limited scale for the LIG, MIG and HIG
segments. They either construct on their own or adopt a PPP model
wherein the APHB sources land and the developer has to give back 5%
of the land to be provided for LIG segment. The price at which APHB will
buy the LIG units is prefixed with the developer and these are marketed
by APHB.
The global slowdown
in 2008 adversely
impacted the
residential segment,
with the number of
enquiries declining
and the conversion
rates dropping by
around 33% compared
to 2006-07
48
The primary reason attributed to the decline in residential demand was
job insecurity among the target segment, mainly the IT/ITES sector,
which forced potential end users to defer their purchase decisions.
While property prices have declined in the city over the last year,
buyers, in anticipation of a further fall in prices, have adopted a 'wait
and watch' approach towards buying a house.
After witnessing the pinch of low conversions in the luxury segment,
developers have started to redesign their projects to suit the present
market for affordable housing. Today, many developers feel that the
only way to revive their business is to launch projects which match the
demand for affordable housing in the market. This initiative by
developers will not only revive their own business, but will also help in
reviving Hyderabad's residential market. Based on the feedback
received from developers, key characteristics of affordable housing
market dynamics have been identified as follows.
1. Location of the project - According to the developers, affordability
depends on connectivity, price variability and product features
(especially size) rather than location. Moreover, affordable housing
functions best if well connected to work places or closer to industrial
areas. It can come up anywhere in peripheral locations where large
expanses of vacant land are available and rates are cheaper.
2. Land - Though land is available at cheaper rates, people may not
prefer to move to peripheral locations due to the non-availability of
physical and social infrastructure. Developers confessed their
apprehension on the success of standalone housing projects on the
outskirts, and believe that the integrated townships model should be
adopted while providing affordable housing. Miyapur, Dilshuknagar,
Shamirpet in the north/north east, Sanath Nagar, BHEL, Nacharam,
Uppal, Gachibowli, Kondapur, Kukatpalli, Miyapur, Genome Valley,
Vijaywada Highway, Karimnagar Highway, Warangal Highway and
Shamshabad are developers' preferred locations for affordable
housing projects.
3. Property Specifications - The cost of affordable housing depends on
the size of the apartment and the specifications used for the product.
The more complex the specifications in terms of materials used for
construction, the higher is the product cost. Therefore, the unit price
can be altered in a big way by moderating the specifications and size
of the product. Most importantly, the product should not consume too
much space for common areas.
4. Cost of construction - The cost of construction related to any type of
residential development is more or less similar. As a factor, the cost of
construction does not impact the price of a product in a big way. In the
Hyderabad market, the cost of construction for a residential project
ranges between Rs.800-1000/sq.ft. depending upon property
specifications.
5. Amenities provided - The opinion of the developers with regard to
the inclusion of amenities is divided. While some believe that all
amenities should be provided with only unit size being varied, others
believe that amenities and affordability cannot go together. They feel
that as more money is spent on luxurious amenities and facilities, the
cost of construction would go up, thus rendering a supposed
affordable housing project to become a high-end product.
47
Sr.No Project Name Developer Location May '09 Rate (Rs./sq.ft.) Unit Size Range (sq.ft.)
1 Nile Valley Janapriya Engineers Syndicate Madinaguda 1,600 940-1,350
2 Metropolis Janapriya Engineers Syndicate Moti nagar 2,650 625-1,250
3 Arcadia Janapriya Engineers Syndicate Kaukur 1,895 585-1,500
4 Utopia Janapriya Engineers Syndicate Attapur 2,300 700-1,490
5 Celestia Mantri Gachibowli 2,640 1,000-1,198
6 Rainbow Vistas Ashoka & Cybercity developers Near Hitech city 2,679 1,045-1,515
7 Gulmohar Park II Modi Properties & Investment Pvt Ltd Mallapur 2,000 1,197-1,453
8 May Flower Heights Modi Properties & Investment Pvt Ltd Nacharam 2,300 1,260-1,695
9 Indu Aranya Indu Group LB Nagar 1,850 1,602-1,900
10 Commune Golden gate Kollur 1,800 1,060-1,750
11 Manjeera Smart Homes Manjeera group Qutbullapur 2,100 1,100-1,665
12 Greenwood Residency Modi Properties & Investment Pvt Ltd Kaukur 1,799 1,081-1,462
13 Ushodayam Green Homes Satyavani Group Annojiguda 2,200* 1,100-1,691
Table 40
Select Affordable Housing Projects in Hyderabad
Source: Knight Frank Research
* Rates negotiable
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
6. Price of the product - As per the developers, given the earning
propensity of households in Hyderabad, a product in the price range of
Rs.1600 to 2300/ sq.ft., can be termed as affordable. The ongoing
rates are as follows.
a. Within corporation limits the price ranges from Rs.2500-4000/sq.ft.
b. Within municipal limits the price ranges from Rs.1800-2200/sq.ft.
c. Close to municipal limits the price ranges from Rs.1500-1800/sq.ft.
d. Distant locations from the city limits, the price should be around
Rs.1200-1400/sq.ft.
Officials of public and private banks were also interviewed to
understand the demand dynamics witnessed by the home loan sector
in the past few years. They feel that the average age of the house buyer
has come down as consumers are now buying for investment purposes
as well.
The upswing of the IT/ITES sector in Hyderabad has boosted the city's
real estate market by increasing the propensity to buy amongst
consumers. Though there is a tendency to buy independent houses,
affordability, availability in desired locations and convenience are the
major determinants of the same. Also, managing independent houses
can be a cumbersome prospect for nuclear families.
With the economic downturn, companies are resorting to job cuts that
affect home loan demand due to consequent job insecurity. Demand
for home loans was at its peak during the boom period from 2006-07
as investment in housing was rampant. The majority of buyers were
people working in software, and the average age of the buyer was
around 30 years. Property prices increased by an average of 200-300% ,
and enquiries and conversion rates soared. The global slowdown in
2008 adversely impacted the residential segment, with the number of
enquiries declining and the conversion rates dropping by around 33%
compared to 2006-07 rates.
The market for construction loans has lost pace in recent times. Banks
have become cautious and are reluctant to provide construction loans
to developers. The following criteria are considered before a
construction loan is approved.
• The feasibility of the project
• The promoter's market reputation
• The funding provided to the promoter
• Financial stability
• Product pricing
• Repayment
• Saleability
The recent reduction in home loan interest rates did not translate to
higher demand for houses as the property boom in the last two years
stretched prices to exorbitant levels. Now that the demand for
affordable housing is growing and governments have reduced
registration charges for units less than 1200 sq.ft., developers are
redrawing their plans to exploit this opportunity. Due to the economic
slowdown there has been a market correction, and developers should
introduce the right product mix in the market to cater to end user
demand.
The government authorities and officials from the housing board were
interviewed to understand their initiatives in affordable housing within
the city. The Hyderabad Metropolitan Development Authority (HMDA),
Greater Hyderabad Municipal Corporation (GHMC), Andhra Pradesh
Housing Board (APHB), Andhra Pradesh Rajiv Swagruha Corporation
(APRSC) and Rajiv Gruha Kalpa are the concerned authorities
responsible for housing and monitoring of real estate in the city. The
HMDA and GHMC are the permission providers for layouts and
regulatory authorities for building permissions within the Hyderabad
limits. Further to this initiative by the Central Government in providing
the guidelines for National Affordable Housing in Partnership under
JNNURM, the HMDA is planning to come up with an affordable housing
model for its land banks (catering to a budget segment of Rs.5-15 lakh)
on a partnership basis under this scheme.
The APHB provides housing on a limited scale for the LIG, MIG and HIG
segments. They either construct on their own or adopt a PPP model
wherein the APHB sources land and the developer has to give back 5%
of the land to be provided for LIG segment. The price at which APHB will
buy the LIG units is prefixed with the developer and these are marketed
by APHB.
The global slowdown
in 2008 adversely
impacted the
residential segment,
with the number of
enquiries declining
and the conversion
rates dropping by
around 33% compared
to 2006-07
48
The primary reason attributed to the decline in residential demand was
job insecurity among the target segment, mainly the IT/ITES sector,
which forced potential end users to defer their purchase decisions.
While property prices have declined in the city over the last year,
buyers, in anticipation of a further fall in prices, have adopted a 'wait
and watch' approach towards buying a house.
After witnessing the pinch of low conversions in the luxury segment,
developers have started to redesign their projects to suit the present
market for affordable housing. Today, many developers feel that the
only way to revive their business is to launch projects which match the
demand for affordable housing in the market. This initiative by
developers will not only revive their own business, but will also help in
reviving Hyderabad's residential market. Based on the feedback
received from developers, key characteristics of affordable housing
market dynamics have been identified as follows.
1. Location of the project - According to the developers, affordability
depends on connectivity, price variability and product features
(especially size) rather than location. Moreover, affordable housing
functions best if well connected to work places or closer to industrial
areas. It can come up anywhere in peripheral locations where large
expanses of vacant land are available and rates are cheaper.
2. Land - Though land is available at cheaper rates, people may not
prefer to move to peripheral locations due to the non-availability of
physical and social infrastructure. Developers confessed their
apprehension on the success of standalone housing projects on the
outskirts, and believe that the integrated townships model should be
adopted while providing affordable housing. Miyapur, Dilshuknagar,
Shamirpet in the north/north east, Sanath Nagar, BHEL, Nacharam,
Uppal, Gachibowli, Kondapur, Kukatpalli, Miyapur, Genome Valley,
Vijaywada Highway, Karimnagar Highway, Warangal Highway and
Shamshabad are developers' preferred locations for affordable
housing projects.
3. Property Specifications - The cost of affordable housing depends on
the size of the apartment and the specifications used for the product.
The more complex the specifications in terms of materials used for
construction, the higher is the product cost. Therefore, the unit price
can be altered in a big way by moderating the specifications and size
of the product. Most importantly, the product should not consume too
much space for common areas.
4. Cost of construction - The cost of construction related to any type of
residential development is more or less similar. As a factor, the cost of
construction does not impact the price of a product in a big way. In the
Hyderabad market, the cost of construction for a residential project
ranges between Rs.800-1000/sq.ft. depending upon property
specifications.
5. Amenities provided - The opinion of the developers with regard to
the inclusion of amenities is divided. While some believe that all
amenities should be provided with only unit size being varied, others
believe that amenities and affordability cannot go together. They feel
that as more money is spent on luxurious amenities and facilities, the
cost of construction would go up, thus rendering a supposed
affordable housing project to become a high-end product.
47
Sr.No Project Name Developer Location May '09 Rate (Rs./sq.ft.) Unit Size Range (sq.ft.)
1 Nile Valley Janapriya Engineers Syndicate Madinaguda 1,600 940-1,350
2 Metropolis Janapriya Engineers Syndicate Moti nagar 2,650 625-1,250
3 Arcadia Janapriya Engineers Syndicate Kaukur 1,895 585-1,500
4 Utopia Janapriya Engineers Syndicate Attapur 2,300 700-1,490
5 Celestia Mantri Gachibowli 2,640 1,000-1,198
6 Rainbow Vistas Ashoka & Cybercity developers Near Hitech city 2,679 1,045-1,515
7 Gulmohar Park II Modi Properties & Investment Pvt Ltd Mallapur 2,000 1,197-1,453
8 May Flower Heights Modi Properties & Investment Pvt Ltd Nacharam 2,300 1,260-1,695
9 Indu Aranya Indu Group LB Nagar 1,850 1,602-1,900
10 Commune Golden gate Kollur 1,800 1,060-1,750
11 Manjeera Smart Homes Manjeera group Qutbullapur 2,100 1,100-1,665
12 Greenwood Residency Modi Properties & Investment Pvt Ltd Kaukur 1,799 1,081-1,462
13 Ushodayam Green Homes Satyavani Group Annojiguda 2,200* 1,100-1,691
Table 40
Select Affordable Housing Projects in Hyderabad
Source: Knight Frank Research
* Rates negotiable
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Locations May '09 Rates Max Size (in sq.ft.) & Total Property Value (in Rs.lakh)
(in Rs./sq.ft.)
500 600 700 800 900 1000 1100 1200
sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft.
Min 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0Jubilee Hills
Max 7,000 35.0 42.0 49.0 56.0 63.0 70.0 77.0 84.0
Min 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0Banjara Hills
Max 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
Min 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0Srinagar Colony
Max 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0
Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0Gachibowli
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0Begumpet
Max 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0
Min 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0Secunderabad
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Min 2,300 11.5 13.8 16.1 18.4 20.7 23.0 25.3 27.6Madhapur
Max 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
Min 2,000 10.0 12.0 14.0 16.0 18.0 20.0 22.0 24.0Uppal/Nacharam
Max 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
Min 2,000 10.0 12.0 14.0 16.0 18.0 20.0 22.0 24.0Kukatpally
Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Min 1,800 9.0 10.8 12.6 14.4 16.2 18.0 19.8 21.6Miyapur
Max 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
Min 1,800 9.0 10.8 12.6 14.4 16.2 18.0 19.8 21.6Kompally
Max 2,200 11.0 13.2 15.4 17.6 19.8 22.0 24.2 26.4
Min 1,500 7.5 9.0 10.5 12.0 13.5 15.0 16.5 18.0LB Nagar
Max 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
Min 1,500 7.5 9.0 10.5 12.0 13.5 15.0 16.5 18.0Dilsukhnagar
Max 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
Table 42
Size Preference in Hyderabad - Min-700 sq.ft. Max-1100 sq.ft.
Affordable House Property in Hyderabad - Min 14.98 lakh Max 42.83 lakhNot Affordable
Source: Knight Frank Research
This potential scenario has been represented by Table 42 which
depicts the locations which are affordable to a household willing to
compromise on the unit size. It elucidates the point that given a
compromise on preferred unit sizes, most of the locations in the city
fall within the affordability bracket of the various income groups.
However, it remains to be seen if developers are willing to compromise
on their profit margin and come up with units of smaller sizes.
On an interesting note, it has been observed that the households
belonging to the higher income category of Rs.6-8 lakh have a larger
unit size preference of around 900-1050 sq.ft., as a consequence of
which they shall have to limit their property search to far flung areas
like Kukatpally and Miyapur. Begumpet, with prevailing capital values
between Rs.3000-5000/sq.ft., remains the only central location where
this income group can purchase a property. On the other hand, if they
50
opt for residential units of smaller sizes, they would be able to afford a
property at up market locations like Banjara Hills, Jubilee Hills and
Srinagar Colony, which have prices ranging from Rs.4000/sq.ft. to
Rs.7000/sq.ft. Thus, with a compromise on the unit size, higher
income categories of Rs.6 lakh and above can purchase a property in
these locations, hitherto beyond their affordability. However, given the
high-end nature of these locations, developers may not offer products
with sizes as presented in the table.
Another feature which came to light has been the conservative
approach of the city's residents towards the budget for a property. It is
evident from the household survey that the income groups of Rs.5 lakh
and above prefer budgets that are much lower than their affordability
as calculated by Knight Frank research. For instance, the income
category of Rs.8-10 lakh has an average preferred budget of Rs.25 lakh,
Household income (per annum)
Maximum EMI (Rs.) 11,500 - 15,600 16,800 - 21,300 23,300 - 26,200 27,100 - 32,800
Maximum loan eligibility (Rs.) 12,73,000 - 17,37,000 18,66,000 - 23,63,000 25,95,000 - 29,09,000 30,15,000 - 36,40,000
(9% interest rate, 20 year loan tenure)
Buyer's own contribution (Rs.)
(Assuming 85% loan)
Affordable house property value (Rs.) 14,98,000 - 20,43,000 21,96,000 - 27,80,000 30,52,000 - 34,22,000 35,47,000 - 42,83,000
Preferred size (sq.ft.) 700 - 750 750 - 800 900 - 1,050 750 - 1,100
Price (Rs./sq.ft.) 2,200 - 2,700 2,800 - 3,500 3,000 - 3,800 3,800 - 4,700
Rs. 3 lakh - 5 lakh Rs. 5 lakh - 6 lakh Rs. 6 lakh - 8 lakh Rs. 8 lakh - 10 lakh
2,25,000 - 3,06,000 3,29,000 - 4,17,000 4,58,000 - 5,13,000 5,32,000 - 6,42,000
Table 41
Affordability in Hyderabad
Source: Knight Frank Research
Locations available
considering preferred size
and few residential areas
Gachibowli
Begumpet
Secundrabad
Madhapur
Uppal
Nacharam
Kukatpally
Miyapur
Kompally
LB Nagar
Dilsukhnagar
Srinagar Colony
Gachibowli
Begumpet
Secundrabad
Madhapur
Uppal
Nacharam
Kukatpally
Miyapur
Kompally
LB Nagar
Dilsukhnagar
Secundrabad
Madhapur
Uppal
Nacharam
Kukatpally
Miyapur
Kompally
LB Nagar
Dilsukhnagar
Gachibowli
Begumpet
Secundrabad
Madhapur
Uppal
Nacharam
Kukatpally
Miyapur
Kompally
LB Nagar
Dilsukhnagar
APRSC has been incorporated to convert the dream of the mid income
group into reality by giving them an 'affordable house' equipped with
all modern facilities at 25% less than the prevailing market rate, on
behalf of the State Government. In order to make houses affordable,
four unit sizes (464, 685, 1100, 1450 sq.ft. plinth area) have been
incorporated for four income levels (Rs.6,000-10,000, Rs.10,000-
15,000, Rs.15,000-20,000 and Rs.20,000-25,000). The Government
has decided to allot lands wherever it is available and acquire private
lands with the consent of the land owners. The corporation issues a
notification to invite applications and a tender to fix a contractor.
Based on the eligibility criteria on the income levels the allotment of
flat/house is done through lottery. Once allotment is confirmed the
individual is required to deposit 25% of the cost within three months in
two instalments failing where allotment will be cancelled, forfeiting the
EMD. The rest 75% has to be paid in four instalments. Projects under
APRSC are at Chandanagar and Pocharam.
The Andhra Pradesh State Government has formulated Rajiv Gruha
Kalpa Scheme to construct a large number of houses in urban areas
and to increase the availability of housing stock for the poor and lower
income groups. The procedures are similar to the Rajiv Swagruha
Scheme. The projects under Rajiv Gruha Kalpa scheme are at
Bachupally, Chandanagar, Lakshmiguda and Mylardevpally.
The household survey in Hyderabad carried out in order to determine
the affordability of the various income groups at the city level revealed
several notable characteristics of the city's housing market. Table 41
depicts in detail the maximum affordable EMI of households in various
income levels. This EMI has been estimated from the annual income of
a household and its spending and saving behavior. The maximum EMI
has been translated into an affordable house property value based on
an assumed interest rate, loan tenure and loan to value ratio. The table
also shows the capital rates that the households will have to pay
keeping in view the preferred house sizes and the affordable house
property value.
As shown in Table 41, a favourable scenario for the mid-income
segment is depicted in Hyderabad. The survey reveals that at present
there are a number of locations in the city that cater to the need of the
segment. For instance, the households belonging to the income group
of Rs.3-5 lakh can afford to purchase a property in locations like
Madhapur and Uppal, which in recent years have become preferred
residential locations owing to IT development there. However, these
locations are around 13-22 kms away from the city centre of Begumpet
CBD, and the infrastructure there is not fully developed to support a
population influx. Given their unit size preference of around 700-750
sq.ft., households in the Rs.3-5 lakh income group can afford a
property in the price range of Rs.2200-2700/sq.ft. Premium residential
locations are possible for this group, albeit with a lesser apartment
size.
Identifying Affordability
49
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Locations May '09 Rates Max Size (in sq.ft.) & Total Property Value (in Rs.lakh)
(in Rs./sq.ft.)
500 600 700 800 900 1000 1100 1200
sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft.
Min 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0Jubilee Hills
Max 7,000 35.0 42.0 49.0 56.0 63.0 70.0 77.0 84.0
Min 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0Banjara Hills
Max 6,000 30.0 36.0 42.0 48.0 54.0 60.0 66.0 72.0
Min 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0Srinagar Colony
Max 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0
Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0Gachibowli
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Min 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0Begumpet
Max 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0
Min 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0Secunderabad
Max 4,000 20.0 24.0 28.0 32.0 36.0 40.0 44.0 48.0
Min 2,300 11.5 13.8 16.1 18.4 20.7 23.0 25.3 27.6Madhapur
Max 3,000 15.0 18.0 21.0 24.0 27.0 30.0 33.0 36.0
Min 2,000 10.0 12.0 14.0 16.0 18.0 20.0 22.0 24.0Uppal/Nacharam
Max 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
Min 2,000 10.0 12.0 14.0 16.0 18.0 20.0 22.0 24.0Kukatpally
Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Min 1,800 9.0 10.8 12.6 14.4 16.2 18.0 19.8 21.6Miyapur
Max 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
Min 1,800 9.0 10.8 12.6 14.4 16.2 18.0 19.8 21.6Kompally
Max 2,200 11.0 13.2 15.4 17.6 19.8 22.0 24.2 26.4
Min 1,500 7.5 9.0 10.5 12.0 13.5 15.0 16.5 18.0LB Nagar
Max 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
Min 1,500 7.5 9.0 10.5 12.0 13.5 15.0 16.5 18.0Dilsukhnagar
Max 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
Table 42
Size Preference in Hyderabad - Min-700 sq.ft. Max-1100 sq.ft.
Affordable House Property in Hyderabad - Min 14.98 lakh Max 42.83 lakhNot Affordable
Source: Knight Frank Research
This potential scenario has been represented by Table 42 which
depicts the locations which are affordable to a household willing to
compromise on the unit size. It elucidates the point that given a
compromise on preferred unit sizes, most of the locations in the city
fall within the affordability bracket of the various income groups.
However, it remains to be seen if developers are willing to compromise
on their profit margin and come up with units of smaller sizes.
On an interesting note, it has been observed that the households
belonging to the higher income category of Rs.6-8 lakh have a larger
unit size preference of around 900-1050 sq.ft., as a consequence of
which they shall have to limit their property search to far flung areas
like Kukatpally and Miyapur. Begumpet, with prevailing capital values
between Rs.3000-5000/sq.ft., remains the only central location where
this income group can purchase a property. On the other hand, if they
50
opt for residential units of smaller sizes, they would be able to afford a
property at up market locations like Banjara Hills, Jubilee Hills and
Srinagar Colony, which have prices ranging from Rs.4000/sq.ft. to
Rs.7000/sq.ft. Thus, with a compromise on the unit size, higher
income categories of Rs.6 lakh and above can purchase a property in
these locations, hitherto beyond their affordability. However, given the
high-end nature of these locations, developers may not offer products
with sizes as presented in the table.
Another feature which came to light has been the conservative
approach of the city's residents towards the budget for a property. It is
evident from the household survey that the income groups of Rs.5 lakh
and above prefer budgets that are much lower than their affordability
as calculated by Knight Frank research. For instance, the income
category of Rs.8-10 lakh has an average preferred budget of Rs.25 lakh,
Household income (per annum)
Maximum EMI (Rs.) 11,500 - 15,600 16,800 - 21,300 23,300 - 26,200 27,100 - 32,800
Maximum loan eligibility (Rs.) 12,73,000 - 17,37,000 18,66,000 - 23,63,000 25,95,000 - 29,09,000 30,15,000 - 36,40,000
(9% interest rate, 20 year loan tenure)
Buyer's own contribution (Rs.)
(Assuming 85% loan)
Affordable house property value (Rs.) 14,98,000 - 20,43,000 21,96,000 - 27,80,000 30,52,000 - 34,22,000 35,47,000 - 42,83,000
Preferred size (sq.ft.) 700 - 750 750 - 800 900 - 1,050 750 - 1,100
Price (Rs./sq.ft.) 2,200 - 2,700 2,800 - 3,500 3,000 - 3,800 3,800 - 4,700
Rs. 3 lakh - 5 lakh Rs. 5 lakh - 6 lakh Rs. 6 lakh - 8 lakh Rs. 8 lakh - 10 lakh
2,25,000 - 3,06,000 3,29,000 - 4,17,000 4,58,000 - 5,13,000 5,32,000 - 6,42,000
Table 41
Affordability in Hyderabad
Source: Knight Frank Research
Locations available
considering preferred size
and few residential areas
Gachibowli
Begumpet
Secundrabad
Madhapur
Uppal
Nacharam
Kukatpally
Miyapur
Kompally
LB Nagar
Dilsukhnagar
Srinagar Colony
Gachibowli
Begumpet
Secundrabad
Madhapur
Uppal
Nacharam
Kukatpally
Miyapur
Kompally
LB Nagar
Dilsukhnagar
Secundrabad
Madhapur
Uppal
Nacharam
Kukatpally
Miyapur
Kompally
LB Nagar
Dilsukhnagar
Gachibowli
Begumpet
Secundrabad
Madhapur
Uppal
Nacharam
Kukatpally
Miyapur
Kompally
LB Nagar
Dilsukhnagar
APRSC has been incorporated to convert the dream of the mid income
group into reality by giving them an 'affordable house' equipped with
all modern facilities at 25% less than the prevailing market rate, on
behalf of the State Government. In order to make houses affordable,
four unit sizes (464, 685, 1100, 1450 sq.ft. plinth area) have been
incorporated for four income levels (Rs.6,000-10,000, Rs.10,000-
15,000, Rs.15,000-20,000 and Rs.20,000-25,000). The Government
has decided to allot lands wherever it is available and acquire private
lands with the consent of the land owners. The corporation issues a
notification to invite applications and a tender to fix a contractor.
Based on the eligibility criteria on the income levels the allotment of
flat/house is done through lottery. Once allotment is confirmed the
individual is required to deposit 25% of the cost within three months in
two instalments failing where allotment will be cancelled, forfeiting the
EMD. The rest 75% has to be paid in four instalments. Projects under
APRSC are at Chandanagar and Pocharam.
The Andhra Pradesh State Government has formulated Rajiv Gruha
Kalpa Scheme to construct a large number of houses in urban areas
and to increase the availability of housing stock for the poor and lower
income groups. The procedures are similar to the Rajiv Swagruha
Scheme. The projects under Rajiv Gruha Kalpa scheme are at
Bachupally, Chandanagar, Lakshmiguda and Mylardevpally.
The household survey in Hyderabad carried out in order to determine
the affordability of the various income groups at the city level revealed
several notable characteristics of the city's housing market. Table 41
depicts in detail the maximum affordable EMI of households in various
income levels. This EMI has been estimated from the annual income of
a household and its spending and saving behavior. The maximum EMI
has been translated into an affordable house property value based on
an assumed interest rate, loan tenure and loan to value ratio. The table
also shows the capital rates that the households will have to pay
keeping in view the preferred house sizes and the affordable house
property value.
As shown in Table 41, a favourable scenario for the mid-income
segment is depicted in Hyderabad. The survey reveals that at present
there are a number of locations in the city that cater to the need of the
segment. For instance, the households belonging to the income group
of Rs.3-5 lakh can afford to purchase a property in locations like
Madhapur and Uppal, which in recent years have become preferred
residential locations owing to IT development there. However, these
locations are around 13-22 kms away from the city centre of Begumpet
CBD, and the infrastructure there is not fully developed to support a
population influx. Given their unit size preference of around 700-750
sq.ft., households in the Rs.3-5 lakh income group can afford a
property in the price range of Rs.2200-2700/sq.ft. Premium residential
locations are possible for this group, albeit with a lesser apartment
size.
Identifying Affordability
49
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Kolkata
52
Kolkata, the capital of West Bengal, is the main business and financial hub of eastern India. Its urban
agglomeration comprises the Kolkata Metropolitan Area, the satellite township of Rajarhat, Howrah and parts
of 24 Parganas (North and South). Formerly the capital of India during the British rule, the city is famed for its
rich cultural heritage and distinct socio-political set up. The primary fiscal drivers for Kolkata have
traditionally been the service and manufacturing sector, with various industrial set-ups including engineering
products, leather, steel, automobile and pharmaceutical companies.
Kolkata, with its economic resurgence, has also witnessed a change in its socio-economic structure.
Conventional joint family set-ups have given way to nuclear families while increase in job opportunities has
led to rising aspiration levels amongst the city's residents. While Kolkata has grown radially, the most
pronounced directions of growth are towards the eastern, south-eastern and western parts of the city. The
Eastern Metropolitan Bypass is being increasingly viewed as the Central Avenue of modern Kolkata while
Rajarhat is being promoted as an IT hub in the east of Kolkata.
The city, today, is being acknowledged as one of the fastest growing IT destinations in the country. It has
emerged as an attractive location to many big names in the IT sector, including Tata Consultancy Services,
Cognizant Technologies, PWC, ITC Infotech, Computer Associates, Siemens, IBM and Wipro BPO amongst
others. Large talent pool of skilled and qualified engineers and technical personnel, improving infrastructure,
low attrition rates, low cost of operations and a supportive government with attractive incentive schemes for
IT/ITES are some of the reasons that can be attributed to the rapid development of the IT/ITES sector in the
city.
The advent of the IT/ITES sector in the region has created considerable impact on the real estate scenario of
the city. In the recent past, Kolkata has been attracting a number of real estate investors and developers with
financial muscle. These investors, both foreign and Indian, have identified prime areas for investment while
national level developers such as DLF and Unitech already have projects operational in the city.
City Overview
As per the tenant household survey, 84% of the prospective home
buyers (tenant households) in Kolkata are nuclear families and the rest
characterized by joint family system. The average household size of the
respondents stands at around 3.6 persons per household which clearly
depicts the predominance of nuclear structure of families in the city.
Among the tenant households reviewed, 74% represent the migratory
population of the city. Of this, it was observed that a majority of the
households, to the tune of 53%, have migrated to the city for job
purpose while about 16% of the households located to the city after
marriage. Around 9% have migrated to Kolkata in the prospect of
better business opportunities. The average number of years the
migrant households have been living in the city is about 4.6 years.
Demand PerspectiveBuyer Profile
Figure 37
Distribution of Sample Households According to
Type of Occupation
Source: Knight Frank Research
Salaried Govt - 6%
Salaried Private - 78%
Self employed (business) - 14%
Self employed professional - 2%
(doctor, lawyer, CA)
which would translate into a property rate of Rs.2700/sq.ft., based on
their size preference. In actuality, this income category can afford to
purchase a property in the range of Rs.3800-4700/sq.ft. This
conservatism may largely be attributed to the uncertainty instigated as
a result of the Satyam scam.
Hyderabad, which comprises the twin cities of Hyderabad and
Secundrabad, is now one of the largest metropolises of India after the
recent inclusion of the 12 municipalities forming Greater Hyderabad. As
the size of the city has increased, so has its population. Currently,
Hyderabad has a population of over 7 mn. that is growing at an annual
exponential growth rate of 3.4%. Figure 35 specifies the housing
requirement for the middle income segment in Hyderabad in 2009,
2010 and 2011.
City Outlook
Figure 35
Total Housing Unit Requirement for Rs. 3-10 lakh
Income Category
230,000
20
09
20
10
20
11
2,10,966
225,000
220,000
215,000
210,000
205,000
200,000
2,18,138
2,25,555
0-6 months - 2%
6-12 months - 17%
1-2 years - 81%
Figure 36
Household Purchase Timelines
Source: Knight Frank Research
51
While the total number of households in the city is around 15 lakh,
Knight Frank research estimates that the middle income population in
Hyderabad will require approximately 2.26 lakh housing units by 2011,
which assuming an average unit size of 800 sq.ft. translates to
approximately 180 mn.sq.ft. of residential space. Approximately 87%
of this total middle income housing requirement will be accounted for
by the Rs.3-5 lakh income segment. In order for this requirement to be
converted to demand, the Rs.3-5 lakh income category would have to
be targeted with houses in the price range of Rs.14-20 lakh.
A very important consideration in assessing the demand for houses in
the middle income segment is the consumers' purchase timelines, as
even if 100% of the requirement translates to demand, how this
demand pans out depends on when consumers are willing to incur the
financial burden of purchasing a house. Figure 36 details the preferred
purchase timelines of rental households surveyed.
Source: Knight Frank Research
Previous Years’ Cumulative Requirement Incremental Requirement
It is observed that approximately 20% of the tenant households would
prefer to purchase a house within the next 0-12 months, while the rest
would prefer to invest in a residence within a timeframe of 2 years. Post
the Satyam and Maytas scandal, most people who had already bought
properties witnessed a drastic fall in prices across the city.
This, coupled with the general slowdown in the economy has led a
majority of house buyers in Hyderabad to delay purchasing a house
with the expectation that residential prices will decline further.
Most affordable housing projects in Hyderabad are well endowed with
basic utilities and are situated in locations with good socio-economic
infrastructure. Although some of these projects are located in
peripheral areas like Kollur on the west, Annojiguda on the east and
other areas, have been developed with the idea that the Outer Ring
Road, which is under construction, will augment their connectivity.
Areas beyond Dilshuknagar, examples being LB Nagar are prime
locations for affordable housing as they feature cheaper land rates and
healthy basic and socio-economic infrastructure. Kukatpally and
Miyapur are other locations with potential for development due to good
connectivity and adequate public transport, healthcare and
educational facilities. It is evident that unless factors like connectivity,
infrastructure, public transport, basic amenities and proximity to work
are accounted for, the requirement for affordable housing estimated by
us might not yield a concrete demand.
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Kolkata
52
Kolkata, the capital of West Bengal, is the main business and financial hub of eastern India. Its urban
agglomeration comprises the Kolkata Metropolitan Area, the satellite township of Rajarhat, Howrah and parts
of 24 Parganas (North and South). Formerly the capital of India during the British rule, the city is famed for its
rich cultural heritage and distinct socio-political set up. The primary fiscal drivers for Kolkata have
traditionally been the service and manufacturing sector, with various industrial set-ups including engineering
products, leather, steel, automobile and pharmaceutical companies.
Kolkata, with its economic resurgence, has also witnessed a change in its socio-economic structure.
Conventional joint family set-ups have given way to nuclear families while increase in job opportunities has
led to rising aspiration levels amongst the city's residents. While Kolkata has grown radially, the most
pronounced directions of growth are towards the eastern, south-eastern and western parts of the city. The
Eastern Metropolitan Bypass is being increasingly viewed as the Central Avenue of modern Kolkata while
Rajarhat is being promoted as an IT hub in the east of Kolkata.
The city, today, is being acknowledged as one of the fastest growing IT destinations in the country. It has
emerged as an attractive location to many big names in the IT sector, including Tata Consultancy Services,
Cognizant Technologies, PWC, ITC Infotech, Computer Associates, Siemens, IBM and Wipro BPO amongst
others. Large talent pool of skilled and qualified engineers and technical personnel, improving infrastructure,
low attrition rates, low cost of operations and a supportive government with attractive incentive schemes for
IT/ITES are some of the reasons that can be attributed to the rapid development of the IT/ITES sector in the
city.
The advent of the IT/ITES sector in the region has created considerable impact on the real estate scenario of
the city. In the recent past, Kolkata has been attracting a number of real estate investors and developers with
financial muscle. These investors, both foreign and Indian, have identified prime areas for investment while
national level developers such as DLF and Unitech already have projects operational in the city.
City Overview
As per the tenant household survey, 84% of the prospective home
buyers (tenant households) in Kolkata are nuclear families and the rest
characterized by joint family system. The average household size of the
respondents stands at around 3.6 persons per household which clearly
depicts the predominance of nuclear structure of families in the city.
Among the tenant households reviewed, 74% represent the migratory
population of the city. Of this, it was observed that a majority of the
households, to the tune of 53%, have migrated to the city for job
purpose while about 16% of the households located to the city after
marriage. Around 9% have migrated to Kolkata in the prospect of
better business opportunities. The average number of years the
migrant households have been living in the city is about 4.6 years.
Demand PerspectiveBuyer Profile
Figure 37
Distribution of Sample Households According to
Type of Occupation
Source: Knight Frank Research
Salaried Govt - 6%
Salaried Private - 78%
Self employed (business) - 14%
Self employed professional - 2%
(doctor, lawyer, CA)
which would translate into a property rate of Rs.2700/sq.ft., based on
their size preference. In actuality, this income category can afford to
purchase a property in the range of Rs.3800-4700/sq.ft. This
conservatism may largely be attributed to the uncertainty instigated as
a result of the Satyam scam.
Hyderabad, which comprises the twin cities of Hyderabad and
Secundrabad, is now one of the largest metropolises of India after the
recent inclusion of the 12 municipalities forming Greater Hyderabad. As
the size of the city has increased, so has its population. Currently,
Hyderabad has a population of over 7 mn. that is growing at an annual
exponential growth rate of 3.4%. Figure 35 specifies the housing
requirement for the middle income segment in Hyderabad in 2009,
2010 and 2011.
City Outlook
Figure 35
Total Housing Unit Requirement for Rs. 3-10 lakh
Income Category
230,000
20
09
20
10
20
11
2,10,966
225,000
220,000
215,000
210,000
205,000
200,000
2,18,138
2,25,555
0-6 months - 2%
6-12 months - 17%
1-2 years - 81%
Figure 36
Household Purchase Timelines
Source: Knight Frank Research
51
While the total number of households in the city is around 15 lakh,
Knight Frank research estimates that the middle income population in
Hyderabad will require approximately 2.26 lakh housing units by 2011,
which assuming an average unit size of 800 sq.ft. translates to
approximately 180 mn.sq.ft. of residential space. Approximately 87%
of this total middle income housing requirement will be accounted for
by the Rs.3-5 lakh income segment. In order for this requirement to be
converted to demand, the Rs.3-5 lakh income category would have to
be targeted with houses in the price range of Rs.14-20 lakh.
A very important consideration in assessing the demand for houses in
the middle income segment is the consumers' purchase timelines, as
even if 100% of the requirement translates to demand, how this
demand pans out depends on when consumers are willing to incur the
financial burden of purchasing a house. Figure 36 details the preferred
purchase timelines of rental households surveyed.
Source: Knight Frank Research
Previous Years’ Cumulative Requirement Incremental Requirement
It is observed that approximately 20% of the tenant households would
prefer to purchase a house within the next 0-12 months, while the rest
would prefer to invest in a residence within a timeframe of 2 years. Post
the Satyam and Maytas scandal, most people who had already bought
properties witnessed a drastic fall in prices across the city.
This, coupled with the general slowdown in the economy has led a
majority of house buyers in Hyderabad to delay purchasing a house
with the expectation that residential prices will decline further.
Most affordable housing projects in Hyderabad are well endowed with
basic utilities and are situated in locations with good socio-economic
infrastructure. Although some of these projects are located in
peripheral areas like Kollur on the west, Annojiguda on the east and
other areas, have been developed with the idea that the Outer Ring
Road, which is under construction, will augment their connectivity.
Areas beyond Dilshuknagar, examples being LB Nagar are prime
locations for affordable housing as they feature cheaper land rates and
healthy basic and socio-economic infrastructure. Kukatpally and
Miyapur are other locations with potential for development due to good
connectivity and adequate public transport, healthcare and
educational facilities. It is evident that unless factors like connectivity,
infrastructure, public transport, basic amenities and proximity to work
are accounted for, the requirement for affordable housing estimated by
us might not yield a concrete demand.
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Favourable demographics
Presence of social circle
(friends, relatives)
Good infrastructure
Good potential for development
Good connectivity to frequently
travelled places
Figure 39
Factors Influencing Preference for Location
Source: Knight Frank Research
1%
7%
23%
28%
39%
0% 20% 40% 60%
Percentage of Responses
Moreover, the developers are launching new projects with modern
amenities in the outskirts as land is available at cheaper rates.Besides,
the EM Bypass provides good connectivity to these locations.
In terms of the most preferred locations in the peripheral regions of the
city, majority of the households have expressed their preference for
Garia in the south. This could be attributed to the extension of the
metro network to the area, which enables its residents to commute to
the office and other locations within a short period of time. Jadavpur
and locations along EM Bypass are the next preferred locations as they
provide good social infrastructure, proximity to the work places and
education institutes. Proximity to the airport, good connectivity and
good development potential make Rajarhat and Jessore Road preferred
locations as well. Respondents have equally preferred Tollygunge and
Santoshpur because of their existing social infrastructure.
The study has captured the factors which influence the decision of a
buyer in the selection of residential projects in a preferred location.
Respondents have rated a set of factors on a scale of 1 to 4 (4 being the
most important and 1 the least). Based on the ratings, mean scores are
generated for each factor and the one with the highest mean score has
been identified as the most important factor and ranked 1.
Factors Rank
Un-interrupted power supply 1
Safety & security 2
Water supply 2
Price 2
Apartment/home size 3
Developer goodwill 4
Facilities available 5
Disturbance caused by traffic/noise/congestion 5
Table 46
Factors Influencing Choice of Residential Project
Source: Knight Frank Research
As evident from the table, un-interrupted power supply is the top
priority for the respondents. Other factors like safety & security, water
supply and price come a close second in influencing a buyer's decision
with respect to the choice of residential project in a particular location.
It is observed that the prospective buyers may compromise on factors
like apartment size, developer goodwill, facilities available and
disturbance caused by traffic/noise/congestion.
In today's market, the final price and grade of the property has a direct
bearing on the range of amenities provided within a residential project.
Increasing market awareness and exposure to a cosmopolitan life-style
have greatly influenced the nature and number of amenities provided
by the developer.
The survey findings have revealed that a prospective buyer assigns
highest importance to basic amenities like un-interrupted water supply,
power backup and high level of security. Amenities like finishing,
interior fixtures, gymnasium and spa have a moderate demand while
swimming pool, servant quarters, multipurpose hall, crèche do not
have much significant influence.
Figure 40
Preferred Amenities within a Residential Project
Source: Knight Frank Research
0 100 120
Others
Modular Kitchen
Multipurpose hall
Interior fixtures
GymnasiumSpa
Finishing
Power Back-up
High level of security systems
Un-interrupted water supply
No. of Responses
80604020
Supply Perspective
In recent times, the aspiration levels of the city's residents have risen
due to the increase in job opportunities and have encouraged them to
move out of their 'tenant status' to purchase their own home. Pent-up
demand for housing units has also led to the surge in residential
development, thereby making the market end-user driven. Besides
these end-users, positive economic outlook and transparency in real
estate transactions have also attracted a large number of NRIs to invest
in the city's real estate.
5453
In order to capture occupation-wise variations, the sample potential
home buyers have been selected from various sectors. The salaried
class engaged in the private sector forms the majority and is
responsible for 78% of the respondents. Around 14% are self employed
and the rest are engaged in the government sector.
The survey being restricted to the middle income households within
the bracket of Rs.3-10 lakh annual income, the entire sample is
distributed within this income group. As such, the income category of
Rs.3-6 lakh constitutes a large portion of these respondents.
Figure 38
Distribution of Sample Households According to
Total Annual Income
Source: Knight Frank Research
Rs. 3-5 lakh - 20%
Rs. 5-6 lakh - 28%
Rs. 6-8 lakh - 30%
Rs. 8-10 lakh - 22%
The survey findings reveal that, on an average, majority of the tenant
households have been staying in their current residence for the last
3-4 years. While apartments have been the predominant form of
residence in most of the households, a number of respondents reside
as tenants in row houses as well. Majority of the respondents are
accommodated in 1 BHK and 2 BHK units. The average size of a 1 BHK
flat is around 560 sq.ft. and it commands an average monthly rental of
around Rs.4,250/month.
Table 43
Percentage Distribution of Current Residence Type
Based on Annual Income
Annual Income 1 BHK 2 BHK 3 BHK Independent Row
House
Rs. 3-5 lakh 29% 54% 8% 0% 8%
Rs. 5-6 lakh 21% 62% 6% 9% 3%
Rs. 6-8 lakh 30% 59% 9% 0% 4%
Rs. 8-10 lakh 51% 19% 38% 0% 6%
Source: Knight Frank Research
Current Residence type Average Size Average Rental
(sq.ft.) (Rs./month)
1 BHK 560 4,250
2 BHK 780 6,250
3 BHK 775 7,800
Independent house 650 4,500
Row house 700 4,500
Table 44
Current Residence Type W.R.TAverage Size and Rentals
Source: Knight Frank Research
Buyer Preferences
A prospective buyer's decision to purchase property in Kolkata is
influenced by a variety of factors like capital values, size of apartments,
location, housing projects and amenities.
The preference of respondents in terms of the budget and the area that
they would prefer while moving to their owned house were studied. It is
observed that the potential buyers in Kolkata have a budget ranging
between Rs.15 lakh to Rs.23 lakh with preferred sizes varying between
750 sq.ft. to 1000 sq.ft. Not surprisingly, the higher income
households have higher budgets and preference for larger apartment
size.
Annual Income Average Budget Average Preferred
(Rs. lakh) Size (sq.ft.)
Rs. 3-5 lakh 15 785
Rs. 5-6 lakh 19 765
Rs. 6-8 lakh 20 780
Rs. 8-10 lakh 23 935
Table 45
Average Preferred Budget and Size
Source: Knight Frank Research
Kolkata has witnessed considerable change in consumer preference
for housing requirement. The demand for modern apartment-style
living has risen with the creation of more nuclear families in the society.
The rising aspiration levels of the city's residents have made them
locate to newer locations in the city. From the household survey, it is
found that good connectivity to frequently travelled places and good
potential for development are the two major factors that influence the
choice of locations of potential house buyers. Presence of good
infrastructure is the third most influential factor.
The congestion in the residential locations in and around the CBD of
the city have pushed the potential buyers towards the outskirts of the
city where the capital values are lower compared to the other prime
locations like Ballygunge, Alipore and Tollygunge.
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Favourable demographics
Presence of social circle
(friends, relatives)
Good infrastructure
Good potential for development
Good connectivity to frequently
travelled places
Figure 39
Factors Influencing Preference for Location
Source: Knight Frank Research
1%
7%
23%
28%
39%
0% 20% 40% 60%
Percentage of Responses
Moreover, the developers are launching new projects with modern
amenities in the outskirts as land is available at cheaper rates.Besides,
the EM Bypass provides good connectivity to these locations.
In terms of the most preferred locations in the peripheral regions of the
city, majority of the households have expressed their preference for
Garia in the south. This could be attributed to the extension of the
metro network to the area, which enables its residents to commute to
the office and other locations within a short period of time. Jadavpur
and locations along EM Bypass are the next preferred locations as they
provide good social infrastructure, proximity to the work places and
education institutes. Proximity to the airport, good connectivity and
good development potential make Rajarhat and Jessore Road preferred
locations as well. Respondents have equally preferred Tollygunge and
Santoshpur because of their existing social infrastructure.
The study has captured the factors which influence the decision of a
buyer in the selection of residential projects in a preferred location.
Respondents have rated a set of factors on a scale of 1 to 4 (4 being the
most important and 1 the least). Based on the ratings, mean scores are
generated for each factor and the one with the highest mean score has
been identified as the most important factor and ranked 1.
Factors Rank
Un-interrupted power supply 1
Safety & security 2
Water supply 2
Price 2
Apartment/home size 3
Developer goodwill 4
Facilities available 5
Disturbance caused by traffic/noise/congestion 5
Table 46
Factors Influencing Choice of Residential Project
Source: Knight Frank Research
As evident from the table, un-interrupted power supply is the top
priority for the respondents. Other factors like safety & security, water
supply and price come a close second in influencing a buyer's decision
with respect to the choice of residential project in a particular location.
It is observed that the prospective buyers may compromise on factors
like apartment size, developer goodwill, facilities available and
disturbance caused by traffic/noise/congestion.
In today's market, the final price and grade of the property has a direct
bearing on the range of amenities provided within a residential project.
Increasing market awareness and exposure to a cosmopolitan life-style
have greatly influenced the nature and number of amenities provided
by the developer.
The survey findings have revealed that a prospective buyer assigns
highest importance to basic amenities like un-interrupted water supply,
power backup and high level of security. Amenities like finishing,
interior fixtures, gymnasium and spa have a moderate demand while
swimming pool, servant quarters, multipurpose hall, crèche do not
have much significant influence.
Figure 40
Preferred Amenities within a Residential Project
Source: Knight Frank Research
0 100 120
Others
Modular Kitchen
Multipurpose hall
Interior fixtures
GymnasiumSpa
Finishing
Power Back-up
High level of security systems
Un-interrupted water supply
No. of Responses
80604020
Supply Perspective
In recent times, the aspiration levels of the city's residents have risen
due to the increase in job opportunities and have encouraged them to
move out of their 'tenant status' to purchase their own home. Pent-up
demand for housing units has also led to the surge in residential
development, thereby making the market end-user driven. Besides
these end-users, positive economic outlook and transparency in real
estate transactions have also attracted a large number of NRIs to invest
in the city's real estate.
5453
In order to capture occupation-wise variations, the sample potential
home buyers have been selected from various sectors. The salaried
class engaged in the private sector forms the majority and is
responsible for 78% of the respondents. Around 14% are self employed
and the rest are engaged in the government sector.
The survey being restricted to the middle income households within
the bracket of Rs.3-10 lakh annual income, the entire sample is
distributed within this income group. As such, the income category of
Rs.3-6 lakh constitutes a large portion of these respondents.
Figure 38
Distribution of Sample Households According to
Total Annual Income
Source: Knight Frank Research
Rs. 3-5 lakh - 20%
Rs. 5-6 lakh - 28%
Rs. 6-8 lakh - 30%
Rs. 8-10 lakh - 22%
The survey findings reveal that, on an average, majority of the tenant
households have been staying in their current residence for the last
3-4 years. While apartments have been the predominant form of
residence in most of the households, a number of respondents reside
as tenants in row houses as well. Majority of the respondents are
accommodated in 1 BHK and 2 BHK units. The average size of a 1 BHK
flat is around 560 sq.ft. and it commands an average monthly rental of
around Rs.4,250/month.
Table 43
Percentage Distribution of Current Residence Type
Based on Annual Income
Annual Income 1 BHK 2 BHK 3 BHK Independent Row
House
Rs. 3-5 lakh 29% 54% 8% 0% 8%
Rs. 5-6 lakh 21% 62% 6% 9% 3%
Rs. 6-8 lakh 30% 59% 9% 0% 4%
Rs. 8-10 lakh 51% 19% 38% 0% 6%
Source: Knight Frank Research
Current Residence type Average Size Average Rental
(sq.ft.) (Rs./month)
1 BHK 560 4,250
2 BHK 780 6,250
3 BHK 775 7,800
Independent house 650 4,500
Row house 700 4,500
Table 44
Current Residence Type W.R.TAverage Size and Rentals
Source: Knight Frank Research
Buyer Preferences
A prospective buyer's decision to purchase property in Kolkata is
influenced by a variety of factors like capital values, size of apartments,
location, housing projects and amenities.
The preference of respondents in terms of the budget and the area that
they would prefer while moving to their owned house were studied. It is
observed that the potential buyers in Kolkata have a budget ranging
between Rs.15 lakh to Rs.23 lakh with preferred sizes varying between
750 sq.ft. to 1000 sq.ft. Not surprisingly, the higher income
households have higher budgets and preference for larger apartment
size.
Annual Income Average Budget Average Preferred
(Rs. lakh) Size (sq.ft.)
Rs. 3-5 lakh 15 785
Rs. 5-6 lakh 19 765
Rs. 6-8 lakh 20 780
Rs. 8-10 lakh 23 935
Table 45
Average Preferred Budget and Size
Source: Knight Frank Research
Kolkata has witnessed considerable change in consumer preference
for housing requirement. The demand for modern apartment-style
living has risen with the creation of more nuclear families in the society.
The rising aspiration levels of the city's residents have made them
locate to newer locations in the city. From the household survey, it is
found that good connectivity to frequently travelled places and good
potential for development are the two major factors that influence the
choice of locations of potential house buyers. Presence of good
infrastructure is the third most influential factor.
The congestion in the residential locations in and around the CBD of
the city have pushed the potential buyers towards the outskirts of the
city where the capital values are lower compared to the other prime
locations like Ballygunge, Alipore and Tollygunge.
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
In the meantime, developers are themselves endeavouring to improve
accessibility to their projects in the outskirts of the city by introducing
bus services from project sites to central locations of the city or where
major mode of transport is available.
The developers also opine that two major bottlenecks faced by
affordable housing projects need to be scrapped, viz. Urban Land
Ceiling Act and Land Reforms Act. These archaic acts create hurdles in
the development of affordable housing. To overcome such bottlenecks
considerable of cost has to be incurred. Besides the cost incurred, the
holding cost of land and the time of holding is quite high, which the
developers are discontented with.
It is also felt amongst the developers that there should be a single
window clearance for all the formalities and approvals. Only one
authority should facilitate consolidation, mutation and conversion of
land. To manage bigger land parcels developers have to consolidate
land and get it registered. If that land is agricultural then get is
converted for residential use. Generally this entire process takes about
a year and a half, at times even more. In the mean time developers use
a loss of money as capital is blocked. This single window clearance
will speed up the approval process and it can be achieved in close to
2-3 months.
2. Availability of land - A major problem with affordable housing is the
availability of land parcels, which although plentiful in peripheral
areas, are mostly designated as agricultural land and hence cannot be
developed.
Despite the aforementioned bottlenecks faced by the developers, there
are a number of affordable housing projects across the Kolkata
residential market. Table 47 depicts a few such projects.
Officials of public and private banks were also interviewed to
understand the demand dynamics witnessed by the home loan sector
in the past few years. They feel that the average age to buy home has
come down as people buy it for investment purpose at the same time
use it as a tax saving tool.
The upswing of IT/ITES in Kolkata has boosted the real estate market
by increasing the propensity to buy. As per the bankers in the city, due
to the lack of speculative behaviour in Kolkata, demand for home loans
has not seen a drastic dip. As a matter of fact, they believe that there
has been no decline in home loans requirement across Kolkata. Prices
have come down slightly, due to slow conversion rates and limited
enquires, but flats are still selling and people are approaching the
banks for loans.
The banks interviewed were of the opinion that of the total income
earned by a household in the mid-income segment of the city, an
individual can easily utilise 35-40% of his take home salary to service
his home loan EMI. Given the present adverse economic situation, the
banks in the city are more comfortable in offering loans to the end
users rather than the developers, as the risk element in a home loan is
comparatively lower than as compared to a developer loan.
Besides the banks, the government authorities and officials from the
various housing boards operational in Kolkata were interviewed to
understand their initiatives in affordable housing within the city. The
Kolkata Metropolitan Development Authority (KMDA), West Bengal
Housing Board (WBHB) and Housing Infrastructure Development
Corporation (HIDCO) are the concerned authorities responsible for
housing and monitoring of real estate in the city.
HIDCO primarily focuses on the development of New Town, Rajarhat.
It is responsible for township development, comprising an appropriate
mix of residential, commercial, IT and retail projects. Total planned
area to be developed within New Town is about 35.52 sq.km of land.
HIDCO itself does not carry out the construction activity. Instead, land
is provided to reputed developers for development activity. It has
recognised certain developers as major market players and has formed
joint ventures to carry out the development activity. Examples of some
the joint sector companies can be cited as:
1. Bengal Ambuja
2. Bengal Shrachi
3. Bengal DCL
4. Bengal Greenfield
5. Bengal Peerless
6. Bengal Park Chambers.
Land is allocated to these joint venture companies for construction
with a condition that a certain percentage of the total residential units
will be build for the LIG and MIG segment. Most of their projects are
approved to provide a total of 50% of LIG and MIG housing. For the LIG
houses the prices are regulated and are sold at a discounted price. The
MIG houses are sold at a marginal profit or at break even prices. To
make up the forgone profits in the LIG & MIG houses, the developers
are free to decide upon the prices of the HIG houses. No tax benefits or
subsidies on land cost are given to the developers for affordable
housing projects.
For large land plots, HIDCO calls for expression of interest from the
joint venture companies and accordingly land is allocated by a draw of
lottery. Within Rajarhat, the HIDCO Township in JV with Shapoorji
Pallonji Group is an example where there are no HIG units. It is a
township of 20,000 housing units, out of which 12,000 units are LIG
flats and 8,000 units are MIG flats. These houses are allocated by
means of a draw of lots. There is an income constraint on applications
for these flats.
56
During the period encompassing 2006 to the first quarter of 2008,
residential real estate sector in Kolkata witnessed heightened activity
with large apartment complexes getting announced every month. The
city's skyline is being altered dramatically by a number of high-rise
apartments offering a range of modern amenities. More importantly, a
number of developers are targeting the NRI population and have
planned projects particularly catering to the segment. As a
consequence of the hectic residential development, property rates in
prime locations as well as the suburban locations underwent
significant appreciation in the past two years in the range of 40-60%
while few key projects have witnessed appreciation as high as 80%.
However, the recession has had its impact on the city's real estate
sector and the past year has not taken off well for the sector.
Knight Frank research team carried out primary surveys across major
stakeholders in the sector comprising developers, bankers and
government authorities to understand the supply dynamics. Following
are some of the key take-aways on the affordable housing market,
based on the discussion with the developers:
1. Location of the project - Developers in Kolkata feel that an affordable
housing project is generally feasible in slight peripheral locations of
the city, about 30-35 kms from the city centre. This is because the cost
of land is much lower in those regions.
Some locations in Kolkata where such projects are feasible are
a. Narendrapur
b. Select pockets in Rajarhat
c. DH Road, Behala
d. Howrah
e. Kona Express Highway
f. Jessore Road
g. Uttarpara
h. Shyam Nagar
i. Chandan Nagar
j. Barasat
k. Madhyamgram
l. BT Road
2. Cost of construction - According to the general opinion of the
developers, in areas where affordable housing projects are feasible,
the cost of land should range between Rs.150-350/sq.ft. In such areas
the total Cost of Construction (COC) will be around Rs.1000-1200/sq.ft.
and such properties can easily sell at a price bracket of Rs.1600-
1800/sq.ft. The COC is also dependent on the shape of the plot.
Developers have greater independence to increase the efficiency of
their projects in a plot of land with large acreage, as well as to develop
more modern structures at a lower COC, as compared to plots that are
smaller in size. Besides, marketing cost, overheads, architectural cost,
etc. are also lower due to economies of scale.
3. Amenities provided - The developers feel that provisioning of
amenities like power backup, uninterrupted water supply, 24 hrs
security, in-house clubs, gyms and swimming pool are important in an
affordable housing project. These amenities do not make a huge
difference in the cost of construction, as the total cost of such services
gets distributed among a large number of units. Also, loading factor is
lower in an affordable housing project as compared to a high end
property.
4. Ticket size - As per the developers, given the earning propensity of
households within Kolkata, a product that can be sold within the range
of Rs.5-25 lakh can be quantified as affordable in the city.
5. Price appreciation - In affordable housing projects chances of
property appreciation is higher than a high-end project, as it is more
end-user driven.
While majority of developers have evinced interest to construct
projects of affordable nature in the Kolkata, certain bottle necks have
been observed in the implementation of such plans:
1. Government support - At present, most developers seek
infrastructure support from the government in the form of better road
network to improve accessibility to areas where affordable housing can
be developed. Besides, there is also need for socio-economic
Infrastructure in terms of water, electricity, power, sewerage, etc.
Sr.No Project Name Developer Location May '09 Rate (Rs./sq.ft.) Unit Size Range (sq.ft.)
1 Srijan Midlands Srijan Realty Jessore Road 1,700 880-1,330
2 Srijan Heritage Park Srijan Realty Off EM Bypass 2,200 950-1,475
3 Sunny Valley Sunny Developers Off EM Bypass 2,200 945-1,290
4 Mayfair Greens Mayfair Group Narendrapur 1,800-1,950 1,220-1,800
5 Eden City Eden Realty Maheshtala 1,380-1,725 796-1,524
6 Sherwood Estate PS Group & Srijan Narendrapur 1,400-2,000 450-1,200
Table 47
Select Affordable Housing Projects in Kolkata
Source: Knight Frank Research
55
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
In the meantime, developers are themselves endeavouring to improve
accessibility to their projects in the outskirts of the city by introducing
bus services from project sites to central locations of the city or where
major mode of transport is available.
The developers also opine that two major bottlenecks faced by
affordable housing projects need to be scrapped, viz. Urban Land
Ceiling Act and Land Reforms Act. These archaic acts create hurdles in
the development of affordable housing. To overcome such bottlenecks
considerable of cost has to be incurred. Besides the cost incurred, the
holding cost of land and the time of holding is quite high, which the
developers are discontented with.
It is also felt amongst the developers that there should be a single
window clearance for all the formalities and approvals. Only one
authority should facilitate consolidation, mutation and conversion of
land. To manage bigger land parcels developers have to consolidate
land and get it registered. If that land is agricultural then get is
converted for residential use. Generally this entire process takes about
a year and a half, at times even more. In the mean time developers use
a loss of money as capital is blocked. This single window clearance
will speed up the approval process and it can be achieved in close to
2-3 months.
2. Availability of land - A major problem with affordable housing is the
availability of land parcels, which although plentiful in peripheral
areas, are mostly designated as agricultural land and hence cannot be
developed.
Despite the aforementioned bottlenecks faced by the developers, there
are a number of affordable housing projects across the Kolkata
residential market. Table 47 depicts a few such projects.
Officials of public and private banks were also interviewed to
understand the demand dynamics witnessed by the home loan sector
in the past few years. They feel that the average age to buy home has
come down as people buy it for investment purpose at the same time
use it as a tax saving tool.
The upswing of IT/ITES in Kolkata has boosted the real estate market
by increasing the propensity to buy. As per the bankers in the city, due
to the lack of speculative behaviour in Kolkata, demand for home loans
has not seen a drastic dip. As a matter of fact, they believe that there
has been no decline in home loans requirement across Kolkata. Prices
have come down slightly, due to slow conversion rates and limited
enquires, but flats are still selling and people are approaching the
banks for loans.
The banks interviewed were of the opinion that of the total income
earned by a household in the mid-income segment of the city, an
individual can easily utilise 35-40% of his take home salary to service
his home loan EMI. Given the present adverse economic situation, the
banks in the city are more comfortable in offering loans to the end
users rather than the developers, as the risk element in a home loan is
comparatively lower than as compared to a developer loan.
Besides the banks, the government authorities and officials from the
various housing boards operational in Kolkata were interviewed to
understand their initiatives in affordable housing within the city. The
Kolkata Metropolitan Development Authority (KMDA), West Bengal
Housing Board (WBHB) and Housing Infrastructure Development
Corporation (HIDCO) are the concerned authorities responsible for
housing and monitoring of real estate in the city.
HIDCO primarily focuses on the development of New Town, Rajarhat.
It is responsible for township development, comprising an appropriate
mix of residential, commercial, IT and retail projects. Total planned
area to be developed within New Town is about 35.52 sq.km of land.
HIDCO itself does not carry out the construction activity. Instead, land
is provided to reputed developers for development activity. It has
recognised certain developers as major market players and has formed
joint ventures to carry out the development activity. Examples of some
the joint sector companies can be cited as:
1. Bengal Ambuja
2. Bengal Shrachi
3. Bengal DCL
4. Bengal Greenfield
5. Bengal Peerless
6. Bengal Park Chambers.
Land is allocated to these joint venture companies for construction
with a condition that a certain percentage of the total residential units
will be build for the LIG and MIG segment. Most of their projects are
approved to provide a total of 50% of LIG and MIG housing. For the LIG
houses the prices are regulated and are sold at a discounted price. The
MIG houses are sold at a marginal profit or at break even prices. To
make up the forgone profits in the LIG & MIG houses, the developers
are free to decide upon the prices of the HIG houses. No tax benefits or
subsidies on land cost are given to the developers for affordable
housing projects.
For large land plots, HIDCO calls for expression of interest from the
joint venture companies and accordingly land is allocated by a draw of
lottery. Within Rajarhat, the HIDCO Township in JV with Shapoorji
Pallonji Group is an example where there are no HIG units. It is a
township of 20,000 housing units, out of which 12,000 units are LIG
flats and 8,000 units are MIG flats. These houses are allocated by
means of a draw of lots. There is an income constraint on applications
for these flats.
56
During the period encompassing 2006 to the first quarter of 2008,
residential real estate sector in Kolkata witnessed heightened activity
with large apartment complexes getting announced every month. The
city's skyline is being altered dramatically by a number of high-rise
apartments offering a range of modern amenities. More importantly, a
number of developers are targeting the NRI population and have
planned projects particularly catering to the segment. As a
consequence of the hectic residential development, property rates in
prime locations as well as the suburban locations underwent
significant appreciation in the past two years in the range of 40-60%
while few key projects have witnessed appreciation as high as 80%.
However, the recession has had its impact on the city's real estate
sector and the past year has not taken off well for the sector.
Knight Frank research team carried out primary surveys across major
stakeholders in the sector comprising developers, bankers and
government authorities to understand the supply dynamics. Following
are some of the key take-aways on the affordable housing market,
based on the discussion with the developers:
1. Location of the project - Developers in Kolkata feel that an affordable
housing project is generally feasible in slight peripheral locations of
the city, about 30-35 kms from the city centre. This is because the cost
of land is much lower in those regions.
Some locations in Kolkata where such projects are feasible are
a. Narendrapur
b. Select pockets in Rajarhat
c. DH Road, Behala
d. Howrah
e. Kona Express Highway
f. Jessore Road
g. Uttarpara
h. Shyam Nagar
i. Chandan Nagar
j. Barasat
k. Madhyamgram
l. BT Road
2. Cost of construction - According to the general opinion of the
developers, in areas where affordable housing projects are feasible,
the cost of land should range between Rs.150-350/sq.ft. In such areas
the total Cost of Construction (COC) will be around Rs.1000-1200/sq.ft.
and such properties can easily sell at a price bracket of Rs.1600-
1800/sq.ft. The COC is also dependent on the shape of the plot.
Developers have greater independence to increase the efficiency of
their projects in a plot of land with large acreage, as well as to develop
more modern structures at a lower COC, as compared to plots that are
smaller in size. Besides, marketing cost, overheads, architectural cost,
etc. are also lower due to economies of scale.
3. Amenities provided - The developers feel that provisioning of
amenities like power backup, uninterrupted water supply, 24 hrs
security, in-house clubs, gyms and swimming pool are important in an
affordable housing project. These amenities do not make a huge
difference in the cost of construction, as the total cost of such services
gets distributed among a large number of units. Also, loading factor is
lower in an affordable housing project as compared to a high end
property.
4. Ticket size - As per the developers, given the earning propensity of
households within Kolkata, a product that can be sold within the range
of Rs.5-25 lakh can be quantified as affordable in the city.
5. Price appreciation - In affordable housing projects chances of
property appreciation is higher than a high-end project, as it is more
end-user driven.
While majority of developers have evinced interest to construct
projects of affordable nature in the Kolkata, certain bottle necks have
been observed in the implementation of such plans:
1. Government support - At present, most developers seek
infrastructure support from the government in the form of better road
network to improve accessibility to areas where affordable housing can
be developed. Besides, there is also need for socio-economic
Infrastructure in terms of water, electricity, power, sewerage, etc.
Sr.No Project Name Developer Location May '09 Rate (Rs./sq.ft.) Unit Size Range (sq.ft.)
1 Srijan Midlands Srijan Realty Jessore Road 1,700 880-1,330
2 Srijan Heritage Park Srijan Realty Off EM Bypass 2,200 950-1,475
3 Sunny Valley Sunny Developers Off EM Bypass 2,200 945-1,290
4 Mayfair Greens Mayfair Group Narendrapur 1,800-1,950 1,220-1,800
5 Eden City Eden Realty Maheshtala 1,380-1,725 796-1,524
6 Sherwood Estate PS Group & Srijan Narendrapur 1,400-2,000 450-1,200
Table 47
Select Affordable Housing Projects in Kolkata
Source: Knight Frank Research
55
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Premium residential locations are possible for this group, albeit with a
lesser apartment size. This potential scenario has been represented by
the following table which depicts the locations which are affordable to
a household willing to compromise on the unit size.
Table 49 elucidates the point that given the compromise on the
preferred size of the residential unit, most of the locations in the city
fall within the affordability bracket of the various income groups. It
remains to be seen if developers are willing to compromise on their
profit margin as well and come up with units of smaller sizes.
With smaller unit sizes, it has been observed that even Ballygunge and
Alipore, considered to be the most premium residential addresses in
the city, can be affordable to the income group of Rs.8-10 lakh. These
markets, however, are stagnant in terms of new supply and are
typically characterised by large residential units. Hence, despite the
fact that these locations fall under the affordable factor, they may not
cater to affordable housing in the real sense of the term.
Locations May '09 Rates Max Size (in sq.ft.) & Total Property Value (in Rs.lakh)
(in Rs./sq.ft.)
500 600 700 800 900 1000 1100 1200
sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft.
Ballygunge Min 8000 40.0 48.0 56.0 64.0 72.0 80.0 88.0 96.0
Max 12,000 60.0 72.0 84.0 96.0 108.0 120.0 132.0 144.0
Alipore Min 8,000 40.0 48.0 56.0 64.0 72.0 80.0 88.0 96.0
Max 10,000 50.0 60.0 70.0 80.0 90.0 100.0 110.0 120.0
Salt Lake Min 3,250 16.3 19.5 22.8 26.0 29.3 32.5 35.8 39.0
Max 4,500 22.5 27.0 31.5 36.0 40.5 45.0 49.5 54.0
Gariahat Min 2,700 13.5 16.2 18.9 21.6 24.3 27.0 29.7 32.4
Max 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0
Jadavpur Min 1,800 9.0 10.8 12.6 14.4 16.2 18.0 19.8 21.6
Max 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
EM Bypass Min 1,800 9.0 10.8 12.6 14.4 16.2 18.0 19.8 21.6
Max 3,600 18.0 21.6 25.2 28.8 32.4 36.0 39.6 43.2
Santoshpur Min 1,800 9.0 10.8 12.6 14.4 16.2 18.0 19.8 21.6
Max 2,200 11.0 13.2 15.4 17.6 19.8 22.0 24.2 26.4
Tollygunge Min 1,800 9.0 10.8 12.6 14.4 16.2 18.0 19.8 21.6
Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Rajarhat Min 1,700 8.5 10.2 11.9 13.6 15.3 17.0 18.7 20.4
Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Jessore Road Min 1,600 8.0 9.6 11.2 12.8 14.4 16.0 17.6 19.2
Max 2,200 11.0 13.2 15.4 17.6 19.8 22.0 24.2 26.4
Behala Min 1,600 8.0 9.6 11.2 12.8 14.4 16.0 17.6 19.2
Max 2,600 13.0 15.6 18.2 20.8 23.4 26.0 28.6 31.2
Garia Min 1,500 7.5 9.0 10.5 12.0 13.5 15.0 16.5 18.0
Max 2,000 10.0 12.0 14.0 16.0 18.0 20.0 22.0 24.0
Table 49
Size Preference in Kolkata - Min-750 sq.ft. Max-1000 sq.ft.
Affordable House Property in Kolkata - Min 14.24 lakhs Max 40.02 lakhs Not Affordable
Source: Knight Frank Research
Meanwhile, other preferred locations of Salt Lake and Tollygunge have
a number of projects which can be offered to the mid-income category.
In case of residential property in Salt Lake, which has relatively higher
prices, the income group of Rs.8-10 lakh can afford to purchase a
housing unit at a range of Rs.3250-4500/sq.ft. provided they are
offered smaller sized unit.
The residential developments coming up in the suburban and
peripheral locations have various amenities to lead a modern lifestyle.
These projects, located in Rajarhat, Behala, Jessore Road and EM
Bypass, have prices ranging from Rs.1600-3600/sq.ft., which can be
termed to be affordable by all the income categories in the mid-income
segment.
Another feature which came to light has been the conservative
approach of the city's residents towards the budget for a property.
58
An individual can apply for a LIG flat, who has a monthly income less
than 10,000/month, and for MIG flats income should be less than
Rs. 18,000/month. The land that is provided to the Joint sector
company is generally a serviced land, with all the required approvals
and clearances.
KMDA is another housing regulatory authority. Its role has dual
purpose. On one hand they function as providers of socio-economic
infrastructure within the metropolitan area of Kolkata, and on the other
hand, it also participates in housing projects. Since KMDA had huge
land banks but had the constraint on funds required for construction, it
was quite important to join hands with the private players.
KMDA has a defined model of PPP, separate from that of HIDCO. It
invites bids for their land parcels and the private developer that places
the highest bid, gets the land parcel. The construction activity is then
carried out by that developer. The profit that is generated out of the
project is shared in a 50-50% basis between KMDA and the developer.
In the PPP model of KMDA, there is no set policy defined for
provisioning of a certain ratio for EWS, LIG and MIG houses. However,
most of the projects have a reasonable mix of 30-40% share reserved
for LIG and EWS category.
While the developers themselves decide the price of the joint venture
products, there is a central pricing committee headed by the Mayor of
Kolkata to decide upon the prices of projects that KMDA builds on its
own.
Household income (per annum)
Maximum EMI (Rs.) 11,000-15,000 15,000-20,000 19,000-24,500 26,500-30,500
Maximum loan eligibility (Rs.)
(9% interest rate, 20 year loan tenure) 12,10,000-16,90,000 16,56,000-22,60,000 21,42,000-27,24,000 29,50,000-34,02,000
Buyer's own contribution (Rs.)
(Assuming 85% loan) 2,14,000-2,98,000 2,92,000-3,98,000 3,78,000-4,80,000 5,20,000-6,00,000
Affordable house property value (Rs.) 14,24,000-19,87,000 19,48,000-26,57,000 25,20,000-32,04,000 34,70,000-40,02,000
Preferred size (sq.ft.) 750-800 750-800 750-900 900-1,000
Price (Rs./sq.ft.) 1,800-2,700 2,600-3,400 3,400-3,700 3,900-4,000
Rs. 3 lakh - 5 lakh Rs. 5 lakh - 6 lakh Rs. 6 lakh - 8 lakh Rs. 8 lakh - 10 lakh
Table 48
Affordability in Kolkata
Source: Knight Frank Research
Locations available
considering preferred size
and few residential areas
Jadavpur
EM Bypass
Santoshpur
Tollygunge
Rajarhat
Jessore Road
Behala
Garia
Jadavpur
EM Bypass
Santoshpur
Tollygunge
Rajarhat
Salt Lake
Gariahat
Jessore Road
Behala
Garia
Salt Lake
Jadavpur
EM Bypass
Santoshpur
Tollygunge
Rajarhat
Gariahat
Jessore Road
Behala
Garia
Salt Lake
Jadavpur
EM Bypass
Santoshpur
Tollygunge
Rajarhat
Gariahat
Jessore Road
Behala
Garia
Identifying Affordability
The household survey in Kolkata carried out in order to determine the
affordability of the various income groups at the city level revealed
several notable characteristics of the city. Table 48 depicts in detail the
maximum affordable EMI of households in various income levels. This
EMI has been estimated from the annual income of household and its
spending and saving behavior. The maximum EMI has been translated
into affordable house property value based on assumed interest rate,
loan tenure and loan to value ratio. The table also shows the capital
rates that the households will have to pay keeping in view the
preferred house size and the affordable house property value.
Table 48 depicts a favourable scenario for the mid-income segment in
Kolkata. The survey reveals that at present there are a number of
locations in the city that caters to the need of the segment. For
instance, the households belonging to the income group of Rs.3-5 lakh
can afford to purchase a property in locations like Rajarhat and EM
Bypass, which in recent years have become preferred residential
locations owing to the IT developments in the neighbouring location of
Salt Lake Sector V. However, these locations are around 10-20 kms
away from the city centre of Dalhousie and the infrastructure there,
especially in Rajarhat, is not fully developed to support the influx of
population. Given their unit size preference of around 750-800 sq.ft.,
households in this income group can afford a property in the price
range of Rs.1800-2700/sq.ft.
57
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Premium residential locations are possible for this group, albeit with a
lesser apartment size. This potential scenario has been represented by
the following table which depicts the locations which are affordable to
a household willing to compromise on the unit size.
Table 49 elucidates the point that given the compromise on the
preferred size of the residential unit, most of the locations in the city
fall within the affordability bracket of the various income groups. It
remains to be seen if developers are willing to compromise on their
profit margin as well and come up with units of smaller sizes.
With smaller unit sizes, it has been observed that even Ballygunge and
Alipore, considered to be the most premium residential addresses in
the city, can be affordable to the income group of Rs.8-10 lakh. These
markets, however, are stagnant in terms of new supply and are
typically characterised by large residential units. Hence, despite the
fact that these locations fall under the affordable factor, they may not
cater to affordable housing in the real sense of the term.
Locations May '09 Rates Max Size (in sq.ft.) & Total Property Value (in Rs.lakh)
(in Rs./sq.ft.)
500 600 700 800 900 1000 1100 1200
sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft. sq.ft.
Ballygunge Min 8000 40.0 48.0 56.0 64.0 72.0 80.0 88.0 96.0
Max 12,000 60.0 72.0 84.0 96.0 108.0 120.0 132.0 144.0
Alipore Min 8,000 40.0 48.0 56.0 64.0 72.0 80.0 88.0 96.0
Max 10,000 50.0 60.0 70.0 80.0 90.0 100.0 110.0 120.0
Salt Lake Min 3,250 16.3 19.5 22.8 26.0 29.3 32.5 35.8 39.0
Max 4,500 22.5 27.0 31.5 36.0 40.5 45.0 49.5 54.0
Gariahat Min 2,700 13.5 16.2 18.9 21.6 24.3 27.0 29.7 32.4
Max 5,000 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0
Jadavpur Min 1,800 9.0 10.8 12.6 14.4 16.2 18.0 19.8 21.6
Max 2,500 12.5 15.0 17.5 20.0 22.5 25.0 27.5 30.0
EM Bypass Min 1,800 9.0 10.8 12.6 14.4 16.2 18.0 19.8 21.6
Max 3,600 18.0 21.6 25.2 28.8 32.4 36.0 39.6 43.2
Santoshpur Min 1,800 9.0 10.8 12.6 14.4 16.2 18.0 19.8 21.6
Max 2,200 11.0 13.2 15.4 17.6 19.8 22.0 24.2 26.4
Tollygunge Min 1,800 9.0 10.8 12.6 14.4 16.2 18.0 19.8 21.6
Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Rajarhat Min 1,700 8.5 10.2 11.9 13.6 15.3 17.0 18.7 20.4
Max 3,500 17.5 21.0 24.5 28.0 31.5 35.0 38.5 42.0
Jessore Road Min 1,600 8.0 9.6 11.2 12.8 14.4 16.0 17.6 19.2
Max 2,200 11.0 13.2 15.4 17.6 19.8 22.0 24.2 26.4
Behala Min 1,600 8.0 9.6 11.2 12.8 14.4 16.0 17.6 19.2
Max 2,600 13.0 15.6 18.2 20.8 23.4 26.0 28.6 31.2
Garia Min 1,500 7.5 9.0 10.5 12.0 13.5 15.0 16.5 18.0
Max 2,000 10.0 12.0 14.0 16.0 18.0 20.0 22.0 24.0
Table 49
Size Preference in Kolkata - Min-750 sq.ft. Max-1000 sq.ft.
Affordable House Property in Kolkata - Min 14.24 lakhs Max 40.02 lakhs Not Affordable
Source: Knight Frank Research
Meanwhile, other preferred locations of Salt Lake and Tollygunge have
a number of projects which can be offered to the mid-income category.
In case of residential property in Salt Lake, which has relatively higher
prices, the income group of Rs.8-10 lakh can afford to purchase a
housing unit at a range of Rs.3250-4500/sq.ft. provided they are
offered smaller sized unit.
The residential developments coming up in the suburban and
peripheral locations have various amenities to lead a modern lifestyle.
These projects, located in Rajarhat, Behala, Jessore Road and EM
Bypass, have prices ranging from Rs.1600-3600/sq.ft., which can be
termed to be affordable by all the income categories in the mid-income
segment.
Another feature which came to light has been the conservative
approach of the city's residents towards the budget for a property.
58
An individual can apply for a LIG flat, who has a monthly income less
than 10,000/month, and for MIG flats income should be less than
Rs. 18,000/month. The land that is provided to the Joint sector
company is generally a serviced land, with all the required approvals
and clearances.
KMDA is another housing regulatory authority. Its role has dual
purpose. On one hand they function as providers of socio-economic
infrastructure within the metropolitan area of Kolkata, and on the other
hand, it also participates in housing projects. Since KMDA had huge
land banks but had the constraint on funds required for construction, it
was quite important to join hands with the private players.
KMDA has a defined model of PPP, separate from that of HIDCO. It
invites bids for their land parcels and the private developer that places
the highest bid, gets the land parcel. The construction activity is then
carried out by that developer. The profit that is generated out of the
project is shared in a 50-50% basis between KMDA and the developer.
In the PPP model of KMDA, there is no set policy defined for
provisioning of a certain ratio for EWS, LIG and MIG houses. However,
most of the projects have a reasonable mix of 30-40% share reserved
for LIG and EWS category.
While the developers themselves decide the price of the joint venture
products, there is a central pricing committee headed by the Mayor of
Kolkata to decide upon the prices of projects that KMDA builds on its
own.
Household income (per annum)
Maximum EMI (Rs.) 11,000-15,000 15,000-20,000 19,000-24,500 26,500-30,500
Maximum loan eligibility (Rs.)
(9% interest rate, 20 year loan tenure) 12,10,000-16,90,000 16,56,000-22,60,000 21,42,000-27,24,000 29,50,000-34,02,000
Buyer's own contribution (Rs.)
(Assuming 85% loan) 2,14,000-2,98,000 2,92,000-3,98,000 3,78,000-4,80,000 5,20,000-6,00,000
Affordable house property value (Rs.) 14,24,000-19,87,000 19,48,000-26,57,000 25,20,000-32,04,000 34,70,000-40,02,000
Preferred size (sq.ft.) 750-800 750-800 750-900 900-1,000
Price (Rs./sq.ft.) 1,800-2,700 2,600-3,400 3,400-3,700 3,900-4,000
Rs. 3 lakh - 5 lakh Rs. 5 lakh - 6 lakh Rs. 6 lakh - 8 lakh Rs. 8 lakh - 10 lakh
Table 48
Affordability in Kolkata
Source: Knight Frank Research
Locations available
considering preferred size
and few residential areas
Jadavpur
EM Bypass
Santoshpur
Tollygunge
Rajarhat
Jessore Road
Behala
Garia
Jadavpur
EM Bypass
Santoshpur
Tollygunge
Rajarhat
Salt Lake
Gariahat
Jessore Road
Behala
Garia
Salt Lake
Jadavpur
EM Bypass
Santoshpur
Tollygunge
Rajarhat
Gariahat
Jessore Road
Behala
Garia
Salt Lake
Jadavpur
EM Bypass
Santoshpur
Tollygunge
Rajarhat
Gariahat
Jessore Road
Behala
Garia
Identifying Affordability
The household survey in Kolkata carried out in order to determine the
affordability of the various income groups at the city level revealed
several notable characteristics of the city. Table 48 depicts in detail the
maximum affordable EMI of households in various income levels. This
EMI has been estimated from the annual income of household and its
spending and saving behavior. The maximum EMI has been translated
into affordable house property value based on assumed interest rate,
loan tenure and loan to value ratio. The table also shows the capital
rates that the households will have to pay keeping in view the
preferred house size and the affordable house property value.
Table 48 depicts a favourable scenario for the mid-income segment in
Kolkata. The survey reveals that at present there are a number of
locations in the city that caters to the need of the segment. For
instance, the households belonging to the income group of Rs.3-5 lakh
can afford to purchase a property in locations like Rajarhat and EM
Bypass, which in recent years have become preferred residential
locations owing to the IT developments in the neighbouring location of
Salt Lake Sector V. However, these locations are around 10-20 kms
away from the city centre of Dalhousie and the infrastructure there,
especially in Rajarhat, is not fully developed to support the influx of
population. Given their unit size preference of around 750-800 sq.ft.,
households in this income group can afford a property in the price
range of Rs.1800-2700/sq.ft.
57
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
60
ConclusionThis report, while exploring and encapsulating various aspects of
affordable housing, is primarily focused on the needs of the buyer. The
overriding questions being delved into pertain to what the customer
wants, how best developers can serve these requirements and what
the government can do to facilitate the provision of affordable
housing. Several important issues that were highlighted by the
findings of this report are worth touching upon.
On the whole, buyers in the Rs.3-10 lakh income category turned overly
cautious in the aftermath of the economic crisis that set in during the
first half of 2008. While their actual affordability is higher than what
they indicated in the surveys, these buyers have undoubtedly been
jolted by the uncertain economic environment, job losses and tight
credit conditions. However, the willingness to pay for a household in
the lower income group of Rs.3-5 lakh is relatively unaffected by events
of the past year. While buyers in this income group can afford a
property value in the range of Rs.12-21 lakh, their budget preference is
similar at Rs.14-19 lakh. By contrast, households in the income group
of Rs.8-10 lakh have a preferred budget of Rs.23-31 lakh that is much
lower than their actual affordability of Rs.33-45 lakh. This apparent
contradiction can be attributed to the fact that just as during boom
times consumers in higher income groups turn overtly aggressive in
their spending, during lean periods, these consumers spend very
conservatively, curtailing expenditure on big ticket expenses like
buying a property.
Mumbai's high cost of living, coupled with the generally higher
maintenance lifestyle of its population, has adversely affected the
affordability of households in the city. For instance, middle class
households in Kolkata, Chennai and Hyderabad can afford houses
valued at Rs.14-45 lakh, whereas households of a similar stature in
Mumbai can afford houses valued at Rs.12-38 lakh.
The results of our surveys of sample households indicate that 'good
connectivity to frequently traveled places', which primarily denotes
good connectivity to work destinations, is the most important factor
influencing a buyer's decision when selecting a housing location. This
consideration is followed in order of prioritization by considerations
pertaining to the availability of good infrastructure and the potential
for future development. Once the buyer identifies the location, the
most important amenities looked at when choosing a house are
uninterrupted water supply, power backup and high level security
systems. The amenities that were found to not influence the choices of
a majority of households are pre-fitted interior fixtures, modular
kitchens and multipurpose halls.
Table 50
Affordable house value for the middle class (in Rs. lakh)
City Income 3-5 lakh 5-6 lakh 6-8 lakh 8-10 lakh
Mumbai 12-15 17-22 25-29 33-38
Pune 13-21 20-30 27-31 35-40
NCR 14-19 21-28 25-32 36-39
Bengaluru 13-18 19-24 24-28 33-37
Chennai 14-21 19-27 28-32 35-45
Hyderabad 15-20 22-28 31-34 35-43
Kolkata 14-20 19-27 25-32 35-40
Source: Knight Frank Research
Figure 43
Distribution of housing units requirement by 2011
for the middle class
Source: Knight Frank Research
NCR - 26%
Pune - 6%
Mumbai - 20%
Bengaluru - 18%
Chennai - 8%
Hyderabad - 11%
Kolkata - 13%
Buyers in the Rs.8-10
lakh income group
quoted a more
conservative budget
than those in theRs.3-5 lakh group
which reflects the
extremes on which
higher income group
consumers operate
during boom and
recession periods
It is evident from the household survey that the income groups of
Rs.6 lakh and above prefer budgets which are much lower than their
affordability as calculated by Knight Frank Research. For instance, the
income category of Rs.8-10 lakh has an average preferred budget of
Rs.20 lakh, which would translate into a property of Rs.2530/sq.ft., on
the basis of their size preference. In actuality, this income category can
afford to purchase a property in the range of Rs.34-40 lakh which
would translate to an average property value of Rs.4700/sq.ft.
Kolkata, one of the most populous cities of India, has a population of
approximately 15 mn. that has been growing at the rate of 2.7% per
annum. Being the commercial hub of the eastern part of the country,
the city attracts a huge migratory population. In recent years, the
migratory shift into Kolkata has primarily been the result of the rapid
rate of growth of the IT/ITES sector in the city. The growing aspirations
of the city's residents have led to the development of quality
residential developments in various suburban locations. Figure 41
specifies the housing requirement for the middle income segment in
Kolkata in 2009, 2010 and 2011.
City Outlook
Knight Frank research estimates that the middle income population in
Kolkata will require approximately 2.65 lakh housing units by 2011,
which assuming an average unit size of 800 sq.ft. translates to
approximately 212 mn.sq.ft. of residential space. Approximately 79% of
this total middle income housing requirement will be accounted for by
the Rs.3-5 lakh income segment. In order for this requirement to be
converted to demand, the Rs.3-5 lakh income category would have to
be targeted with houses in the price range of Rs.14-20 lakh.
0-6 months - 15%
6-12 months - 39%
1-2 years - 46%
Figure 42
Household Purchase Timelines
Source: Knight Frank Research
A very important consideration in assessing the demand for houses in
the middle income segment is the consumers' purchase timelines, as
even if 100% of the requirement translates to demand, how this
demand pans out depends on when consumers are willing to incur the
financial burden of purchasing a house. Figure 42 details the preferred
purchase timelines of rental households surveyed.
59
Figure 41
Total Housing Unit Requirement for Rs. 3-10 lakh
Income Category
270,000
20
09
20
10
20
11
2,51,479
265,000
260,000
255,000
250,000
245,000
240,000
2,58,269
2,65,242
Source: Knight Frank Research
Previous Years’ Cumulative Requirement Incremental Requirement
Kolkata, which during the realty boom witnessed a gradual
appreciation in residential prices as compared to other metro cities of
the country that witnessed steep price appreciation, has a relatively
stable residential market even in the prevailing adverse economic
climate. This is reflected by the purchase timelines of potential buyers.
While around 39% of the respondents expressed a desire to move
ahead with purchase decisions in the next 6-12 months, 15% revealed
intentions to purchase as early as within the next 6 months. This
confidence reflects the affordability of most residential locations
around Kolkata. Besides, various infrastructure projects, an example
being the extension of the metro railway to suburban locations, have
increased the attractiveness of certain previously peripheral residential
locations. The 45% of potential buyers that expressed a desire to
purchase anytime within the forthcoming 2 years reflect the caution
that has gripped the residential market around India in the wake of the
economic slump. Moreover, the deferment of infrastructural
development in locations like Rajarhat, where a number of residential
developments are coming up, has augmented pessimism amongst a
section of potential buyers awaiting the completion of a number of
infrastructure projects that have been announced. An example that can
be cited is the construction of the road connecting Jessore Road to the
Airport Road. Unless the infrastructure in Kolkata's distant suburbs is
developed adequately, it will act as a hindrance to demand for
affordable housing in the city.
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
60
ConclusionThis report, while exploring and encapsulating various aspects of
affordable housing, is primarily focused on the needs of the buyer. The
overriding questions being delved into pertain to what the customer
wants, how best developers can serve these requirements and what
the government can do to facilitate the provision of affordable
housing. Several important issues that were highlighted by the
findings of this report are worth touching upon.
On the whole, buyers in the Rs.3-10 lakh income category turned overly
cautious in the aftermath of the economic crisis that set in during the
first half of 2008. While their actual affordability is higher than what
they indicated in the surveys, these buyers have undoubtedly been
jolted by the uncertain economic environment, job losses and tight
credit conditions. However, the willingness to pay for a household in
the lower income group of Rs.3-5 lakh is relatively unaffected by events
of the past year. While buyers in this income group can afford a
property value in the range of Rs.12-21 lakh, their budget preference is
similar at Rs.14-19 lakh. By contrast, households in the income group
of Rs.8-10 lakh have a preferred budget of Rs.23-31 lakh that is much
lower than their actual affordability of Rs.33-45 lakh. This apparent
contradiction can be attributed to the fact that just as during boom
times consumers in higher income groups turn overtly aggressive in
their spending, during lean periods, these consumers spend very
conservatively, curtailing expenditure on big ticket expenses like
buying a property.
Mumbai's high cost of living, coupled with the generally higher
maintenance lifestyle of its population, has adversely affected the
affordability of households in the city. For instance, middle class
households in Kolkata, Chennai and Hyderabad can afford houses
valued at Rs.14-45 lakh, whereas households of a similar stature in
Mumbai can afford houses valued at Rs.12-38 lakh.
The results of our surveys of sample households indicate that 'good
connectivity to frequently traveled places', which primarily denotes
good connectivity to work destinations, is the most important factor
influencing a buyer's decision when selecting a housing location. This
consideration is followed in order of prioritization by considerations
pertaining to the availability of good infrastructure and the potential
for future development. Once the buyer identifies the location, the
most important amenities looked at when choosing a house are
uninterrupted water supply, power backup and high level security
systems. The amenities that were found to not influence the choices of
a majority of households are pre-fitted interior fixtures, modular
kitchens and multipurpose halls.
Table 50
Affordable house value for the middle class (in Rs. lakh)
City Income 3-5 lakh 5-6 lakh 6-8 lakh 8-10 lakh
Mumbai 12-15 17-22 25-29 33-38
Pune 13-21 20-30 27-31 35-40
NCR 14-19 21-28 25-32 36-39
Bengaluru 13-18 19-24 24-28 33-37
Chennai 14-21 19-27 28-32 35-45
Hyderabad 15-20 22-28 31-34 35-43
Kolkata 14-20 19-27 25-32 35-40
Source: Knight Frank Research
Figure 43
Distribution of housing units requirement by 2011
for the middle class
Source: Knight Frank Research
NCR - 26%
Pune - 6%
Mumbai - 20%
Bengaluru - 18%
Chennai - 8%
Hyderabad - 11%
Kolkata - 13%
Buyers in the Rs.8-10
lakh income group
quoted a more
conservative budget
than those in theRs.3-5 lakh group
which reflects the
extremes on which
higher income group
consumers operate
during boom and
recession periods
It is evident from the household survey that the income groups of
Rs.6 lakh and above prefer budgets which are much lower than their
affordability as calculated by Knight Frank Research. For instance, the
income category of Rs.8-10 lakh has an average preferred budget of
Rs.20 lakh, which would translate into a property of Rs.2530/sq.ft., on
the basis of their size preference. In actuality, this income category can
afford to purchase a property in the range of Rs.34-40 lakh which
would translate to an average property value of Rs.4700/sq.ft.
Kolkata, one of the most populous cities of India, has a population of
approximately 15 mn. that has been growing at the rate of 2.7% per
annum. Being the commercial hub of the eastern part of the country,
the city attracts a huge migratory population. In recent years, the
migratory shift into Kolkata has primarily been the result of the rapid
rate of growth of the IT/ITES sector in the city. The growing aspirations
of the city's residents have led to the development of quality
residential developments in various suburban locations. Figure 41
specifies the housing requirement for the middle income segment in
Kolkata in 2009, 2010 and 2011.
City Outlook
Knight Frank research estimates that the middle income population in
Kolkata will require approximately 2.65 lakh housing units by 2011,
which assuming an average unit size of 800 sq.ft. translates to
approximately 212 mn.sq.ft. of residential space. Approximately 79% of
this total middle income housing requirement will be accounted for by
the Rs.3-5 lakh income segment. In order for this requirement to be
converted to demand, the Rs.3-5 lakh income category would have to
be targeted with houses in the price range of Rs.14-20 lakh.
0-6 months - 15%
6-12 months - 39%
1-2 years - 46%
Figure 42
Household Purchase Timelines
Source: Knight Frank Research
A very important consideration in assessing the demand for houses in
the middle income segment is the consumers' purchase timelines, as
even if 100% of the requirement translates to demand, how this
demand pans out depends on when consumers are willing to incur the
financial burden of purchasing a house. Figure 42 details the preferred
purchase timelines of rental households surveyed.
59
Figure 41
Total Housing Unit Requirement for Rs. 3-10 lakh
Income Category
270,000
20
09
20
10
20
11
2,51,479
265,000
260,000
255,000
250,000
245,000
240,000
2,58,269
2,65,242
Source: Knight Frank Research
Previous Years’ Cumulative Requirement Incremental Requirement
Kolkata, which during the realty boom witnessed a gradual
appreciation in residential prices as compared to other metro cities of
the country that witnessed steep price appreciation, has a relatively
stable residential market even in the prevailing adverse economic
climate. This is reflected by the purchase timelines of potential buyers.
While around 39% of the respondents expressed a desire to move
ahead with purchase decisions in the next 6-12 months, 15% revealed
intentions to purchase as early as within the next 6 months. This
confidence reflects the affordability of most residential locations
around Kolkata. Besides, various infrastructure projects, an example
being the extension of the metro railway to suburban locations, have
increased the attractiveness of certain previously peripheral residential
locations. The 45% of potential buyers that expressed a desire to
purchase anytime within the forthcoming 2 years reflect the caution
that has gripped the residential market around India in the wake of the
economic slump. Moreover, the deferment of infrastructural
development in locations like Rajarhat, where a number of residential
developments are coming up, has augmented pessimism amongst a
section of potential buyers awaiting the completion of a number of
infrastructure projects that have been announced. An example that can
be cited is the construction of the road connecting Jessore Road to the
Airport Road. Unless the infrastructure in Kolkata's distant suburbs is
developed adequately, it will act as a hindrance to demand for
affordable housing in the city.
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Such is the nature of the demand for affordable housing that even an
undersized unit would struggle to attract significant demand. This is
because empirical evidence suggests that a typical middle class house
buyer in India is a first time home buyer for whom a house purchase is
a lifetime investment, and an undersized unit would be a hindrance to
raising a family.
Given the aforementioned constraints, affordable housing projects
currently predominantly feature in suburban locations, where land
prices are less prohibitive. However, the lack of physical and social
infrastructure in these locations, an example being bad connectivity,
makes it difficult to attract significant demand. Hence, providing good
infrastructure, which at the very basic level would mean providing an
efficient transport system, is critical to the success of affordable
housing projects in peripheral locations.
The government also needs to look at greater financial incentives for
developers and buyers alike. The reintroduction of section 80 IB(10) of
the Income Tax Act, which provides for tax exemption on profits from
affordable housing projects, is a significant step in the right direction.
Similarly, the government's recent institution of a 1% interest subsidy
on loans up to Rs.10 lakh for houses that do not cost more than
Rs.20 lakh will enhance the affordability of loans for middle class
buyers.
If the various roadblocks hindering the development of affordable
housing are not addressed, housing shall remain an unfulfilled dream
for the Indian middle class, which will always be priced out of the high-
end housing segment. As of now, the choice of housing for middle
income buyers across India is governed by a lack of choice. However,
with the government and the developers both taking an active interest
on the subject of affordable housing, steps are being made that slowly
but surely are altering the landscape of the Indian housing market, and
might lead to affordable housing to be within the reach of the
consumers in the near future.
the Rs.3-6 lakh income
group is the largest
contributor to the
calculated housing
requirement by 2011The phenomenon of oversized apartments on offer was observed to be
particularly prevalent in projects in NCR and Hyderabad. This is so
because during the property boom, these projects were launched as
luxury apartments with larger sizes.
With the onset of the economic downturn, and the subsequent
reduction in property prices, these projects slowly began being
promoted as affordable housing offerings.
Another possible reason for the larger unit sizes currently on offer
could be the restrictive population density norms in several locations.
Low population density norms restrict the number of tenements that
can be housed on a land parcel, and hence, developers try to maximize
gains by building larger houses. Such restrictive development
regulations are an obstacle to the provision of affordable housing, and
should be modified to align them with pressing contemporary housing
requirements. At the same time, development supporting
infrastructure is essential to support higher densities of tenements.
The primary deterrent to the provision of affordable housing is
prohibitive land prices. While the construction cost has increased
marginally in the last few years, the land cost during the same period
has shot up at a far more rapid pace.
Expectations from the government to provide land to private
developers at subsidised rates have remained largely unfulfilled. The
problem of land cost is particularly relevant to affordable housing
projects, which require large land parcels so that relatively low profit
margins can be compensated by high volumes. The government could
employ other measures to boost affordable housing, examples being
allowing a higher Floor Area Ratio (FAR) for construction in cities with
high population density, and in Mumbai freeing the salt pan lands for
private development. Yet, as is a familiar theme on the affordable
housing front, potential is yet to come close to yielding results.
The housing
requirement for the
Rs.3-10 lakh income
group is approx. 2.06
million units by 2011,
translating to a
market size of Rs.3,300
billion, or USD 66
billion
6261
The preference regarding unit sizes was found to be positively
correlated with income, with higher income households desiring larger
houses. Amongst the Rs.3-10 lakh income group, the unit size
preferences among all the cities range from 550-1200 sq.ft. built up
area. Given the apartment size preference across income groups, most
of the prime residential locations in the cities covered are unaffordable
for the Rs.3-10 lakh income group. However, if consumers in this
income group are willing to compromise on their preferred unit sizes,
their options in terms of housing locations increase. Overall, our
research revealed that Mumbai, NCR and Bengaluru are the most
unaffordable locations, while Kolkata and Pune offer the maximum
number of affordable locations to middle income consumers.
Knight Frank research also analysed the supply of affordable housing
in the 7 cities covered. While the area preference among households
ranges from 550-1200 sq.ft., many designated affordable projects in
these cities are offering apartments of sizes above 1200 sq.ft. In such
cases, even while prevailing rates in certain locations are affordable as
per Knight Frank research calculations, the large sizes of units on offer
renders them unaffordable.
City Housing Requirement Area Requirement Market Size
(units) (mn.sq.ft.) (Rs.Bn)
by 2011 by 2011
Mumbai 404,673 324 647
Pune 134,264 107 215
NCR 547,434 438 876
Bengaluru 327,694 262 524
Chennai 157,471 126 252
Hyderabad 225,555 180 361
Kolkata 265,242 212 424
Total 2,062,333 1,650 3,300
Table 51
Market Size of Housing Requirement by 2011
Source: Knight Frank ResearchMumbai's high cost of
living and lifestyle
standards are the
reasons behind its miG
households having a
lower level of
affordability than in
cities like Kolkata,
Chennai and
Hyderabad
The housing requirement for the Rs.3-10 lakh income group across the
7 cities is approximately 2.06 million housing units by 2011, which
assuming an average household size of 800 sq.ft. translates to a
requirement of 1,650 million sq.ft. of residential space. Assuming a
price of Rs.2,000/sq.ft., which is par for the demand being catered to,
this total space requirement translates to a market size of
approximately Rs.3,300 billion, or USD 66 billion. Of this total, the
market size constituted by the Rs.3-5 lakh income group is expected to
be Rs.2,675 billion (USD 53 billion), while the market size contributed
by the Rs.5-10 lakh income group is expected to be Rs.625 billion (USD
13 billion). The NCR accounts for 26%, the largest share, of this
requirement. It is evident that the extent to which the total housing
requirement as of 2011 is catered to will depend largely on the extent to
which the requirements and specifications of the Rs.3-5 lakh income
group are satiated.
Mumbai, NCR and
Bengaluru are the
most unaffordable
cities, while Kolkata
and Pune offer the
maximum number of
affordable locations
Annual Housing Requirement Area Requirement Market Size
Income (units) (mn.sq.ft.) (Rs.Bn)
by 2011 by 2011
Rs.3-5 lakh 1,671,809 1,337 2,675
Rs.5-10 lakh 390,524 312 625
Total 2,062,333 1,650 3,300
Table 52
Income-wise market size break-up of housing requirement
Source: Knight Frank Research
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Such is the nature of the demand for affordable housing that even an
undersized unit would struggle to attract significant demand. This is
because empirical evidence suggests that a typical middle class house
buyer in India is a first time home buyer for whom a house purchase is
a lifetime investment, and an undersized unit would be a hindrance to
raising a family.
Given the aforementioned constraints, affordable housing projects
currently predominantly feature in suburban locations, where land
prices are less prohibitive. However, the lack of physical and social
infrastructure in these locations, an example being bad connectivity,
makes it difficult to attract significant demand. Hence, providing good
infrastructure, which at the very basic level would mean providing an
efficient transport system, is critical to the success of affordable
housing projects in peripheral locations.
The government also needs to look at greater financial incentives for
developers and buyers alike. The reintroduction of section 80 IB(10) of
the Income Tax Act, which provides for tax exemption on profits from
affordable housing projects, is a significant step in the right direction.
Similarly, the government's recent institution of a 1% interest subsidy
on loans up to Rs.10 lakh for houses that do not cost more than
Rs.20 lakh will enhance the affordability of loans for middle class
buyers.
If the various roadblocks hindering the development of affordable
housing are not addressed, housing shall remain an unfulfilled dream
for the Indian middle class, which will always be priced out of the high-
end housing segment. As of now, the choice of housing for middle
income buyers across India is governed by a lack of choice. However,
with the government and the developers both taking an active interest
on the subject of affordable housing, steps are being made that slowly
but surely are altering the landscape of the Indian housing market, and
might lead to affordable housing to be within the reach of the
consumers in the near future.
the Rs.3-6 lakh income
group is the largest
contributor to the
calculated housing
requirement by 2011The phenomenon of oversized apartments on offer was observed to be
particularly prevalent in projects in NCR and Hyderabad. This is so
because during the property boom, these projects were launched as
luxury apartments with larger sizes.
With the onset of the economic downturn, and the subsequent
reduction in property prices, these projects slowly began being
promoted as affordable housing offerings.
Another possible reason for the larger unit sizes currently on offer
could be the restrictive population density norms in several locations.
Low population density norms restrict the number of tenements that
can be housed on a land parcel, and hence, developers try to maximize
gains by building larger houses. Such restrictive development
regulations are an obstacle to the provision of affordable housing, and
should be modified to align them with pressing contemporary housing
requirements. At the same time, development supporting
infrastructure is essential to support higher densities of tenements.
The primary deterrent to the provision of affordable housing is
prohibitive land prices. While the construction cost has increased
marginally in the last few years, the land cost during the same period
has shot up at a far more rapid pace.
Expectations from the government to provide land to private
developers at subsidised rates have remained largely unfulfilled. The
problem of land cost is particularly relevant to affordable housing
projects, which require large land parcels so that relatively low profit
margins can be compensated by high volumes. The government could
employ other measures to boost affordable housing, examples being
allowing a higher Floor Area Ratio (FAR) for construction in cities with
high population density, and in Mumbai freeing the salt pan lands for
private development. Yet, as is a familiar theme on the affordable
housing front, potential is yet to come close to yielding results.
The housing
requirement for the
Rs.3-10 lakh income
group is approx. 2.06
million units by 2011,
translating to a
market size of Rs.3,300
billion, or USD 66
billion
6261
The preference regarding unit sizes was found to be positively
correlated with income, with higher income households desiring larger
houses. Amongst the Rs.3-10 lakh income group, the unit size
preferences among all the cities range from 550-1200 sq.ft. built up
area. Given the apartment size preference across income groups, most
of the prime residential locations in the cities covered are unaffordable
for the Rs.3-10 lakh income group. However, if consumers in this
income group are willing to compromise on their preferred unit sizes,
their options in terms of housing locations increase. Overall, our
research revealed that Mumbai, NCR and Bengaluru are the most
unaffordable locations, while Kolkata and Pune offer the maximum
number of affordable locations to middle income consumers.
Knight Frank research also analysed the supply of affordable housing
in the 7 cities covered. While the area preference among households
ranges from 550-1200 sq.ft., many designated affordable projects in
these cities are offering apartments of sizes above 1200 sq.ft. In such
cases, even while prevailing rates in certain locations are affordable as
per Knight Frank research calculations, the large sizes of units on offer
renders them unaffordable.
City Housing Requirement Area Requirement Market Size
(units) (mn.sq.ft.) (Rs.Bn)
by 2011 by 2011
Mumbai 404,673 324 647
Pune 134,264 107 215
NCR 547,434 438 876
Bengaluru 327,694 262 524
Chennai 157,471 126 252
Hyderabad 225,555 180 361
Kolkata 265,242 212 424
Total 2,062,333 1,650 3,300
Table 51
Market Size of Housing Requirement by 2011
Source: Knight Frank ResearchMumbai's high cost of
living and lifestyle
standards are the
reasons behind its miG
households having a
lower level of
affordability than in
cities like Kolkata,
Chennai and
Hyderabad
The housing requirement for the Rs.3-10 lakh income group across the
7 cities is approximately 2.06 million housing units by 2011, which
assuming an average household size of 800 sq.ft. translates to a
requirement of 1,650 million sq.ft. of residential space. Assuming a
price of Rs.2,000/sq.ft., which is par for the demand being catered to,
this total space requirement translates to a market size of
approximately Rs.3,300 billion, or USD 66 billion. Of this total, the
market size constituted by the Rs.3-5 lakh income group is expected to
be Rs.2,675 billion (USD 53 billion), while the market size contributed
by the Rs.5-10 lakh income group is expected to be Rs.625 billion (USD
13 billion). The NCR accounts for 26%, the largest share, of this
requirement. It is evident that the extent to which the total housing
requirement as of 2011 is catered to will depend largely on the extent to
which the requirements and specifications of the Rs.3-5 lakh income
group are satiated.
Mumbai, NCR and
Bengaluru are the
most unaffordable
cities, while Kolkata
and Pune offer the
maximum number of
affordable locations
Annual Housing Requirement Area Requirement Market Size
Income (units) (mn.sq.ft.) (Rs.Bn)
by 2011 by 2011
Rs.3-5 lakh 1,671,809 1,337 2,675
Rs.5-10 lakh 390,524 312 625
Total 2,062,333 1,650 3,300
Table 52
Income-wise market size break-up of housing requirement
Source: Knight Frank Research
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
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RESEARCH
Knight FrankNewmarkGlobal
Knight Frank Research provide strategic advice, consultancy services and forecasting
to a wide range of clients worldwide including developers, investors, financial and
corporate institutions. All recognise the need for the provision of expert independent
advice customised to their specific needs.
Knight Frank Research Reports are also available at KnightFrank.com
© Knight Frank 2009
This report is published for general information only. Although high standards have been used in the
preparation of the information, analysis, views and projections presented in this report, no legal responsibility
can be accepted by Knight Frank Research or Knight Frank for any loss or damage resultant from the contents
of this document. As a general report, this material does not necessarily represent the view of Knight Frank in
relation to particular properties or projects. Reproduction of this report in whole or in part is allowed with
proper reference to Knight Frank Research.
India Research
Gulam Zia
National Director - Advisory Services
+91 (022) 2267 0876
Samantak Das
National Head - Research
+91 (022) 2267 0876
Sangeeta Sharma
+91 (022) 2267 0876
Maureeta Lopez
+91 (022) 2267 0876
Vivek Rathi
+91 (022) 2267 0876
Sunil Vattekat
+91 (080) 4073 2600
Kunal Sabharwal
+91 (022) 2267 0876
Sree Harshini
+91 (040) 4455 4141
Amit Talwar
+91 (0124) 4075 030
Kirti Dubey
+91 (020) 3058 0617
Q2 2009
Affordablehousing
KnightFrank.com
Understanding The Drivers
Americas
USA
Bermuda
Brazil
Caribbean
Australasia
Australia
New Zealand
Europe
UK
Belgium
Czech Republic
France
Germany
Hungary
Ireland
Italy
Poland
Portugal
Russia
Spain
The Netherlands
Ukraine
Africa
Botswana
Kenya
Malawi
Nigeria
South Africa
Tanzania
Uganda
Zambia
Zimbabwe
Asia
Cambodia
China
Hong Kong
India
Indonesia
Macau
Malaysia
Singapore
Thailand
Vietnam
RESEARCH
Knight FrankNewmarkGlobal
Knight Frank Research provide strategic advice, consultancy services and forecasting
to a wide range of clients worldwide including developers, investors, financial and
corporate institutions. All recognise the need for the provision of expert independent
advice customised to their specific needs.
Knight Frank Research Reports are also available at KnightFrank.com
© Knight Frank 2009
This report is published for general information only. Although high standards have been used in the
preparation of the information, analysis, views and projections presented in this report, no legal responsibility
can be accepted by Knight Frank Research or Knight Frank for any loss or damage resultant from the contents
of this document. As a general report, this material does not necessarily represent the view of Knight Frank in
relation to particular properties or projects. Reproduction of this report in whole or in part is allowed with
proper reference to Knight Frank Research.
India Research
Gulam Zia
National Director - Advisory Services
+91 (022) 2267 0876
Samantak Das
National Head - Research
+91 (022) 2267 0876
Sangeeta Sharma
+91 (022) 2267 0876
Maureeta Lopez
+91 (022) 2267 0876
Vivek Rathi
+91 (022) 2267 0876
Sunil Vattekat
+91 (080) 4073 2600
Kunal Sabharwal
+91 (022) 2267 0876
Sree Harshini
+91 (040) 4455 4141
Amit Talwar
+91 (0124) 4075 030
Kirti Dubey
+91 (020) 3058 0617