Affordable housing segment faces quality challenges in India

PS Jayakumar, the managing director and co-founder of Value Budget Housing Corporation (VBHC), talks about how the affordable housing model can be profitable for developers in India.

Why is there a shortage of quality affordable housing in India?

When it comes to this particular segment of affordable housing, these large developers are not present. It’s largely a very much localised and fragmented industry. What has happened therefore is that the quality has been a challenge.

What are you trying to do differently?

The analogy we would use is of somebody making shampoo – they may make large bottles and then there will be something in small sachets priced differently, but the end quality of the shampoo is identical. The way we look at low-cost housing, there may be difference in the size, there may be a difference in the location, but when we look at the quality, it’s not different from any of the best products. Of course, we do not have fancy gold taps, marble and so on – it’s much more what one might call utilitarian. But when you just look at the structure, the quality of plumbing, the steel, the quality of cement used, the design, its efficiency in terms of environmental sustainability, they are consistent with quality houses.

Why have a lot of large developers avoided the affordable space? Is it because the returns are not as good?

That would be correct. The margins are thin here. But the opportunity is to do consistently large volumes and therefore net returns look good. The first change one must have in being in this segment is to consider that land is a raw material that needs to be quickly turned around into an end product. The traditional model in India and elsewhere has been that land is a capital asset – keep holding it, it keeps appreciating in price, and every subsequent phase can be launched at a much higher price, and therefore delay really does not have a cost. In fact it probably increases the margin that is available. It requires a cookie cutter model where we have well-defined prototypes. There would be many choices of prototypes, but depending on a particular location or a particular project, we pick up the right prototype and work with it. So it’s a degree of repetition, modularity in what you do. Then there is this whole idea of industrialisation of construction, which effectively ensures speed and quality.

What are the other issues that need to be considered?

There’s an aspect of dealing with consumers. These are first- time buyers, so there’s a degree of education. There’s also the ability to help them with securing bank funding. Finally, to help development of a good quality community.

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