Liveable, legal and solid construction projects will attract buyers

In any discussion about affordable housing in India, the fact that lot of such housing is lying vacant, is bound to crop up. One may point out that, especially with the Government’s avowed intention of providing Housing for All by 2022, this supply should logically go  towards bridging the affordable housing gap. 

However, it is obviously not that simple or it would already have happened. A lot of this budget housing inventory is lying vacant for good reasons. Around 237,000 units across top 7 cities belonging to the affordable housing segment (units priced less than Rs 40 lakh) were unsold as of Q2 CY 2018. 

This number pertains only to the unsold units of organized private developers and does not include Government housing schemes, which essentially means that the number would go further northwards if those are included. 

Given the unrelenting requirements for urban budget housing, inventory that has been created in the major cities by seasoned organized players who know what they’re doing will eventually get absorbed. But what about projects generated by the unorganized sector - the innumerable smaller buildings, often one-off undertakings by fringe developers in far-flung areas? 

These contribute the major share of stock which lies idle - and may continue to lie idle - in the post-RERA era. Let’s examine why. 

Broadly speaking, there can be three reasons (or combinations of them) why an affordable housing project with ready-to-move units remains unoccupied. 

There can obviously be other reasons as well - as Shakespeare so aptly put it, ‘there is many a slip between the cup and the lip’ - but most of unsold ready projects fall into any or combinations of these three: 

Many barren projects are the result of good, old-fashioned miscalculation - the developers had not undertaken thorough feasibility studies prior to launch. 

They just went ahead with launching affordable housing in an area because land was cheap and local development regulations were lax. 

When housing comes up in areas which are simply too far from the city’s workplace hubs and lack the necessary support infrastructure -most importantly transport-specific infrastructure - the results are fairly predictable. 

Many such projects have serious flaws in design and construction and were launched before RERA hit the market. 

RERA also applies retrospectively to under-construction projects and is very strict about factors like construction quality. Overtly inferior construction will not pass the RERA scanner and cannot even be marketed, leave alone sold. Interestingly, due to the bad construction, ready-to-move inventory in badly-constructed projects will also deteriorate more rapidly if it remains unoccupied for a few more years. 

RERA is also strict on projects which were launched without all the necessary approvals in place (and also on non-approved floors in otherwise approved projects). This obviously makes homes in them unattractive to buyers, who will shun them in favour of fully-compliant developments. 

With a huge pileup of unsold and ready-tomove inventory available in most markets, there is no shortage of such options. Of course, not all legal flaws are created equal - in some cases, non-compliant projects can get RERA clearance if the legal transgressions are minor and permissions can be obtained after a fine is paid or certain structural changes are done. 

However, projects with major legal flaws will not have this option. It could be argued that projects with such drawbacks should have found buyers before RERA kicked in - after all, they are invariably very affordably-priced and there have always been unwary buyers who do not look beyond this all-important factor. However, even if consumers don’t do a thorough due diligence, banks most certainly do. 

Intending buyers would not have been granted home loans if there were serious flaws in the project. 

The first way would be to rapidly deploy infrastructure in areas which have unsold budget housing. Even if this cannot happen immediately, buyers will still take some comfort from a formally-announced plan to deploy such infrastructure in the foreseeable future. 

In such cases, many buyers would be willing to buy now and wait till the area becomes more inhabitable. 

The second way would be to announce amnesty schemes to regularise projects with relatively minor deviations (with certain provisos and conditions) and/or were built without the necessary approvals. This is possible and has, in fact, been happening in many cases across the country where the legal breach is not major enough so as to be a total deal-breaker.