There's little supply to match demand for flats worth less than Rs 30 lakhs in major cities. But as demand slows down, things are changing, with developers like Puruvankara foraying in middle income housing using their own land and buying more.
"This is a different segment entirely. It caters to people who want flats for under Rs 20 lakhs. There is a huge gap in that segment. Margins will be at 17-18 per cent for the project," said Ravi Ramu, Director, Puruvankara Projects.
Puruvankara is spending Rs 8,000 crore in this project over 5 years and will rope in some private equity. In fact, RBI's emphasis on this segment is giving hope to many developers.
"This tax exemption of upto Rs 30 lakhs is going to really drive end user demand," said Niranjan Hiranandani, Chairman, Hiranandani Group.
71 per cent of mortgage demand is below Rs 24 lakhs but the current supply caters to just 20 per cent of the demand.
Most developers have used land banks to get into commercial or premium projects or bought land too expensive for affordable housing. But with prices correcting, across the segments, the mindset is changing and private equity players are also finding it attractive.
Brahma Investments bought 49 per cent in DLF's middle-income housing project in Haryana for $49 million.
Warburg Pincus invested $75 million in Unique Affordable Homes, a developer for affordable homes in North and West India.
Purvankara is looking to raise almost $200 million for its middle income subsidiary.
"Private equity players are showing a lot of interest in this sector but not many developers have come up with projects so far," said Hardeep Dayal, MD, Centrum Infrastructure & Realty.
The biggest hurdle, however, is execution delays because of rising construction costs. But we can look forward to that changing in the next 3-5 years as more funds pour into the largest segment of real estate in India.