Two-and-a-half hours north-east of Mumbai, in the distant exurb of Badlapur, the outline of a vast new project is taking shape. The Dipak Kumar Poddar-promoted Poddar Developers, which has positioned itself as a low-income housing specialist, is working on a 70-acre township which, when complete, will comprise 3,000 apartments in Phase I; these will be made available over three phases and have been launched at an affordable Rs 1,899 per square foot.
Walk around the complex and you will be hard-pressed to slot it as a low-cost venture. The first lot, recently handed over to occupants, is bundled with parks, a cricket pitch and a club house—amenities you would expect to find in a plush housing project. Also, at first glance, these apartments seem to have a better finish than traditional low-income housing. The walls are well plastered, the toilet fittings are from reputed brands (they come with a warranty) and the plumbing appears to be as good as that in any apartment block in south Mumbai.
This is a shift in approach towards low-income housing, long shunned by developers due to low margins. The last three years show that a start, albeit a diffident one, has been made. The figures (research by Monitor Deloitte says that 78,000 units have been launched in this period) point to a number of developers taking the first steps. With the ministry of urban development estimating a 24.7 million unit shortage in low-income housing, the opportunity is huge.
There are also signs that some developers are beginning to understand what it takes to stay in the game. The business requires a different skill set from what traditional developers have. That is the reason why big names like DLF, Unitech and Lodha have so far stayed clear of this sector. (Tata Housing has a successful low cost business but that is part of a larger portfolio.) Poddar, which has launched four projects in the outskirts of Mumbai, has plans to start at least half a dozen more in the next two years. Vastushodh in Pune and DBS in Ahmedabad are carving out similar niches. “These developers are taking baby steps in the business and, in time, have the potential to become large national brands,” says Vikram Jain, who leads the affordable housing practice with Monitor Deloitte.
What makes Poddar well-positioned to capitalise on the opportunity? “A lot of people get into this business and then migrate to building expensive houses. Rohit [Dipak Poddar’s son who is leading this business] is one of the few people with a laser-like focus only on this segment,” says Madhusudan Menon, chairman of Micro Housing Finance Corporation. Since Poddar’s first project launch in Karjat in 2010, Rohit has spent time learning the business. Now, as he prepares to scale up, the company will have to prove itself as a viable, profitable long-term concern.
Spotting the Opportunity
Rohit Poddar, a youthful 42, got into real estate by accident. His father owned multiple mills in Mumbai’s Parel area. In 1992, after he completed a bachelor’s in civil engineering, economics and management from King’s College, London, he had no intention of coming back. He had grown up in an era of 3 percent growth and after he landed a trainee position with Goldman Sachs, returning to India was not even an option.
That changed in 1994 when his grandfather summoned him back to work in the family business. But the textile industry had never excited him; instead, he began learning about the green trade which had always fascinated him. From 1996 to 1999, he shifted base to Shanghai to work with textiles made from organic cotton. A brief dalliance with the tyre trade followed. And then, in 2002, he bought his first land parcel at Alibaug, near Mumbai.
It was around the time India was emerging out of a real estate slump. For the next 10 years, the market was on steroids and land aggregation became a huge business.
Rohit realised there was significant arbitrage in converting land from agricultural to commercial. That was, and remains, hard work. He would spend time with groups of farmers, convincing them to sell land. These parcels were outside large cities, relatively inexpensive and could support housing projects. But they couldn’t support the kind of high-margin developments of the large cities. This got Rohit thinking. “Since we understood land and had a commodity manufacturing background, I started to see how we could use these skills,” he says.
The Low-Cost Push
Poddar Housing (the brand for Poddar Developers’ projects) finally broke ground in March 2010, on two parcels totalling 14 acres in Karjat. Rohit had studied the model and appreciated the differences with conventional housing projects where the developer buys land and constructs slowly; in low-cost developments, the key is to get out quickly. According to Jain of Monitor Deloitte, in a traditional housing project, construction accounts for around 20 percent of sale price as opposed to around 50 percent in low-income housing.
The typical developer doesn’t really worry about construction delays. Houses are sold in tranches and a delay enables a higher price. Buyers too are happy with the increasing capital value of the house. But in low-income projects, lags can lead to increasing interest costs. In fact, they can be the difference between profit and loss. Also, buyers who invariably pay monthly instalments can’t afford a delay of even a month or two. “Only those with an industrial mindset can succeed in this business,” says Jain.
Check out our 75th Independence year discounts on subscriptions, additional Rs.750/- off website prices. Use coupon code INDIA75 at checkout. Click here for details.
(This story appears in the 15 November, 2013 issue of Forbes India. To visit our Archives, click here.)