Friday, September 10, 2010

Mint article on affordable housing

Mint article today (Sep 10) on affordable housing (see link below) makes the point that actual end users are being left out by rising prices and their inability to compete with investors. Our quote that we are nervous about rising prices is not totally accurate though. Obviously since MHFC's primary objective is for homes to be priced within the budget of LIG buyers (defined by us as being monthly family incomes less than 15,000 per month), it is certainly not good news for flats to be priced more than 8 lakhs. Esp if our loans are capped at 6 lakhs - as this would mean that if prices increase say 25% - from 8 lakhs to say 10 lakhs - our customers will have to bring in 100% more in terms of own contribution (from 2 lakhs to 4 lakhs). This would be extremely difficult. But rising prices is a market reality and in a way we are not nervous about it, as it hopefully would mean more developers entering this segment. What this end of the market really needs (other than financing support from institutions like MHFC) is increase in the supply of homes - and for this, the biggest incentive for developers is attractive margins.

The bigger issue is whether we can and whether we should restrict sale of flats (which are priced at say sub 8 lakhs) to only end users and keep out investors completely. MHFC has a policy of only financing end users - we do not support investors. But there is certainly no major incentive for builders to restrict sale to only end users. From many perspectives, a sale to an investor is easier and quicker (as generally investors are well informed and would have tied up financing upfront as against our segment which is buying a home for the first time and often have financing problems). While the quote in the Mint article from the Director of Knight Frank is true - that “Investors help a developer maintain his cash flow, and that is still important”, I think it is meant to be viewed against his earlier statement that “If a developer doesn’t get enough end users to buy the flats, then construction will not proceed." In our opinion, its about directed marketing. It may take a little more effort but we think that if end user segments are aware of such projects and aware of available financing, then demand can be fulfilled as quickly, and once financing is tied up, end user buyers will be as reliable as investors. MHFC is already involved in such directed marketing - working with NGOs, MFIs, large employers of a quasi informal nature (like cable TV companies, taxi companies, industrial units, etc) - and are even in discussions with developers on creating a reservation for end users, which will be supported by us. We believe that not only is this crucial from a social perspective - but any long term minded developer would create a stronger brand by focussing on the actual end user and not the speculator.

Mint Article