Page last updated at 23:47 GMT, Monday, 15 June 2009 00:47 UK

Mumbai builds up its low-cost housing

By Supriya Menon
BBC India Business Report, Mumbai

Agnelo Fernandez sits with his wife in their one room home
Agnelo Fernandez cannot afford a better house

They say it is easy to find everything in Mumbai except for a house.

For 35-year-old Agnelo Fernandez it could not have been truer.

Fernandez and his wife live in a small one room tenement which is less than 180 square feet.

It is in this cramped room that they cook, bathe, entertain and sleep.

They are not exactly poor but Fernandez's salary of $160 a month as a driver cannot get him anything better.

His neighbours - some of whom work as clerks, others run their own small business establishments - make similar money.

"I'd like to move to a better place but with my salary I won't get anything better," Fernandez says.

"I can't afford to buy anything within the city."

Crowded city

He is not the only one.

There are millions of people who live in houses like this across Mumbai.

Entire families live together, with little or no privacy as husbands, wives, grandparents and children all jostle for space.

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A look inside a typical Mumbai 'chawl'

And because the houses are crowded, the narrow alleyways serve as makeshift sinks, playgrounds and even bathrooms.

But while the thought of owning a home may seem a million miles away at present, that might be about to change.

Faced with a slowing housing market, several builders in the country are switching from premium homes to focusing on more affordable ones.

Earlier during the boom times of India's real estate market, almost all were building swanky apartments for the rich because of the big returns they generated.

But now the high rises with swimming pools, gyms and Italian marble floors are giving way to plain structures with basic amenities that people from lower and middle-class incomes can afford.

'Comfortable prices'

One construction firm, HDIL, has tied up with the government to build over 100,000 new homes.

What we have seen is that prices have come down to 2004 levels. At this price level they are very comfortable
Sarang Wadhawan, HDIL construction firm

"What we did over the last four years from 2004 to 2008 was that we made it highly unaffordable and drove nearly 85% of the market out," says the company's managing director Sarang Wadhawan.

He adds that aspiring homeowners in the lower-priced segment of the market were not buying property because they were saving money.

Today that means they have a good cash flow and, after a 25% to 30% drop in prices, are willing to start spending.

"What we have seen is that prices have come down to 2004 levels. At this price level they are very comfortable," Mr Wadhawan says.

Pluggable gap?

Estimates suggest that India has a shortfall of more than 25 million low-cost or affordable houses.

Construction worker
Developers are now focusing on low-cost housing but how long will it last?

That is why companies like HDIL and rivals such as Tata Housing are entering this market.

However, even if each company builds 100,000 houses every 5 years there will still be a massive shortfall.

And with demand outstripping supply to such an extent, some analysts wonder if the gap can ever be closed.

That is why the government is so keen for the real estate sector to focus on affordable housing.

The construction industry has cottoned on to this fact and is pushing to get tax breaks in the forthcoming budget in return for working on the cheap end of the housing market.

Signs of recovery

Anuj Puri, chairman of property consultancy JLL Meghraj, says there is plenty of demand in the sector.

TAKING THE PULSE OF THE GLOBAL ECONOMY
The BBC is Taking the Pulse of the Global Economy, looking at a range of subjects this summer
Food prices - which remain a concern particularly in many developing economies
Highly volatile energy prices - which have been a major issue in the past year
The plight of migrant workers - as the global recession takes hold in many economies
Housing markets - which have turned from boom to bust in many countries
Rising unemployment levels - as firms cut back because of falling orders

"Even in the lowest times, I'll call it the dark nights, from October until March when there was a bad period, there was demand for affordable housing," he explains.

But while he is optimistic that builders will keep producing low-cost housing in the midst of the downturn, he is not sure if they will be so keen to carry on when the market picks up again.

Already there are signs of recovery in India and developers may switch back to premium housing because of the big gains involved.

That will not be a welcome development for the millions of people who live next to high rises, in small houses in cramped alleyways.

They have fixed jobs and earn regular salaries.

All of them want to move to a better house. A place that they can call home and live in comfortably.

But that could remain a dream if companies here are not serious about the shift from premium to affordable housing.



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