Gowtham Ganesh A70059018055

AFFORDABLE SHELTER FOR RURAL KERALA

1. INTRODUCTION
Kerala, being one of the densely populated state in India, have a high demand for housing.
The standard of living and human development index (HDI) of Kerala is much higher than
any other states in India[ CITATION MHS11 \l 16393 ]. The housing pattern in Kerala is also
different than other states. Dwellings are made on individual plots and dispersed over
residential areas. The apartment culture is comparatively less in Kerala. As a small state in
terms of geographical area, it’s time to look forward for vertical development rather than
building individual bungalows to meet the increasing demand of housing for its rising
population [ CITATION Sta17 \l 16393 ]. Vertical housing development should be emphasized
on affordability of the people based on their income to buy it.

The economic feasibility study of such a housing is very important to determine the demand-
supply gap in the market and to state whether the project will be a profit making one, by
carrying out cost-benefit analysis. The problem lies where, when the cost of construction
increases, the developer couldn’t add up this to the selling price beyond affordability limit of
the consumer in demand. Various government policies give subsidies to the affordable
housing. This report considers all such factors and determine the feasibility of an affordable
housing project in Kerala.

2. PROJECT CONTEXT

2.1 Project Description

Table 1: Description of Project

Site location Karthikappally, Alappuzha dist., Kerala

Area of plot 6455 sq.m.

No of stories G+20

No of building blocks 2 (identical)

Total built up area 15943.2 sq.m. (379.6 sq.m. x 21 floors x 2

blocks)
(Floor space ratio = 2.47)
Capacity 280 units (4nos.x20floorsx2blocks 2BHK units
and 3nosx20floorsx2block 1BHK units)
Local Governing body Harippad Municipality

Classification of Project A2 Residential Building[ CITATION Gov99 \l

16393 ]
Amenities Garden, Walkways, Parking area, Commercial

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centres, Fitness centre, lounges

2.2 Project Details

The proposed project site is located 2 kms away from the National highway 66 on the side of
Mavelikara – Thrikkunapuzha main road at Karthikappally city. The project consists of a
G+20 housing apartment with various amenities. The project is designed to meet the
growing demand of people for a shelter with their money savings. The project targets to
provide 1 BHK housing of area 30 sq.m. for lower income group (LIG) /economic weaker
sections (EWS) who are having income range between 3-6 l.p.a [CITATION RBI18 \l 16393 ]
and 2 BHK housing of area 66.15 sq.m for the middle-income group (MIG) having income
range between 6-18 l.p.a.

3. INDIAN ECONOMY AND AFFORDABLE HOUSING

Indian economy is one of the fastest growing economy in the world with a GDP of about
8.2% by the first quarter of 2018-’19 year. The investor friendly reforms, controlled inflation
rate, increased public expenditure, good monsoon and gain of confidence of global investors
in Indian economy etc. helped India in attaining such a high growth rate.

India faces a large shortage of affordable housing in cities. Due to less returns from LIG,
housing developers concentrate on gaining maximum profit from MIG and High-income
segments. The high cost of land and raw materials and low profit gained from projects made
affordable housing sector less attractive for developers. Thus, arise a huge gap between the
demand and supply of affordable housing in Indian market. Even though, the recent govt.
initiatives and measures taken by Reserve bank of India (RBI) bring a new hope and boost
to the industry.

The supply-demand gap in Indian market in the year 2016- 2020 is predicted as follows

Figure 1 supply-demand gap in India, Source: (Siddhart Goel et. al, 2016)

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4. GOVERNMENT INITIATIVES AND POLICIES

The affordable housing sector plays a vital role in real estate sector in 2018 as well. Various
government policies give enormous thrust to this industry. With the introduction of regulatory
and taxation policies such as RERA. and GST., the environment of property development
would be more stable and brings more standard to the business. Affordable housing industry
saw a tremendous growth of 6% in the country during last year 2017[ CITATION Bab18 \l 16393
].

4.1 Central Government policies and initiatives

 Pradhan Mantri Awas Yojana (PMAY) – Latest scheme launched in 2015 aiming
“house for all” by 2022. Slum redevelopment, credit linked subsidy scheme(CLSS),
affordable housing in partnership, beneficiary led construction or enhancement are
part of this policies.
 1994 National housing policy, 2005 Jawaharlal Nehru National Urban Renewal
mission and 2013 Rajiv awas yojana were some of the old housing schemes.
 Cut off of GST from 12 to 8% [ CITATION Ama18 \l 16393 ] for affordable housing under
PMAY.
 Various measures were taken by the govt. in union budget 2017- ‘18 to boost the
affordable housing industry which includes
 Infrastructure status for affordable housing which brings down cost of
financing and helps developer to open up additional avenues for raising
funds.
 For completed but unsold projects, one year is provided for developers to pay
rental income tax.
 Increasing project construction time from 3 to 5 years.
 Announced credit linked subsidy scheme (CLSS) for MIG providing Rs. 1000
crores and so on.
4.2 Kerala Government policies
Apart from central govt. policies, state governments as well have their own policies
and initiatives.
 Life project - Livelihood Inclusion and Financial Empowerment (LIFE) is the
latest housing project by Kerala govt. which aims to build 4.3 lakh homes to
homeless in 5 years [ CITATION Gov18 \l 16393 ].
 One lakh Housing scheme 1972- ’96 was one of the successful housing
project.

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 Suraksha housing scheme, Innovative housing scheme are some of the

schemes undertaken for housing of EWS group [ CITATION Gov181 \l 16393 ].
 Total housing scheme in 2001 is the first scheme implemented by local
government for housing in Kerala.

5. COST OF CONSTRUCTION AND REVENUE

The project consists of two phases of construction. 1st phase includes construction of first
block consisting of 80 units of 2bhk apartments and 60 units of 1bhk apartments. 2 nd phase
includes an identical block as in 1st phase with same area. The sale of 1bhk apartments are
to be done for 7 lakh rupees and sale of 2bhk apartments for 15 lakh. Two commercial
space, one in each block sold for 30 lakh rupees.

Table 2 : Estimation of cost of construction.

Construction Phases Estimation Cost (in Cr)

Phase 1 (First block) 85774.416 sq. ft x ₹1400/sq. ft. ₹ 12
Phase 2 (Second block) 85774.416 sq. ft x ₹1500/sq. ft ₹ 12.86
Amenities 18243.9 sq. ft x ₹ 850/sq. ft ₹ 1.55
Maintenance 189792.732 sq. ft x ₹ 105/sq. ft ₹ 1.99
Overhead costs 5% of total cost ₹ 1.42
TOTAL ₹ 29.82

5.1 Benefits for different income groups under PMAY

Table 3 : Benefits of different income groups, Source:[ CITATION Bal18 \l 16393 ]

Particulars EWS LIG MIG - I MIG - II

Annual Family Income Up to 3 lakhs 3-6 lakh 6-12 lakh 12-18 lakh

Max. Loan eligible for 6 lakhs 6 lakhs 9 lakhs 12 lakhs

subsidy
Interest subsidy 6.5% 6.5% 4% 3%

Max. loan tenure 20 years 20 years 20 years 20 years

5.2 Revenue Expected

Table 4: Revenue expectation on sales

Particulars Estimation Rates (in Cr.)

Sale of 1 BHK units (30 sq. m) 120 units x 7 lakh ₹ 8.4
Sale of 2 BHK units (66.15 sq. m) 160 units x 15 lakh ₹ 24
Sale of Commercial centres 2 units x 30 lakh ₹ 0.6

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TOTAL ₹ 33

6. BENEFIT COST ANALYSIS

Benefit-cost analysis mainly have three dimensions[ CITATION Dep16 \l 16393 ]. They are
economic, social and environmental dimensions. The cost and benefit should be identified
on all these dimensions, and the social and environmental factors which can be quantified
and monetised should be accounted in the cost- benefit analysis.

Table 5 Descriptive CBA analysis

COST BENEFIT
High construction cost High reputation for developer.
Large no of trees cut in the plot area Government benefits
Increased noise and air pollution Improved health and living standard for
residents.
High opportunity cost in compromising Utilisation of local raw material and recycle
project for LIG and MIG of waste materials.
Acceptance of the community for urban
consolidation.
Profit from commercial centres and
amenities
Environmental friendly construction

Table 6 Quantitative CBA analysis

YEAR Investment Maintenance and Revenue on sales (in Crores)

(in Crores) Overhead cost
1st year ₹ 3.5
2nd year ₹ 4.5
3rd year ₹9 ₹6
4th year ₹ 10 ₹ 12
5th year ₹ 2.82 ₹ 13
COST = ₹ 29.82 BENEFIT = ₹ 33

Benefit ₹ 33 crore
Benefit cost ratio= = =1.1>1
Cost ₹ 29.82 crore

By the fifth year of the project, the benefit from the project exceeds its cost. Thus, the project
is economically feasible.

7. RISK ASSESSMENT AND MITIGATION MEASURES

Various risks associated with the construction of affordable housing and their mitigation
measures are as follows:

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Table 7 Risk identification and mitigation measures

Risks Mitigation measures

Delay due to lengthy approval and All approvals and clearances should be
clearance processes. taken before the starting of project. Thus,
delay and over run cost can be avoided.
Challenges faced in selection of Local government should find out various
beneficiaries [CITATION Man17 \l 16393 ]. income groups and list the beneficiaries from
them.
Even though, demand is high, the supply Project should meet the needs and tastes of
should be within budget constraints and consumers.
should meet need and taste of consumers.
Chances of overrun cost due to Regular monitoring on material prices and its
1.extra labour charge and material costs. availability.
2. non-availability of skilled labours
Less profitability and viability Use of innovative construction methods and
techniques depending on their suitability.
Acceptancy of Kerala’s community to Providing best amenities and facilities.
adopt apartment culture.
Availability of housing loan for large Encouraging micro mortgage financing
section of EWS and LIG[ CITATION Gau16 \l mechanism by utilising Self-help group
16393 ] (SHG)

8. CONCLUSION
“Sustainable- Affordable Housing from the user’s perspective can be defined as one that is
‘affordable’ and ‘accessible’ to them to ‘satisfy their housing needs’”[CITATION Nai \l 16393 ].
Affordable housing has a huge demand in India. Especially, Kerala have an annual demand
of 1.4 million units of house and a market size of 97 billion rupees[ CITATION Cly14 \l
16393 ].This project is initiated to meet the housing requirements of EWS/LIG and MIG.
Since there is a huge supply demand gap in market, the project would narrow this gap.
Various government/RBI policies and measures aiming for “housing for all” motto, are in
favour of affordable housing projects. Even though the project is not much profitable, it aims
for social welfare without loss for the housing developer.

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