It is imperative to motivate banks to lend to realty sector: Rajesh Krishnan, Founder, Brick Eagle
Affordable housing is a difficult dream. While government continues to provide consumer centric sops, developers are still seen hesitant to hold the baton for PM’s ‘Housing for All’ vision. In an industry where profit is the ultimate goal, Rajesh Krishnan, Founder and CEO, Brick Eagle Group talks about how, in retrospect, developing homes for Economically Weaker Group (EWG) and Lower Income Group (LIG) is in the sector’s best interest.
Could you tell us about the Housing market in India and the need for Affordable Housing?
Government estimates housing need of 60 million units to achieve Housing for All by 2022. Rising prices of land and real estate have left the economically weaker sections with not much choice but to live in appalling conditions. Given this scenario, it is crucial that the wide gap between the urban infrastructure and Affordable Housing are dealt with.
Do you see any uptick in ‘Affordable Housing Sector’? How viable is the PM’s dream of ‘Housing for All’ by 2022 in light of current events undertaken to regulate both economy and real estate?
Housing for all is indeed a viable dream. Although, fulfilling it by 2022 looks tough. Probably can be achieved by 2030. But in order to achieve this goal, we have to address the supply side constraints. My recommendations would be setting up of single window clearance for all approvals within 60 days along with infrastructure connectivity to distant suburbs around cities.
There is also a pressing need for making of 300,000 acres of land available for Affordable Housing project. Establishing a National Housing Fund with $10 billion to catalyse Affordable Housing projects would be another step in right direction.
The moot point of any investment is the profit. Why would any developer invest in the affordable housing sector? What do you think are the biggest takeaways?
Affordable Housing makes 15% gross margins. This is great if you look at it in the context of a manufacturing business with large scale.
The understanding of affordable housing differs from person to person. Looking purely from the profit standpoint, views may be contrasting.
When you look at the housing necessity in the affordable housing segment — particularly coming from 15-30 lac segment, 15% margin would seem small if big-shot developers involved there are used to, broadly speaking, 30% margin. At outset, this doesn’t seem profitable — more so if the making of houses is done on a limited scale given how the requirement in this range is fewer as compared to those coming for EWG and LIG groups, i.e. 5-10 lac segment.
What I am trying to say is, when it comes to affordable housing, adopting a manufacturing business model is the key. Take for instance, manufacturing of normal computers. Upon each sale, their profit margin is a measly 2%, but the scale at which they manufacture their product is huge and hence, extremely profitable.
While most of the sops provided are consumer centric, what can the Govt do to increase the engagement of developers in affordable housing segment?
Affordable Housing is in the nation’s best interest and hence should be viewed in the same light as Infrastructure. Small local developers supply most of the affordable homes in the private sector. These developers are often ignored by the banking system. As a result, they resort to borrowing from private lenders often at higher interest rates, which make affordable housing economically unviable. Therefore, in order to achieve ‘Housing for All’, it is imperative to motivate banks to lend to this sector. This can be achieved if RBI qualifies Project Loans to Affordable Housing sector as Priority Sector Lending (PSL).
How is Brick Eagle trying to achieve the coveted dream of Affordable Housing? What is your strategy? Where is the fund coming from?
At Brick Eagle we have built a disruptive model to deliver Affordable Housing across the country. The model hinges on partnering with Local Developers and incubating Entrepreneurs to plug gaps in the affordable housing value chain.
Besides providing Equity to developers, we also offer them a ‘Venture Tool Kit’ on corporate governance, financial discipline and Industry best practices. We also get them access to Debt capital and help them scale up thereby helping them produce a few thousand homes every year.
As for funds, we raise capital. Our goal is to raise $100 million annually. We intend to invest this capital in land parcels which can be used for developing affordable housing projects.