Indian companies want to repeat the success of the low-cost Tata Nano, the world's cheapest car, by designing homes affordable to the nation's hundreds of millions of slum dwellers.
Tata Housing Development, a unit of the Tata Group - maker of the Nano - has begun its first ultra low-cost development selling homes ranging from 283 sq ft to 465 sq ft priced at between Rs 390,000 ($8,200) and Rs 670,000.
"We hope to show the world that a private-sector initiative aimed at the bottom of the pyramid can make money," said Brotin Banerjee, managing director of Tata Housing.
India's housing shortage is fuelled by the immigration of millions of villagers to the cities.
Tata Housing calculates India needs at least 24m homes if it is to house all its people living in slums. One of the worst affected cities is Mumbai, where by some estimates about 60 per cent of its population lives in shanties.
Home to Dharavi, Asia's largest slum, the living conditions were brought home to western audiences by Slumdog Millionaire, the Oscar-winning movie.
However, many slum-dwellers are not destitute by local measures. Tata estimates 180m Indian households live on between Rs 90,000 and Rs 200,000 a year.
Housing at Tata's new low-cost development - Shubh Griha, or "Auspicious Homes" - in Boisar, about 60km from Mumbai, comes with electrical, toilet and plumbing fittings built in.
The 3,000-unit development, which targets households earning Rs 9,000 to Rs 10,000 a month, will also have schools, a hospital, shops and a recreation centre. Tata said it had received 5,500 applications with deposits for the first phase of the development, which will be completed by 2011.
To reduce its capital requirements, it has developed a business model in which it forms partnerships with landowners and only pays them once the housebuyers begin to pay.
Tata is not the only company in the market. Jaithirth Rao, former chief executive of tech company Mphasis, has teamed up with PS Jayakumar, a Citigroup employee, to launch a $10m ultra low-cost housing project to build 37,500 units selling at less than Rs 900,000.
Value and Budget Housing, their company, will initially build two projects in Bangalore and another in Chennai.
"The key to turning this into a profitable venture is finishing fast," said Mr Rao.
"If completed within three years, the project is expected to have return on investment of between 30-40 per cent."
Copyright The Financial Times Limited 2009
