The Pinnacle@Duxton, a public housing development built by Singapore’s Housing & Development Board, won a ULI Global Award for Excellence in 2011. (Housing & Development Board)

The Pinnacle@Duxton, a public housing development built by Singapore’s Housing & Development Board, won a ULI Global Award for Excellence in 2011. (Housing & Development Board)

Affordable housing means many different things across the Asia Pacific region, but in every nation, the driving issue in its provision is the cost of land.

That should come as no surprise; the Asian population of 4.3 billion represents 57 percent of the world total, according to United Nations data, but Asia has only 30 percent of the world’s land mass.

Definitions and situations vary. In India, for example, a home smaller than 400 square feet (37 sq m) is considered to be in the “affordable” category for poorer citizens. In Hong Kong, however, many homes of that size—or smaller—are on the market for more than $500,000.

Nonetheless, in both markets, land is the primary factor limiting the supply of affordable housing. Hong Kong is physically space constrained; it has a total area of 426 square miles (1,104 sq km), of which only 25 percent is developed. Much of the land is too steep to build on. India, despite its 1.25 billion population, is not lacking in land; what it lacks is land with the public transit, power, and water infrastructure to be developable.

Despite the heterogeneity of real estate markets in Asia, the core problem of providing affordable housing is the provision of land at a cost that makes it viable—a problem at the root of affordability issues in many major cities around the globe. But, in Asia, design and technology are lesser factors than in other parts of the world. Techniques such as modular prefabrication and the reuse of shipping containers have been used, but are not widespread because construction and materials costs are low compared with land costs. Cheaper labor means that more innovative construction practices offer only marginal benefits.

Last year, a research paper, From Slums to Sustainable Communities: The Transformative Power of Secure Tenure, was released by Habitat for Humanity, a nonprofit organization that, according to a 2013 press release, has helped provide more than 800,000 homes across the world since 1986. Organization chief executive Jonathan Reckford says: “The infrastructure in major cities cannot cope with current populations, never mind the predicted growth that continued urbanization will drive. People who live in decent homes are better workers and make the city a thriving place.

“Cities are economic engines of growth. The challenge is to make life more livable for people who are drawn to cities to find jobs and create that growth. Adequate housing and secure tenure are the basis for living. There are various ways to address long-term affordability of housing, but it has to start with the allocation of land.”

The Habitat for Humanity report describes security of tenure as a “continuum of land rights” ranging from perceived tenure to registered freehold, not simply related to the legal ownership of land. In fact, the report argues that homeownership is not necessarily the solution to substandard housing or abused property rights.

The report also points out that “informal need not mean illegitimate,” noting that residents of slums work in the informal as well as the formal economy and thus make a significant contribution to cities’ growth. These communities need to be integrated into the urban planning system, it says.

Haware Pinnacle is an affordable housing project in Mumbai, India, developed by Haware Properties. (Haware Group)

Haware Pinnacle is an affordable housing project in Mumbai, India, developed by Haware Properties. (Haware Group)

India

With a large, youthful, and urbanizing population, India has a huge need for affordable housing. A recent government report showed that India has a shortage of almost 18.8 million urban homes alone. The largest gap between demand and supply is among households with an annual income below $4,500, which are classified as the economically weaker section (EWS). The government considers an apartment with an area of about 250 to 400 square feet (23 to 37 sq m) the minimum housing requirement needed for such families, but 95 percent of the supply shortfall is in this category.

To address this shortfall, the Indian government has announced the Housing for All by 2022 scheme, which comprises four major initiatives:

  • redevelopment of slums with participation by private developers;
  • promotion of affordable housing for EWS families through credit-linked subsidies;
  • development of affordable housing in partnership with the public and private sectors; and
  • subsidies for individual house construction or enhancement.

India’s latest Union Budget announced tax breaks for mortgages on affordable housing, which has encouraged some real estate developers to get involved in the segment.
Mumbai-based Haware Properties is a rare developer that has had affordable housing as a long-term core focus. Today, the group is focused on nano housing—namely, single-room apartments of 300 to 400 square feet (28 to 37 sq m).

“Affordable housing is a concept which does not only mean housing which is cheap, but which is built on three principles,” says chief executive Amit Haware. “Firstly, each project provides hundreds or thousands of houses, which enables economies of scale and reduces costs while ordering materials in bulk directly from suppliers without going through dealers or distributors. Secondly, these projects involve efficient planning with optimum use of available space. Finally, we combine low margins with high volumes, which is the biggest mantra for success in affordable housing.”

Choosing a location for affordable housing is very difficult because the buyers in most cases are salaried employees working in central business districts. Connectivity to roads, schools, and health care and social infrastructure is important.

To make the development of affordable housing feasible, the cost of the land has to be on the lower side. But, the biggest challenge faced by developers in building affordable homes today is the high cost of land in most urban centers in India, says Anshuman Magazine, chairman of CBRE South Asia.

“India is not short of land overall, but there is a shortfall of land that is suitable for development, i.e., with transport and utilities infrastructure. Furthermore, the planning process is long and often complicated, which increases costs.

“However, the [Prime Minister Narendra] Modi government has increased spending on infrastructure, and this will help in the longer term. The government is also releasing more land for development and allowing higher-density development on that land.”

“We decide on the locations by reviewing the pipeline for proposed infrastructure developments in the nearby area. For example, our affordable project in Dronagiri in Mumbai is a few minutes’ walk from the proposed Dronagiri railway station,” says Rajesh Prajapati, managing director of Mumbai-based Prajapati Constructions.

Parth Mehta, managing director of development firm Paradigm Realty, says, “We acquire locations occupied by slums in order to keep our cost of the land relatively low. This gives us an edge over other developers who are mainly into greenfield acquisitions. Our focus lies in creating a larger available land bank on which large-scale housing can be developed at a faster pace in developed suburbs of Mumbai at an affordable ticket size with a comfortable payment plan.”

The Pinnacle@Duxton in Singapore offers open space and city views for residents. (Housing & Development Board)

The Pinnacle@Duxton in Singapore offers open space and city views for residents. (Housing & Development Board)

China

China has some of the same problems as India, but benefits (for now) from a slower-growing population and much better infrastructure. However, rapid house price growth in its major cities has left homeownership out of reach for many families.

The government, rather than the private sector, has taken the lead in providing affordable housing and claims to have beaten its own targets. In January, Beijing announced that 7.72 million units of affordable housing were built in 2015, beating its annual target of 4.8 million.

Frank Chen, head of Greater China research at CBRE, says some skepticism exists about the government housing statistics, but agrees that the state is building a lot of housing.

“China’s big listed developers do not get involved in the affordable housing market as the margins are too thin—only 2 to 3 percent—compared with the 8 to 10 percent required,” he says.

“Government housing tends to be built in outer suburban areas where land costs are lower. The government develops economical/low-cost housing, which is sold to [members of] lower-income groups at less than half the market rate for that size of property, and public rental housing, where the rents are very low. In a third-tier city, rents for a 540-square-foot [50 sq m] apartment could be less than RMB100 [US$15.21] per month, although it is pretty utilitarian stuff.”

A McKinsey & Company report, released last year, said China could do more to address housing affordability, even though it was making positive moves with government housing and measures to reduce land hoarding and speculation in cities. (The government imposes penalties on owners who leave sites undeveloped.)

McKinsey partner Jonathan Woetzel says industry continues to squeeze out other uses for land in China, while building height/density regulations are local rather than national and vary widely, reducing the opportunity for densification. He also argues that affordable housing projects could support the construction industry during property market downturns and that affordable housing finance could become a major business.

Woetzel also argues that China needs to use more advanced design and construction methods, including use of industrial approaches (such as greater use of prefabricated components) to cut construction costs. However, CBRE’s Chen was skeptical about the impact of such measures, saying the savings were not clear, especially when land—rather than building costs—is the major problem.

In Singapore and Hong Kong, the affordability problem has been approached in different ways at the city level.

Haware Group’s Paradise housing development in Mumbai offers apartments starting at US$20,000. (Haware Developers)

Haware Group’s Paradise housing development in Mumbai offers apartments starting at US$20,000. (Haware Developers)

Hong Kong

Earlier this year, Hong Kong was ranked as the least affordable city in the world, with average apartment prices at 19 times the city’s gross annual median income, according to research organization Demographia. The multiple was the highest ever recorded in the 11 years of the survey of 367 cities worldwide. Demographia classifies any region with a median multiple of more than 5.1 as “severely unaffordable.”

The research was based on data from the third quarter of 2015, and since then, prices have fallen by around 5 percent. However, prices are still double their level in 2009, when Hong Kong emerged from its brief post–global financial crisis slump.

In April, the Hong Kong Transport and Housing Bureau projected that a record 92,000 new private apartments would become available in the city in the next three to four years.
Thomas Lam, head of valuation and consultancy at Knight Frank Greater China, a real estate adviser/broker, says supply is expected to rise in the next two years, estimating that the number of new homes could reach about 38,000. “This is expected to bring downward pressure on secondhand-home prices,” he says.

However, in a city of 7 million people, adding fewer than 25,000 new homes a year will make little difference. Japanese investment bank Nomura is predicting a 20 percent fall in prices by the end of 2017, but this will be little comfort to professionals looking to get on the property ladder, never mind the 100,000 residents living in inadequate housing. Many poorer people live in subdivided apartments where they share facilities and have as little as 40 square feet (3.7 sq m) of personal space.

In the face of severe public disenchantment, Hong Kong’s government has begun to build more public housing to add to an existing supply of 750,000 rental units. However, the waiting period for public housing increased over the past 12 months to 3.9 years, according to the housing authority.

Hong Kong property developers have reacted to the housing shortage by producing ever-smaller apartments, which still command steep prices. For example, Cheung Kong Property, chaired by Li Ka-shing, Asia’s richest man, offered some apartments at its Mont Vert development in the New Territories that were smaller than 200 square feet (19 sq m). These units were priced at close to HK$2 million (US$257,000), but they still sold. Other developers have launched similar schemes.

Housing costs remain the greatest source of discontent among Hong Kong residents, with no sign that any relief is on the horizon. In contrast, Singapore has created a public housing system that offers homeownership to the majority of its citizens.

Singapore

Fernvale Foliage is a public housing estate in northeast Singapore built in 2010. (Housing & Development Board)

Fernvale Foliage is a public housing estate in northeast Singapore built in 2010. (Housing & Development Board)

The housing market in Singapore has two distinct tiers. The condominium development market caters to well-off residents looking for apartments in modern developments with swimming pools and other facilities. Both private sector and state-owned developers operate in this space, which has seen prices fall in recent years due to a weaker economy and property price–cooling measures.

Less well-off Singaporeans are catered to by the Housing Development Board (HDB), which builds housing for sale to people who meet certain criteria such as age, income, or family situation. First-time buyers and families are prioritized. The HDB will provide up to 90 percent financing at a preferential interest rate, currently 2.6 percent per year. Government grants also are available.

HDB units vary in size: a two-bedroom apartment ranges from 650 to 700 square feet (60 to 65 sq m), while the most basic single-bedroom flat could be as small as 388 square feet (36 sq m). However, the cost could be as low as S$90,000 (US$66,000).

The design of older HDB apartment buildings tends toward the utilitarian, but most have associated retail and food-and-beverage facilities to serve their residents. Newer HDB projects are among the most impressive in the city. The Pinnacle@Duxton, a seven-tower, 50-story HDB development, was a ULI 2011 Global Award for Excellence winner. In announcing the award, ULI said the development “enabled more Singaporeans to afford quality, elegantly designed high-rise homes in a prime downtown site.”

Singapore is not as land-constrained as Hong Kong, but it has still taken a stronger role in providing affordable housing by controlling the supply of land and by undertaking development itself. This might not be a model that suits all markets—and it would be hard to apply to large developing nations—but, in Singapore, it works.

Mark Cooper is editor of AsiaProperty magazine.