Talk of mass housing trendy as India property slows

By Dominic Whiting and Prashant Mehra

MUMBAI, May 2 (Reuters) - Indian property investors are targeting lower- to mid-end houseowners in the booming economy now that sales of plush apartments have slowed.

With the number of families earning more than $5,000 a year set to double to around 20 million in the next two years, demand for small and simple apartments is set to mushroom.

"We haven't touched the tip of the iceberg," Niranjan Hiranandani, founder of Mumbai-based Hiranandani Group, said about the potential demand for homes.

"Young people don't have housing open to them," Hiranandani told a property conference in Mumbai this week, where talk of mass housing was a hot topic.

The property market has boomed since India eased rules on inward investment in the construction industry in early 2005, partly fuelled by pledges by foreign investors that they will pump up to $20 billion into the country.

But government figures show only about $2 billion has actually been spent in the last three years. Real estate prices have cooled in the last six months.

Developers had piled into the top-end of the housing market where profit margins are highest, for example, building 2,000 sq ft apartments in New Delhi suburbs that sell for $250,000.

But a young couple working in the media or software industry, who together bring in $25,000 a year, would need something half that price.

Developers are targeting the young workforce in a country where double-digit salary hikes are common in sectors such as real estate, information technology and financial services.

About 2.5 million new graduates stream out of universities each year.

"It's become trendy to talk about affordable housing," said Rajnish Changrani, vice president for research and investment at private equity fund Red Fort Capital that has invested about $300 million in Indian property.

"What's on the market so far isn't satisfying demand," he said. "It was a rising market so people didn't think. Developers have been overpaying for land, making the wrong product and not doing their research."

Analysts say the strong supply of high-end apartments in many areas, including Bangalore and New Delhi, is likely to hit prices. Developers are giving away freebies to lure buyers, with one even including a car in the package.

TIP OF ICEBERG

Some developers are already starting to look beyond the 0.6 percent of India's 1.1 billion population whose family income exceeds $100,000 per year.