Mumbai, Nov. 11: The big boys of business are starting to see visions of big bucks in low-cost housing.

The Tatas and Mukesh Ambani’s Reliance group are planning to make a big splash in budget homes.

Earlier this year, the Tatas had launched a low-cost venture at Boisar, a distant Mumbai suburb and were overwhelmed by the enthusiastic response.

The group’s housing venture — Tata Housing Development Company (THDC) — plans to acquire land parcels measuring 50 to 100 acres for similar projects in the seven metros over the next five months.

Mukesh Ambani is expected to make a grand announcement about his group’s foray into budget homes at the annual general meeting of Reliance Industries on November 17.

The real estate market is already abuzz with speculation that India’s most valuable company will establish low-cost housing projects on a portion of the massive land parcels it acquired in Navi Mumbai and the adjoining Raigad district for its proposed special economic zones (SEZs).

But they are not the only ones who are starting to see the virtues of making homes for the aam aadmi.

Jaithirth “Jerry” Rao, founder of IT firm MphasiS BFL that was subsequently sold to EDS for $380 million, is preparing to begin construction in the next 30 days on 2,000 apartments at a Bangalore suburb. The price tag? Less than Rs 10 lakh an apartment.

Low-cost housing seems to have caught the fancy of big corporate houses and serial entrepreneurs alike. Four years ago, several large business groups, including the Tatas, Reliance, Videocon, Bharat Forge and Infosys, had begun buying large tracts of land across the country. The great Indian land rush may have slowed down, but Indian companies are once again starting to bet on real estate.

This time, however, they are tapping the clichéd “bottom of the pyramid” where margins are wafer thin and the business model hinges on large volume sales.

“We’re certain that the demand exists. The challenge is to monetise the demand effectively. Two things are clear so far: we will have to build far from the centre of town and, therefore, the flat owners have to afford the commute. Second, customers have to be able to afford the lumpsum payments for these homes,” says Jerry Rao, executive chairman of Value and Budget Housing Corporation.

The Bangalore project is being set up by using imported pre-fabricated materials and technology that Rao hopes to indigenise in other projects.

Tata Housing Development Company managing director Brotin Banerjee agrees that it is all about buying land at cheap prices in faraway locales to build low-cost homes (under Rs 10 lakh each), putting up the project in time to avoid cost overruns and making use of new construction technologies.

Banerjee, who claims that Tata Housing got 16,000 applications for its 1,500 Shubh Griha low-cost apartments in Boisar, says the Tata Housing model hedges its bets by combining affordable housing with low-cost projects.

“For instance, our affordable housing brand is called ‘New Haven’ and these homes will be situated close to our value brand Shubh Griha,” says Banerjee.

Real estate experts say it makes sense to put up projects priced higher than the sub-Rs 10 lakh category but still at the lower end of the price band to extract higher margins. Some listed real estate companies have also announced affordable housing projects that have been downsized from large apartments with a concomitant reduction in rates.

Acquiring and developing land is, however, not without its challenges as several of India’s top corporate houses discovered when they scrambled for approvals to establish special economic zones about two years ago. And it isn’t going to be easy to make money from the bottom of the pyramid — a fact that reputed marketers across product categories have already discovered.

Says Rao, “Availability of land at the right price, a plethora of laws and approvals pertaining to acquiring land, the right technology of construction…there are several constraints on the supply side of the business too.”