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The Challenges of Nation Building
An Analysis of India’s Housing Sector
By: Tom Eddington, Keya Kunte and Emma Hall
OVERVIEW I HOUSING SUPPLY & DEMAND I FINANCE I POLICY
India: Superpower by 2030? Booming economic growth and increasing
importance on the world stage put India on the path towards achieving superpower status
However, India must overcome numerous obstacles, including a severe housing shortage.
OVERVIEW I HOUSING SUPPLY & DEMAND I FINANCE I POLICY
The Scale of India
Current Population: 1.1 billion (CIA 2006)
Projected Population in 2030: 1.38 billion (UN 2005)
Half of total population growth in urban areas
Total Housing Need: 111 million units
OVERVIEW I HOUSING SUPPLY & DEMAND I FINANCE I POLICY
India’s Economy
Tremendous economic growth Second only to China in annual GDP growth
Stable inflation and exchange rates Safe investment environment
Housing sector benefits from increased investment
However, lack of trunk infrastructure hinders economic growth
OVERVIEW I HOUSING SUPPLY & DEMAND I FINANCE I POLICY
Immense Need for Housing Young and increasing population
54% below age of 25 Growing urban population
Only 29% of people live in cities, compared to 40% in China, 55% in South Africa, and 85% in Brazil
Huge potential for rural to urban migration Decreasing household size
Current average: 5.4 persons Forecasted to decrease to 3.7-4.7 persons over the next 30
years Millions of new households will form, especially in urban areas
OVERVIEW I HOUSING SUPPLY & DEMAND I FINANCE I POLICY
Housing Shortage
Census India 2001:
15.1 million National Building Organization:
20 million Ministry of Employment and
Poverty Alleviation:
31 million Asian Development Bank:
40 million
OVERVIEW I HOUSING SUPPLY & DEMAND I FINANCE I POLICY
Suppliers of Housing
Government Contribute 1% of new
housing annually (NHB 2006)
Private Developers Build about 20% of new units
each year (Tiwari 2004)
Unorganized Sector Small contractors and
households construct about 80% of new units (Tiwari 2004)
OVERVIEW I HOUSING SUPPLY & DEMAND I FINANCE I POLICY
Informal Settlements
25% of urban housing are slums (World Bank 2006)
55% of total urban population live in slums (UN Habitat 2001)
OVERVIEW I HOUSING SUPPLY & DEMAND I FINANCE I POLICY
Housing Demand: Growing Middle Class
Source: DB Research, 2006 New developments in Mumbai
Increasing demand for housing due to rising incomes and a growing middle class
Rising Middle Class
1980 8%
2000 22%
2010 32%
OVERVIEW I HOUSING SUPPLY & DEMAND I FINANCE I POLICY
Total Housing Need 2001: 191.9 million households 2030: 276 million households
New Household Formation: 84.1 million Current Housing Shortage: 27 million
Total Housing Need: 111 million units111 million units Urban Housing Need: 70 million units Rural Housing Need: 41 million units
OVERVIEW I HOUSING SUPPLY & DEMAND I FINANCE I POLICY
Obstacles
Lack of clear land titles Regulatory environment Shortage of long-term finance Cultural suspicion of selling houses and debt Inability to assess credit risk: no pay slips, no tax
returns, uncertain cash flows Lower profit margins due to smaller transaction
sizes and fixed costs
OVERVIEW I HOUSING SUPPLY & DEMAND I FINANCE I POLICY
Challenge #1: Infrastructure India has one of the largest budget deficits of
emerging economies, as much as 8% of their GDP
Prime Minister Manmohan Singh estimates that $150 billion is required to build and improve infrastructure (GDS 2006)
However, HUDCO only allocated
$4.1 billion annually
OVERVIEW I HOUSING SUPPLY & DEMAND I FINANCE I POLICY
Challenge #2: Regulations Urban Land Ceiling Act Rent Control Acts Arbitrary Master Plans High cost of land transactions Large land holdings that cannot be sold Low property taxes Minimum plot size Low FAR – 1.6 vs. 5-15 in other Asian cities
OVERVIEW I HOUSING SUPPLY & DEMAND I FINANCE I POLICY
Policy Recommendations Repeal Urban Land Ceiling and Rent Control Acts in
Maharashtra and West Bengal Base taxes on property value not rents Impose impact fees when redeveloping high density
areas that can be used to increase financing for infrastructure
Increase FAR revision to allow for denser development Fiscal incentives benefit well-off, instead direct money to
improving the institutions that are necessary for an efficient housing market
OVERVIEW I HOUSING SUPPLY & DEMAND I FINANCE I POLICY
Policy Recommendations Government must serve to enable the growth the
housing finance market Mandatory participation in the CIBIL Credit-scoring system Mortgage Insurance Clarify land titles Finalize land cadastre
OVERVIEW I HOUSING SUPPLY & DEMAND I FINANCE I POLICY
India’s Potential
Largest democracy on Earth 2nd fastest growing major economy after China Projected to overtake China as most populous nation by
2050 with 1.5 billion people Estimated 111 million new housing units needed by
2030 Government encouraging free market since 1990s Private sector rapidly expanding Challenge lies in the SCALE of India