2628971179771875

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.


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


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


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


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


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)


Informal Settlements

25% of urban housing are slums (World Bank 2006)

55% of total urban population live in slums (UN Habitat 2001)


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%


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


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


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


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


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


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


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

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