Low Cost Housing in Urban India

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Low Cost Housing in Urban India Peeyush Bajpai (The author is the chief operating officer at Indicus Analytics- India's leading economics research firm. He can be contacted at [email protected])

The recent offer of 5010 flats by the DDA (Delhi Development Authority) Authority) had attracted over 7.5 lakh buyers, of which 5.67 lakh applied with deposits (1 flat per 100 subscribers)1. Affordable cost and easy credit led people to apply in hordes. This is just one of the many schemes that are launched around the year by the local development authorities in urban cities. But these are are too few to meet the demand of housing in India. Though a small portion portion of this demand has been addressed by private builders and housing finance institutions, this was restricted mostly to meeting the demand of the MIG (middle income group) and HIG (high income group) sectors. What has remained unattended is the demand for low cost housing, the so called EWS (economically weaker sections) and LIG (low income group) sectors. Paradoxically, Paradoxically, the current financial crisis has come as a boon for for the Indian economy especially for the requirements of the common man in in the real estate sector. sector. This is because it has finally brought back the focus on the market that was in need of housing - “the low cost” or “affordable” segment. During the past decade there was a phenomenal spurt in the private real estate development space. Easy credit availability availability and general performance in the economy saw the medium income households realizing their dream of owning a house. But soon, high optimism, poor regulation, and poorly implemented land policy brought in speculation and private developers started looking for higher premiums. The ordinarily conservative approach towards servicing the housing requirement was replaced by a more challenging one, with individuals committing to higher price bands than they could afford. A combination of credit facilities facilities (such as housing loan with personal loan) was used to meet meet the costs. This further boosted the price and within a span of three years the prices had skyrocketed – leading to an asset price bubble in real estate Then came the financial crisis.

1Date: 16-Dec-2008 || Source: Times of India http://indicus.net/Products/Home/Product%20Details/Housing%20Skyline%20of%20India/


With With the crisis spreading spr eading its impact on the Indian economy, economy, even though interest rates reduced, credit availability became tough, spending reduced and most real estate developers started having difficult di fficulty y finding buyers for premium pre mium apartments. This has forced developers to go back to to examining the low low cost housing space. Hence, the argument that the current crisis is a boon which ensured that India did not get into a trap that could lead it to having its own form of a 'subprime'. Housing demand in urban India With With the focus now on to meet the need of the common man, we need to identify who he is and what is his requirement. As per estimates made by Indicus Analytics in its Market Skyline of India 2008-09, there are currently 68.2 million households living in urban India. The income distribution of these households is presented in the graph1 . Numbe r of Urban House House holds by Income ( Millions)

30

24.47

25

17

20 15

10.73

9.91

10

3.83

5

2.28

0

k 5 7 <

k 0 5 1 k 5 7

k 0 0 3 k 0 5 1

k 0 0 5 k 0 0 3

k 0 0 0 , 1 k 0 0 5

k 0 0 0 , 1 >

(Source: The Market Skyline of India 2008-09, 200 8-09, Indicus Analytics, www.indicus.net). www.indicus.net).

The estimates reveal that almost fifteen percent of the urban households have an annual income of less than Rs. 75,000. For an average family of four members members this would be a monthly income of just over Rs. Rs. 6000. This group accounts for a large amount of the slum formation in the city city. People from these households are involved in servicing the the needs of the higher income groups and can not afford to travel long distances (poor urban transport systems have not helped either!). Thus they settle in and around the localities giving rise to slums and squatter settlements.

http://indicus.net/Products/Home/Product%20Details/Housing%20Skyline%20of%20India/


The income estimates from the study further show that 25%t of the urban households have annual income between Rs. 75,000 and 1,50,000 and another 36% have annual income between Rs. 1,50,000and 1,50,000and 3,00,000.. The remaining 25% have incomes above Rs. 3,00,000. Households having an income of less than Rs. 1,50,000 cannot afford afford housing in the range of Rs. 5-7 lakhs. Households having an income income of less than three lakhs can afford houses under the ten lakh price band. And households having an annual income between three to five lakh can at best afford afford houses under twenty lakhs. 90% of the urban households have incomes under five lakh. Thus the demand for majority of the urban housing would be in this category. category. There are clear indications that this this demand is not being met through formal housing stock. One of the leading indicators is the rising slum and squatter settlement population. A look at the type of housing demand further gives the idea idea of how large is the the unmet need of the low cost housing in urban India.

Excess housing demand by plinth size (millions) 4.0

) 3.0 s n o i l l i M ( 2.0 d n a m e 1.0 D

3.5

3.4

<500

500- 1000

3.7

0.0 >1000

Plinth Size (Square Feet)

Source: The Housing Skyline of India 2008-09, (112 cities), Indicus Analytics, www.indicus.net



The estimates from the Housing Skyline of India for the top 112 cities show that almost 65 % of the excess demand in the next five years is for houses with sub 1000 square feet area. This would translate to approximately 6.8 6.8 million million houses. The same study further estimates that approximately 70% of the demand would be for houses with 2 rooms or less (or 7.4 million new houses).

Excess housing demand by number of rooms (millions) 4.0

) 3.0 s n o i l l i M ( 2.0 d n a m e 1.0 D

5.1 3.1 2.3

0.0 1 r oom

2 rooms

> 2 r ooms

Number of rooms

Source: The Housing Skyline of India 2008-09, (112 cities), Indicus Analytics, www.indicus.net

These are fairly large numbers and meeting meeting this demand will not be easy. easy. If we go by the past performance of the the various players the real estate sector, sector, both public and private, this target target is much beyond beyond their reach. Thus a much more more aggressive and forward looking approach is required. Ensuring there is regular availability of land for low cost housing within the city city is amongst the first and foremost foremost step. A slew of red tape has long ensured that the real estate sector does not get out of the speculative trap trap and false pricing mechanism.



Most of the large town and cities have government bodies with almost monopolistic control over land, and this is a serious problem Poor management by them ensures that this land is not made available for development, leading to price rise. r ise. Yet Yet it is clear that ,by themselves, these local bodies can not meet the demand for low cost housing. So, a form of public-private partnership is required to ensure that development of low cost housing continues unhindered. This should be accompanied accompanied by a combination of easy and low cost credit facility for the lower income, especially for those who are still not a part of the formal channels. A set of initiatives initiatives have recently been announced that address some of the aspects. However, the builder-politician also goes a long way in making reform a challenge. One can hope that things would move move positively, positively, though going by our dismal past record one has serious doubts.


Low Cost Housing in Urban India

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