The balance sheets of Indian households exhibit a set of features that is unusual in the international context. In India, for instance, the average household holds 77% of its total assets in real estate (which includes residential buildings, buildings used for farm and non-farm activities, constructions such as recreational facilities, and rural and urban land), 7% in other durable goods (such as transportation vehicles, livestock and poultry, agricultural machinery and non-farm business equipment), 11% in gold and the residual 5% in financial assets (such as deposits and savings accounts, publicly traded shares, mutual funds, life insurance and retirement accounts). Taken together, non-financial assets account for 95% of the household balance sheet, which is identical with the 95% for Thai households, and only slightly higher than the corresponding 91% for Chinese households, according to the All India Debt and Investment Survey.
However, the average Chinese household has a relatively lower share of real estate wealth (62%), a higher share of durable assets (28%), and negligible amounts of gold (0.4%). Furthermore, household allocation choices are very different in India, Thailand and China when compared with more advanced economies. On average, holdings of real estate account for low fractions of wealth in countries such as the US (44%), and particularly Germany (37%).
Households in advanced economies hold substantially more financial assets than their Indian counterparts. In addition, households in these economies allocate a sizeable fraction of their wealth to retirement savings over the course of their lifetimes. For example, retirement assets account for relatively large shares of wealth in Australia (23%), and the UK (25%). The two trends are related, in the sense that state-sponsored schemes appear to act as a substitute for private savings in retirement accounts, but potentially as a complement to private savings in non-retirement financial assets. The German case illustrates this effect particularly well. Since the German retirement system is mostly based on state-sponsored defined-benefit pensions, households in Germany only save small amounts in private retirement accounts, and invest larger amounts in financial assets such as sight deposits, government bonds, publicly traded shares, and mutual funds.
As per the survey, the liabilities of Indian households also exhibit distinct patterns relative to other countries. Mirroring the dominance of real estate as the dominant component of wealth, mortgage loans are households’ largest liability in China, the US, the UK, and Australia. In these countries, the average household’s mortgage holdings account for close to 60% of their total debt exposure. Germany is an exception to this rule (the share of mortgage debt is 44%), which is not surprising given the low homeownership rate and the relative preference for renting over owning in the German population.
However in India, despite the prominent role of non-financial assets in the household balance sheet, mortgage loans account for only a small part of total liabilities (23%) and the role of other secured debt (such as vehicle loans and instalment credit for durable goods) is well below the levels observed in other countries, particularly Thailand. The high average level of home equity held by Indian households is important, and suggests a strong investment motivation for real estate purchases in addition to the usual consumption motivation. Of course, the consumption motivation may also be high in an environment of poor contract enforcement, and suggests that measures to improve the private rental market may have a non-negligible impact on the physical asset share.