Scarcely a day passes without bullish news regarding robust housing sales in the seven largest cities of the country, uptick in residential real estate prices, and that realty land deals have surged three-fold in the nine months of this year. This flurry of development might suggest that this sector, which contributes 6-7% of GDP and is forecast to touch 13% by 2025, is experiencing the “early stages of a multi-year recovery cycle”, to borrow an expression of Pirojsha Godrej, chairman of Godrej Properties Ltd, in an interview to FE. However, this is only partially true as most of the housing sales this year are in the mid-income to premium segments amidst an apparent slump in affordable housing. No doubt this reflects the fact that people are moving into larger and more luxurious residences as their incomes have risen. The sales numbers this year—that are expected to exceed those of the boom of 2014—are small in comparison with the enormous housing requirements of an increasingly urbanised population. Only three houses are being built per 1,000 people per year as against the rule of thumb of five dwellings per 1,000 people per year, implying an urban housing shortage of 10 million units. To keep pace with urbanisation, an additional 25 million units of affordable housing will be required by 2030, according an Assocham resurgent India report on housing finance.
Affordable housing indeed is a priority focus of the current regime, which has taken a lot of initiatives to put the real estate sector on a healthy footing like the Real Estate (Regulation and Development) Act, 2016, enactment of GST in July 2017 which lowered the transaction cost of owning a house as it did away with double taxation and providing infrastructure status to affordable housing. Above all, it launched a flagship initiative in 2015, the Pradhan Mantra Awas Yojana-Urban, to end the housing shortage for the economically weaker sections and lower income groups in urban India. The PMAY-U aimed to provide 20 million houses by March-end 2022, an objective which has not been realised and the duration of the scheme has now been extended till December-end 2024. Only 6.4 million of the 12.3 million houses sanctioned have been completed and handed over to eligible beneficiaries. Despite the shortfall in numbers, this is, nevertheless, an achievement which deserves to be taken forward as it is only through State-led initiatives that the enormous challenge of providing affordable housing to the bottom of the pyramid can be met.
This year’s upswing in housing sales and launches—in volume terms, the residential segment accounts for 80% of the real estate sector—is definitely good news for the India growth story. There is a lot of upside in this regard as the share of housing finance or mortgages to GDP is low at 11% when compared to emerging economies like China and Thailand. While big developers like Godrej will prioritise the mid-income and premium segment to cater to the demand of the well-to-do, the challenge is in meeting the requirement of affordable housing. A major constraint is the lack of land. Real estate costs are prohibitive due to artificially inflated land prices. But this is where the State can play a more decisive role than the market to provide housing for all in urban India.