Middle-class dream fuels housing boom in India
When he was little and his father was building his taxi business, Pradeep Yadav lived in a 'chawl', a rundown tenement in India's financial capital, Mumbai. The apartment had one light, a fan and water for just two hours a day.
Now he stands at the vanguard of a potential housing boom that brokerage CLSA India Pvt. estimates could reach €1.15tn in the next seven years. With their three boys finished university, the family bought a flat in Palava City, a leafy township on the edge of the metropolis. Outside their balcony, tidy footpaths wind their way past manicured gardens and a swimming pool glints in the summer heat.
"It was his dream to have something bigger," Yadav, says of his father, now retired. "He didn't realise he would get something like this."
The Yadavs are part of a swelling middle class in India that's demanding better housing and increasingly has the means to get it. It remains to be seen whether the country, with its sprawling slums at one end of the housing spectrum and obsession with luxury at the other, can fill the gap but analysts such as CLSA say conditions are ripe for a broad acceleration in residential construction in the €1.78tn economy.
"The last decade was about price appreciation," said Pankaj Kapoor, founder of Mumbai-based Liases Foras Real Estate Rating & Research Pvt. "This decade will be about volume growth."
Indian real estate, historically a depository for black-market cash, was hit hard by the government's move to stamp out corruption with a ban on high-denomination bank notes in November.
The slump is showing signs of a recovery. Sales across nine cities rose 19pc in the March quarter after a 20pc slump in the previous three months, according to PropTiger.com, an Indian real estate advisory firm.
The demographic arguments for rising home sales in India have been long building. About 69pc of the country's 1.3 billion people are in prime house-buying age - 20 to 40 years - more than any than any other nation, according to a Bloomberg Intelligence report in April.
Per capita income has grown at a compound annual growth rate of 10pc for the past five years, according to CLSA's note in May.
The Yadav family is a textbook example of this burgeoning demand. Migrating to Mumbai from the northeastern state of Uttar Pradesh, they raised three sons - Pradeep, 28, an MBA graduate,
Birendra, a doctor and Pramod a gemologist. They eventually climbed the property ladder to a rented flat. About three years ago they bought the two-and-half-bedroom apartment in Palava City for about 7.7 million rupees (€103,000), where they all still live together.
It's the supply part of the equation that India's had trouble with. The growing migration of people to urban areas has overwhelmed infrastructure, pushed up land costs, and led to housing shortages.
Building costs have also risen in recent years and developers have concentrated on the luxury end where margins are fatter. Government funding has largely flowed to the rural sector.
But two catalysts have come into play that have put construction at a "tipping point," CLSA's Mumbai-based analyst Mahesh Nandurkar and his colleagues wrote. Prime Minister Narendra Modi broadened reforms this year to foster construction and home buying under his 'Housing for All' programme, launched in June 2015.
That aims to build 20 million urban homes and 30 million rural houses by 2022. Property has also become the most affordable in two decades.
Among the reforms: builders of affordable housing received 'infrastructure status', making them eligible for state incentives, subsidies, tax benefits and institutional funding; interest-rate waivers and rebates were extended to households with incomes up to 1.8 million rupees and laws to tackle building delays and protect home buyers came into effect on May 1.
Hurdles to construction remain immense however. There's still "a big question mark" over whether the government's housing plan is "realistic and implementable," Anuj Puri, chairman of real-estate services at JLL Residential, wrote in a note released on June 5.
"It seems impossible if enough land is not released for the creation of affordable housing. Land is a very price-sensitive commodity, and its current shortage in major city-centric areas prevents the development of affordable housing in areas where it is most direly needed."
Since the prime minister's affordable housing incentives were announced, 113,508 homes have been completed and another 755,083 are in progress, said A.A. Rao, ministry of housing and urban poverty alleviation spokesman. "There is a palpable movement forward," in private sector participation, he said.
And borrowing rates have tumbled, dropping about 275 basis points in the past five years to about 8.5pc, while government interest-rate subsidies mean homes costing between two million and 3.5 million rupees have become up to 15pc cheaper, according to CLSA. CLSA expects 60 million new homes to be built between 2018 and 2024, with social and affordable housing rising almost 70pc to 10.5 million by 2024, exceeding the 33pc increase in the premium market.