A sneak peak into Indian middle class’s $1.3 trillion housing push

India is standing at the edge of a potential housing boom, which as per CLSA India estimates, could reach up to $1.3 trillion in the next seven years.

The country’s growing middle class is demanding better housing, and is better efficient than ever when it comes to the means to achieve this dream.

India has always been extreme in its housing approach, with sprawling slums at one end and enormous mansions at the other. However, the gap can be filled now, since CLSA analysts think that the country might make good use of a broad acceleration in residential construction in the $2 trillion economy.

"The last decade was about price appreciation," Pankaj Kapoor, founder of Mumbai-based Liases Foras Real Estate Rating & Research told Bloomberg. "This decade will be about volume growth," he adds.

It was in November last year when PM Modi played the demonetisation card to control corruption and black money, a move that impacted the Indian real estate hard.

However, the industry seems to be in the mood of recovery, with housing sales growing 19% across nine cities in the March quarter, says data from PropTiger.com.

The population factor plays its role too, with about 69% of the country's 1.3 billion people being in prime age of house buying, i.e., between 20 to 40 years. This is more than any other nation, says a Bloomberg Intelligence report from April.

Similarly, CLSA's note dated May says that the per capita income has also grown at a compound annual growth rate of 10% for the past five years, which means that an average Indian can get a house in this boom.

However, when it comes to having the adequate number of houses to home this middle class, we lag behind.

With more and more people migrating to urban areas, the infrastructure has weighed down, land costs have gone up, and eventually, there is a shortage of houses.

However, Prime Minister Narendra Modi’s "Housing for All" programme, which was launched in June 2015 comes as a saving grace. The programme aims to build 20 million urban homes and 30 million rural houses by 2022, making property the most affordable in two decades.

The programme, unfortunately, remains marred because of several hurdles.

There's still "a big question mark" over whether the government's housing plan is "realistic and implementable," says Anuj Puri, chairman of real-estate services at JLL Residential. "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."

Even with these challenges, the government has started to view housing as an "economic enabler," said Abhishek Lodha, MD of Lodha Group, one of India's biggest property developers.

"The government has started recognizing that for the middle class to start creating wealth for themselves they have to participate in housing, just like any democracy," he adds.

Banks are not far behind when it comes to the race to get a piece of the action. The country has seen more than 16 mortgage financiers commencing work in the two years to last June, with banks offering housing loans as a way to boost capital and offset commercial loans that it’s burnt hands with in form of mounting bad debts.

CLSA expects that India would see 60 million new homes between 2018 and 2024, with a 70% rise in social and affordable housing.

The propagated dream of the PM, to give every Indian a home, might eventually come true sometime in the future.

(Image source Mom Constructions)