Housing sector in India

The development in the housing sector is mirroring the rapid economic growth in the country and nearly 75-80% of the total real estate demand originates from the residential sector.

India is at the threshold of vibrant change in the housing sector. After years of unplanned and haphazard development, this sector is now metamorphosing into an organized one with improved product offerings and geographic spread. The development in the housing sector is mirroring the rapid economic growth which the country is experiencing. On the back of a dynamic service sector, which grew by 11% in 2006-07, the GDP has recorded a 9.4% growth within the same period. Also, the construction and the real estate sectors grew by 10.7% and 10.6% respectively in the last financial year. The residential segment is leading the growth trajectory of the fast expanding real estate sector in India nearly 75-80% of the total real estate demand originates from this sector. Some key factors lending momentum to the Indian residential sector are:

According to the United Nations, India’s rate of urbanization is faster than the rest of the world and as per State of the World Population Report 2007, Indian population in urban areas, which currently is less than 30%, is expected to rise to 40.7% by 2030.This growing urbanization will result in an incremental demand for housing in suburban locations of urban areas.

A burgeoning middle class (annual income USD 4,000 – 21,800) and the growth of the Indian ‘Rich’(annual income > USD 21,800) coupled with rising disposable incomes and fiscal incentives on home loans has increased the affordability and the risk appetite of the average Indian consumer thereby leading to a substantial rise in demand for housing.

It is being increasingly observed that residential prices in India are being dictated by quality, affordability and product offering.

Recent Knight Frank India Research reveals that over the next three years close to 530.5 mn sft of residential space would be developed in the Grade A & B+ category in seven major locations of the country. This translates into a supply of 200,000 units per year in the Middle Income Group (MIG) and High Income Group (HIG) segment. Considering that 26% of the urban population of India resides in these seven cities and the housing shortage per annum in the MIG and HIG segment in these cities to be about 2085 units, the demand just about meets the supply. As such, the residential values across the country will remain under pressure and going forward some markets may even witness a correction to the tune of 15-20% over the medium term. Also, this demand supply match coupled with the recent hike in interest rates has kept a check on further price rise.

Mumbai will see the growth of many integrated township projects with almost all of them coming up in the extended suburbs and Navi Mumbai. Also, with the government of Maharasthra revoking the Urban Land Ceiling and Regulation Act, Mumbai along with Thane and Navi Mumbai may see substantial land being released. Suburbs that were generally considered as the dormitory for the working population of Mumbai are now establishing their own identity. With many infrastructure projects in the pipeline, the construction activities in the region will step up even further. With increasing globalization, exposure to international real estate trends and higher disposable incomes the new buzzwords today in the industry are exclusivity and lifestyle homes.