Why are more than 10 million homes vacant in India?


Dear Reader,

If you ever go to New Delhi, try taking a drive through the sub-city of Dwarka and you will see miles and miles of built homes with nobody living in them. You can see a similar sight in large parts of the National Capital Region (NCR) around New Delhi.
In fact, Anshuman Magazine, chairman and managing director of CBRE South Asia Pvt. Ltd., in a recent article pointed out that “around 12 million completed houses” are “lying vacant across urban India”.
A similar point is made by Akhilesh Tilotia in his book
The Making of India—Gamechanging Transitions, where he states that India has more homes than households. As he writes: “India’s households increased by 60 million to 247 million from 187 million between 2001-2011. Reflecting India’s higher ‘physical’ savings, the number of houses went up by 81 million to 331 million from 250 million. The urban increases is telling: 38 million new houses for 24 million new households.”
And despite this, there is a huge shortage of housing in urban India. As the latest Economic Survey, a document which is released every year a day before the annual budget of the government of India, points out: “At present urban housing shortage is 18.8 million units [i.e. homes].”
So what is happening here? Many of these homes have been bought as investments by people who have “extra” money to invest. A substantial portion (no one knows how much) of this is black money on which taxes haven’t been paid. Hence, homes have been bought but nobody is living in them.
Further, the dynamics of real estate sector in India have so evolved that builders like catering only to the richer segment of the population. Also, the price levels have now gone even beyond this section of the population.
But the shortage in housing is at the lower income levels. “95.6 per cent [of housing shortage] is in economically weaker sections (EWS) / low income group (LIG) segments,” the Economic Survey points out. Tilotia points out that: “70% of the urban housing shortage arises from the bottom four deciles of households whose ability to pay is severely constrained.” He estimates that unmet needs in India are at price points of Rs 0.5-Rs 1 million. The real estate companies due to various reasons are not interested in satisfying this unmet demand.
A recent research report by real estate rating and research firm Liases Foras points out that the average price of a home in the Mumbai Metropolitan Region, as of March 31, 2015, was Rs 1.3 crore. The numbers for Bangalore and Delhi are Rs 86 lakh and Rs 74 lakh respectively. Given these high prices, it is not surprising that the housing demands of a large segment of population are going largely unmet.
Hence, it is not surprising that as per the 2011 Census, 13.7 million households in cities live in slums. The number of people living in these slums is around 65 million and forms around 17.4% of the urban population. As per the Census, Visakhapatnam with 44.1% of its population living in slums comes right at the top. Mumbai, with 41.3% of the population living in slums comes in third. Kolkata with 31.9% of its population living in slums is eight on the list.
Further, the number of people living in urban slums may be understated. This is primarily because the 2011 Census was carried out only in what are known as statutory towns. These are towns which have some sort of an elected local body.
A Times of India newsreport points out that India has a total of 7935 towns. Of this 4041 are statutory towns. The remaining do not have an elected local body. Nevertheless, they fulfil the criteria of being urban, and the Census classifies them as census towns. The census towns were not considered for counting slums. These towns have a total population of more than 5 crore and substantial part of that population is living in slums.
Further, other estimates put the slum population living in Indian cities at a much higher level. A
2012 newsreport quotes S. Parasuraman, director of the Tata Institute of Social Sciences in Mumbai as saying: “Nearly 60 percent of Mumbai’s slum population lives in 8 percent of land.” The Census number as mentioned earlier is at 41.3%. These differences apart, what this clearly tells us is that with so many people living in slums, India has a huge urban housing shortage.
So what is the way out of this? The government needs to start doing something about it sooner rather than later. Maybe it can learn a thing or two from the South Korean government, which in the late 1980s built around 2 million homes of which around 0.9 million were built around the capital city of Seoul, as Tilotia points out.
In order to do this, the government will have to first and foremost sort out the mess that currently surrounds the process of land acquisition. Further, these homes will have to be built on the periphery of cities, backed up by a good transportation system, so that people can travel to work. The outdated floor space index laws controlled by real estate lobbies (which are often fronts for politicians) will need a thorough re-look. These laws essentially deal with how much area can be built-up, given the size of the plot on which a building is being built. So, if the FSI allowed is 2, then on a plot of 1000 square metres, the building being built can’t have a built-up area of more than 2000 square metres.
If all this is not done there will be more trouble ahead, as more and more of Indian population moves to Indian cities, in the years to come. As the Economic Survey points out: “Nearly 30 per cent of the country’s population lives in cities and urban areas and this figure is projected to reach 50 per cent in 2030.”
What this means is that if affordable housing doesn’t become the order of the day, the slumification of India will continue. And that is not a happy thought.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column was originally published on BBC.com on May 21, 2015 

Of budget, black money and housing

India-Real-Estate-MarketVivek Kaul

Arun Jaitley’s second budget as finance minister was slightly high on the policy front. One of the things that Jaitley talked about was tackling the black money menace in the country. This was the first time anyone from the Modi government has talked comprehensively about the black money within the country. Before this, the entire focus was on getting back the black money which has left the shores of the country. Focusing on black money in the country makes more sense simply because it would be easier to recover.
Jaitley announced a spate of measures in the budget to curb domestic black money (though he announced many more to curb black money leaving the country). He said: “a new and more comprehensive Benami Transactions (Prohibition) Bill will be introduced in the current session of the Parliament…This law will enable confiscation of benami property and provide for prosecution, thus blocking a major avenue for generation and holding of black money in the form of benami property, especially in real estate.”
The finance minister also said that the Income Tax Act would amended to “prohibit acceptance or payment of an advance of Rs 20,000 or more in cash for purchase of immovable property.” How will this provision be implemented remains to be seen.
Further, quoting of the permanent account number(PAN) has been made mandatory for purchase or sale exceeding the value of Rs 1 lakh. This is a good move. In fact, it would have been an even better move if Aadhar cards were made compulsory for real estate transactions, given that it is a tad easier to fudge the PAN card in comparison to the Aadhar card.
The ministry of finance now also plans to use technology to improve tax enforcement. As Jaitley said: “To improve enforcement, Central Board of Direct Taxes(CBDT) and Central Board of Excise and Customs(CBEC) will leverage technology and have access to information in each other’s database.”
The move to leverage technology is very interesting. In the February 2013 budget speech, the then finance minister P Chidambaram had estimated that India had only 42,800 people with a taxable income of Rs 1 crore or more. Contrast this with the fact that more than 30,000 luxury cars are sold in India every year. Both Audi and Mercedes sold more than 10,000 cars in India in 2014.
What this clearly tells us is that a lot of Indians are not paying their taxes properly. And technology can help in narrowing down who these people are.
Income on which taxes are not paid ends up as black money. A lot of black money that is generated finds it’s way into real estate in
benami form. This is the major reason why real estate prices do not fall, despite sales having come to a standstill for a while now.
Further, once black money enters real estate it tends to generate more black money. Consider this—an individual buys a house for Rs 50 lakh, of which he pays 30% or Rs 15 lakh in black. The proportion could be higher or lower depending on which part of the country the individual is in. The black money portion tends to be on the higher side in the national capital territory. The same cannot be said about cities like Bangalore.
Getting back to the example. Let’s say a few years later the price has gone up to Rs 1 crore. The individual now sells the home and gets Rs 30 lakh in black, which is 100% more than what he started with. This amount then finds its way back again into real estate.
This phenomenon has led to a situation where a huge portion of the homes being built are just being built so that investors can hide their black money. This essentially ensures that those who want to buy homes to live in simply can’t afford them. As the latest Economic Survey points out: “The widening gap between demand and supply of housing units and affordable housing finance solutions is a major policy concern for India. At present urban housing shortage is 18.8 million units of which 95.6 per cent is in economically weaker sections (EWS) / low income group (LIG) segments and requires huge financial investment to overcome.” The housing shortage in rural India stands at 43.1 million homes.
A recent report by Liases Foras, a real estate research and rating company, put the weighted average price of a flat in Mumbai at Rs 1.32 crore. For the National Capital Territory the price was around Rs 75 lakh. Even in a smaller metro like Pune, the average price was around Rs 57 lakh.
Most Indians can’t afford these kind of prices. Akhilesh Tilotia in his new book
The Making of India, makes an estimate of the price range at which homes will be affordable: “A large portion of the unmet housing needs are at an economic value of Rs 5-10 lakh. Assuming that households of five members can crowd into space of between 250-400 sq ft, housing stock in the range of Rs 1,250-Rs 4,000 per sq ft will be needed.” What this clearly shows is that homes that are currently being built in cities are way beyond what most people can afford.
And this explains why “real estate and ownership of dwelling” constitute only “7.8 per cent of India’s GDP in 2013-14”. In comparison, as data from the National Housing Bank shows, China was at 20%, Malaysia at 29% and the United States at 81%. This number needs to go up in the years to come. And the only way that is possible is if affordable homes become available.
In order to ensure that the nexus between real estate and black money needs to be broken down, so that builders start making homes for people to live in. Whether Jaitley’s efforts bear some fruit remains to be seen, given that many real estate companies are essentially fronts for politicians to hide their ill-gotten wealth.
The last financial year’s Economic Survey made a very interesting point: “Nearly 30 per cent of the country’s population lives in cities and urban areas and this figure is projected to reach 50 per cent in 2030.” If affordable homes are not built, where will all these people live?

The column originally appeared in the Daily News and Analysis dated Mar 3, 2015 

(Vivek Kaul is the author of the Easy Money trilogy. He can be reached at [email protected]