Friday, Nov 28, 2014

Houses locked out amid shortages

Housing is an important sector of the Indian economy Housing is an important sector of the Indian economy
Posted: August 30, 2014 2:58 am | Updated: August 30, 2014 11:46 am

By: PSN Rao

Housing is an important sector of the Indian economy with backward and forward linkages with over 260 industries and is a major employment generator only after agriculture. As per estimates of the Central Statistics Office, the housing sector contributes as much as 5 per cent to the GDP of the country. One can witness substantial construction activity in various parts of the country, especially the suburbs of all major cities. Despite this, the housing shortage in India is still over 18 million dwelling units. However, a closer look reveals that while on the one hand, the shortage is huge, there are many houses lying vacant !

Vacancy Rates

Among the big four metros, housing is considered a major problem in Delhi and Mumbai and interestingly, in both these cities, the vacancy rate is very high as compared to Kolkata or Chennai. Further, it is interesting that in tier-II cities, the vacancy rate is in double digits and much higher than the big four metros! This indicates that the tier-II cities have to now face a bigger challenge as the scope for absorption here is much less than the big four. The only exception here is Hyderabad, which stands out as an ideal lone case with a reasonable vacancy rate of around 3 per cent.

Reasons for Vacant Houses

Investment Driven Market: For long, the Indian real estate market has been seen as a good avenue for parking surplus funds. Real estate is a good investment for many who desire to speculate and pull out after some time so as to book profits, not necessarily to stay in the property. In view of this, we find that houses remain vacant as the investors are looking for quick liquidity of the capital asset value.

NRI End Users: Non Resident Indians have been investing money in Indian real estate with the intention of perhaps returning to India at some point in future. There are also some who desire to come visiting once in a year and stay at the property and keep it locked when not in use. While Kerala is a good example for Gulf based NRIs, many other cities are driven by NRIs based in the IT sector.

Unrealistic Pricing: The developers have in many cases highly overpriced their products and as a result, there has been a general increase in property value. Although in the last two years or so, the appreciation levels have been depressed, this tendency has for long kept genuine end users out of the market and only investors have been buying.

Mismatch between Demand and Supply: The lack of systematic and scientific demand analysis has resulted in a mismatch in supply, not always catering to the demand. As a result, absorption levels remain low and result in high vacancy rates.

Poor Connectivity and infrastructure: Even when people buy, they do not move in and continued…

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