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  • 2628971179771875

    1. 1. The Challenges of Nation Building An Analysis of India’s Housing Sector By: Tom Eddington, Keya Kunte and Emma Hall
    2. 2. India: Superpower by 2030? <ul><li>Booming economic growth and increasing importance on the world stage put India on the path towards achieving superpower status </li></ul><ul><li>However, India must overcome numerous obstacles, including a severe housing shortage . </li></ul>
    3. 3. The Scale of India <ul><li>Current Population: 1.1 billion (CIA 2006) </li></ul><ul><li>Projected Population in 2030: 1.38 billion (UN 2005) </li></ul><ul><li>Half of total population growth in urban areas </li></ul><ul><li>Total Housing Need: 111 million units </li></ul>
    4. 4. India’s Economy <ul><li>Tremendous economic growth </li></ul><ul><ul><li>Second only to China in annual GDP growth </li></ul></ul><ul><li>Stable inflation and exchange rates </li></ul><ul><ul><li>Safe investment environment </li></ul></ul><ul><li>Housing sector benefits from increased investment </li></ul><ul><li>However, lack of trunk infrastructure hinders economic growth </li></ul>
    5. 5. Immense Need for Housing <ul><li>Young and increasing population </li></ul><ul><ul><li>54% below age of 25 </li></ul></ul><ul><li>Growing urban population </li></ul><ul><ul><li>Only 29% of people live in cities, compared to 40% in China, 55% in South Africa, and 85% in Brazil </li></ul></ul><ul><ul><li>Huge potential for rural to urban migration </li></ul></ul><ul><li>Decreasing household size </li></ul><ul><ul><li>Current average: 5.4 persons </li></ul></ul><ul><ul><li>Forecasted to decrease to 3.7-4.7 persons over the next 30 years </li></ul></ul>Millions of new households will form, especially in urban areas
    6. 6. Housing Shortage <ul><li>Census India 2001: </li></ul><ul><li>15.1 million </li></ul><ul><li>National Building Organization: 20 million </li></ul><ul><li>Ministry of Employment and Poverty Alleviation: </li></ul><ul><ul><li>31 million </li></ul></ul><ul><li>Asian Development Bank: </li></ul><ul><li>40 million </li></ul>
    7. 7. Suppliers of Housing <ul><li>Government </li></ul><ul><ul><li>Contribute 1% of new housing annually (NHB 2006) </li></ul></ul><ul><li>Private Developers </li></ul><ul><ul><li>Build about 20% of new units each year (Tiwari 2004) </li></ul></ul><ul><li>Unorganized Sector </li></ul><ul><ul><li>Small contractors and households construct about 80% of new units (Tiwari 2004) </li></ul></ul>
    8. 8. Informal Settlements <ul><li>25% of urban housing are slums (World Bank 2006) </li></ul><ul><li>55% of total urban population live in slums (UN Habitat 2001) </li></ul>
    9. 9. Housing Demand: Growing Middle Class <ul><li>Increasing demand for housing due to rising incomes and a growing middle class </li></ul>Source: DB Research, 2006 New developments in Mumbai <ul><li>Rising Middle Class </li></ul><ul><ul><li>1980 8% </li></ul></ul><ul><ul><li>2000 22% </li></ul></ul><ul><ul><li>2010 32% </li></ul></ul>
    10. 10. Total Housing Need <ul><li>2001: 191.9 million households </li></ul><ul><li>2030: 276 million households </li></ul><ul><ul><li>New Household Formation: 84.1 million </li></ul></ul><ul><ul><li>Current Housing Shortage: 27 million </li></ul></ul><ul><li>Total Housing Need: 111 million units </li></ul><ul><ul><li>Urban Housing Need: 70 million units </li></ul></ul><ul><ul><li>Rural Housing Need: 41 million units </li></ul></ul>
    11. 11. Obstacles <ul><li>Lack of clear land titles </li></ul><ul><li>Regulatory environment </li></ul><ul><li>Shortage of long-term finance </li></ul><ul><li>Cultural suspicion of selling houses and debt </li></ul><ul><li>Inability to assess credit risk: no pay slips, no tax returns, uncertain cash flows </li></ul><ul><li>Lower profit margins due to smaller transaction sizes and fixed costs </li></ul>
    12. 12. Challenge #1: Infrastructure <ul><li>India has one of the largest budget deficits of emerging economies, as much as 8% of their GDP </li></ul><ul><li>Prime Minister Manmohan Singh estimates that $150 billion is required to build and improve infrastructure (GDS 2006) </li></ul><ul><li>However, HUDCO only allocated </li></ul><ul><li> $4.1 billion annually </li></ul>
    13. 13. Challenge #2: Regulations <ul><li>Urban Land Ceiling Act </li></ul><ul><li>Rent Control Acts </li></ul><ul><li>Arbitrary Master Plans </li></ul><ul><li>High cost of land transactions </li></ul><ul><li>Large land holdings that cannot be sold </li></ul><ul><li>Low property taxes </li></ul><ul><li>Minimum plot size </li></ul><ul><li>Low FAR – 1.6 vs. 5-15 in other Asian cities </li></ul>
    14. 14. Policy Recommendations <ul><li>Repeal Urban Land Ceiling and Rent Control Acts in Maharashtra and West Bengal </li></ul><ul><li>Base taxes on property value not rents </li></ul><ul><li>Impose impact fees when redeveloping high density areas that can be used to increase financing for infrastructure </li></ul><ul><li>Increase FAR revision to allow for denser development </li></ul><ul><li>Fiscal incentives benefit well-off, instead direct money to improving the institutions that are necessary for an efficient housing market </li></ul>
    15. 15. Policy Recommendations <ul><li>Government must serve to enable the growth the housing finance market </li></ul><ul><ul><li>Mandatory participation in the CIBIL </li></ul></ul><ul><ul><li>Credit-scoring system </li></ul></ul><ul><ul><li>Mortgage Insurance </li></ul></ul><ul><ul><li>Clarify land titles </li></ul></ul><ul><ul><li>Finalize land cadastre </li></ul></ul>
    16. 16. India’s Potential <ul><li>Largest democracy on Earth </li></ul><ul><li>2 nd fastest growing major economy after China </li></ul><ul><li>Projected to overtake China as most populous nation by 2050 with 1.5 billion people </li></ul><ul><li>Estimated 111 million new housing units needed by 2030 </li></ul><ul><li>Government encouraging free market since 1990s </li></ul><ul><li>Private sector rapidly expanding </li></ul><ul><li>Challenge lies in the SCALE of India </li></ul>