Why Affordable Housing Merely A Statement and Far Fetched

This blog has been written by Mukul Bhartiya. He is inbound marketing consultant for Ethical Consulting Pvt. Ltd.(www.ethicalwealth.in). His other blogs can be found on http://www.digi-age.in.

 

According to Central Statistics Office, Ministry of Statistics and Programme Implementation, Government of India, national per capita income in real terms ( at 2004-05 prices )  2012-13 is expected to attain a level of Rs.39, 143 as compared to the First Revised Estimate for the year 2011-12 of Rs.38,037. At current prices, per capita income is estimated at Rs.68,747 (http://pib.nic.in/newsite/erelease.aspx?relid=92062).

Another report from National Housing Bank says that Technical Group of Housing Shortage (TGHS) has estimated the housing shortage in Urban India at 18.78million with 95% shortage in Economic Weaker Section(EWS)/Lower Income Group(LIG) segment in 2012. Further, according to TGHS’s definition, housing for EWS should have carpet area of 21-27 square meters and housing for LIG should have carpet area of 28-60 square meter area. By government’s definition, EWS housing falls between the price range of Rs.4-10 Lakh.  

Taking a cue from my earlier blog(http://digi-age.in/2013/11/19/why-real-estate-prices-in-bigger-cities-are-high-an-outsiders-view/) and if my assessment holds any ground, then major expenditures of a household falls in following category:

1)      Accommodation  

2)      Food & Clothing

3)      Education

4)      Health; and

5)      Social Security (near future and post retirement expenditure)

So, a household should spend a maximum of 6 years total income on housing and if it goes beyond that then it will have to compromise on other prominent heads of expenditure.

I love mathematics and that’s why I recite numbers in most of my blogs. Let’s take this love of mine a little further and find out whether affordable housing in tier- I urban area is possible in India within the pricing scope provided by government as well as the per capita income at current prices.

According to Ethical Consulting Pvt. Ltd. (www.ethicalwealth.in), a leading wealth managers in real estate based out of Gurgaon, price of residential land in Delhi-NCR ranges between Rs.1.75-15 lakh per square meter.  Please note that this price is mentioned for the areas, which are connected with basic amenities and agricultural or non-developed area may have different pricing than what is mentioned above.

Now let’s do the mathematics:

Minimum price of land per square meter: Rs.1.75 Lakh

Minimum Carpet Area for EWS Housing: 21-27 Square Meter

Minimum Carpet Area for LIG Housing : 28-60 Square Meter

 

Then, what the cost of land alone at lowest price will be:

For EWS: Rs. 1.75 Lakh X 21- 27 Square Meter = Rs.36.75-47.25 Lakh

For LIG: Rs. 1.75 Lakh X 28-60 Square Meter = Rs.49-105 Lakh

Further, in the household with two adult members, per household income at current prices would be

Rs.68,747 X 2 = Rs.1,37,494/- .

So, a household should spend somewhere around Rs.8-9 lakh on housing.

Now, correlate these costs, household income with price band given by government (Rs. 4-10 lakh for EWS Housing) and see the gap yourself.

Now, let’s bring on few more numbers. Delhi’s area is 1484 sq. km and population according to 2011 census is 1.68 crore, which means there is only 88.33 square meter space for each individual for everything; housing, profession, road, medical facility, park etc. I am not seeing any sense in these numbers; if you are seeing any sense then good for you.

I am not a town planner, I am not an architect, I am not a real estate developer, I am only a common man who is trying to understand whether two plus two is equal to four or not and here I am not seeing that happening in Indian housing scenario. I am seeing the following challenges in affordable housing segment:

1)      Affordable housing can’t see any growth unless government steps in a big way.

2)      Land Acquisition Bill 2014 to benefit the land owners is alright, but land has to come for affordable housing.

3)      Urbanization, infrastructure development and economic activity have to move towards smaller cities. According to UNESCO reports internal immigration in India accounts for a large population of 309 million, which is nearly 30% of total population (http://www.unesco.org/new/en/newdelhi/about-this-office/single-view/news/internal_migrants_in_india_the_millions_who_cannot_exercise_their_rights/#.Ur3YHfRDtXY) .

4)      Since land is scarce, to bring down the cost of housing, technology has to play a role and seeing the huge cost to expected realization gap, I don’t see any private builder spending so much on technology. Here also, government needs to focus on it.

5)      Price o raw material also has to go down, which can either be through government subsidy or technological development and who else can do it other than the government.

So far I have not come across any piece of news of this magnitude which can give impetus to affordable housing. Till then, I am considering media reports about market tendency towards affordable housing as statements only and nothing else.

In reality, housing sector in India will continue to consume around 12-15 years of income of middle class and upper middle class population. With good inventory level in Tier-I markets, there will be lot of activity in the real estate market, with little bit correction upward and downward in different phases, but there will not be any drastic price cut or dynamic shift in pricing structure in near future.

This is my individual opinion and does not represent the industry’s point of view. Experts may differ from what I have mentioned here and they are more than welcome to correct me….

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