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BW Businessworld

A Special Case: Addressing India's Urban Housing Shortage

The pressing need to ensure the sustainability of India's urban development requires both public and private actors to play their part.

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As city populations swell across India, our ability to manage and combat the national housing shortage is coming under increased strain. The reality is that the country's shortage of 20 million homes is concentrated in urban areas, as 10 million of us are choosing to move to cities each year. By 2030, India's urban population will by 66% larger than what is was in 2010. In comparison, India's rural population will increase by a mere 4%. The concentrated pressure for more housing in urban locations creates unique challenges for housing developers.

Land acquisition represents the first challenge to overcome. In Mumbai, one of the most densely populated cities in the world, the city's land mass is barely 480 sqkm, and its buildable area even less, at approximately 200 sqkm. This acute land shortage has led plots to sell for unprecedented rates. In 2010 a new national record was set when a plot sold for over Rs 4,000 crore. This makes the entry costs for real estate developers significantly higher than in other locations.

One way in which developers have sought to overcome high land prices is through building up. Indeed, 3 of the 10 tallest residential towers in the world are currently under construction in Mumbai, as developers are building ever taller skyscrapers in a bid to maximise land value. However, building tall comes with its own challenges as it is both more expensive and complicated to erect a tall building. Added to the cost of purchasing the land itself, property development in Mumbai is not for the risk-averse.

Driving up competition for land in Mumbai has been the rush to supply properties that bear no correlation to the unmet demand in the city. Enticed by high sales rates, real estate developers in Mumbai have continued to cater to the demand from "buy-to-leave" investors who do not live in the properties they purchase. The result is that, even though there is a huge housing shortage in urban India, 1.2 crore completed homes are currently lying vacant.

If the government is to remain committed to its vision to create "Housing for all by 2022", policies need to be put in place that make building affordable housing pay off for real estate developers. The affordable housing industry is akin to the manufacturing industry in that it is a volume-driven business and, for this reason, the PMAY scheme is a step in the right direction by increasing affordability and boosting demand. These direct housing policies need to be complemented by a wider commitment to addressing the challenges of urbanisation, including investment in public transport that makes suburbs increasingly accessible for commuters.

The pressing need to ensure the sustainability of India's urban development requires both public and private actors to play their part.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

Tags assigned to this article:
real estate land aquisition bill urbanisation

Rahul Nahar

The author is Founder, XRBIA Developers

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