Sunday, November 19, 2017

Housing

Demand surge

As per a Cushman & Wakefield report India’s construction sector will not be short of work over the next 5 years with additional housing demand to be about 2.95 million units across eight cities

 

In the latest study by global real estate consultancy Cushman & Wakefield (C&W), total new demand for urban housing in India is expected to be nearly 13 million units by the end of 2018 on account of the burgeoning population in urban centres. This is in addition to the already existing unmet demand. Of the total additional demand, the top eight cities are likely to constitute 23 per cent or 2.95 million units.Of the total additional demand across the top eight cities, MIG is expected to generate the highest volume of demand of 1.08 million units until 2018, followed by the Lower Income Group (LIG), which is expected to generate demand of nearly 1.05 million units, and the HIG with a demand for 0.52 million units. Thus, both LIG and MIG will account for nearly 80 per cent of the total demand in these eight cities.

The expected supply of residential units including existing under construction and planned pipeline is estimated to be 1.31 million housing units which is expected to be delivered across the top eight cities by the end of 2018. The bulk of the under-construction units have already been sold. Delhi-NCR is likely to have the highest supply of around 516,000 units delivered in the next five years, followed by Bengaluru with around 243,000 units and Mumbai with 203,000 units.
Until 2018, the expected supply in the LIG will be approximately 21 per cent of the total supply across top eight cities, whilst demand constitutes 58 per cent share of the cumulative demand-supply gap. Delhi-NCR, Kolkata, Mumbai and Pune are expected to witness the highest shortfall in LIG units. The MIG accounts for 59 per cent of the total supply across top eight cities whilst it has a 23 per cent share in cumulative demand-supply gap. Cities such as Ahmedabad, Bengaluru and Mumbai are expected to lead the ranks of those with the shortfall of housing units catering to MIG. HIG accounts only for 19 per cent of the total supply across top eight cities and has a 20 per cent share in cumulative demand-supply gap. Bengaluru, Chennai and Delhi-NCR are the leaders in cities with the highest demand-supply gap for HIG units.
The private sector housing, which is largely responsible for creating housing in India, has been grappling many issues such as rising input costs, expensive land valuations, outdated building norms, restricted access to funding, serious delays in regulatory processes and uncertain economic conditions resulting in poor and/or slow sales volumes, all of which have resulted in holding back the growth of this sector since the last 2-3 years. Consequently, the demand-supply imbalances across cities have been becoming more pronounced.

 The key ingredient for economic growth and to provide necessary impetus on the supply side has been provided by the government. With an allocation of `4,000 crore for this year to the National Housing Bank to build affordable urban homes and  relaxation in FDI norms to attract more investments in to the sector (with higher exemptions for affordable housing projects). Further the cause, RBI has also announced that affordable housing is now a priority sector, enabling banks to raise cheaper credit for such projects. Additionally, it also incentivised individual loans upto `50 lakh (for houses valued up to `65 lakh) in metros such as Delhi, Mumbai, Kolkata, Chennai, Bengaluru and Hyderabad and loans upto `40 lakh (for houses valued up to `50 lakh). The government’s impetus on the demand side consists of increasing the Income Tax exemption limits and the exemption limits for payment of interest on home loans to lure homebuyers.

Whilst these policy measures are really welcome, they are not enough to address the huge demand-supply gap that has been projected until 2018. The current estimates are based on population growth and supply trends of the past decade. We still have to gear up for the massive industrialisation that will take place through the development of the planned industrial corridors and the smart cities that will be developed. Specifically, the government needs to focus on increasing the capacity of the private sector to increase the supply manifold by removing all bottlenecks in acquiring land, regulatory processes, raw materials, finances, etc. to meet its goal of housing for all by 2022.

The additional or new demand that is expected to be generated in 2014-2018 is calculated based on the past trends of population and household growth and the income classification for the households. Hence, this does not take into consideration, existing unfulfilled demand of those without homes, living in congested homes and or in dilapidated structures. As per the Ministry of Housing & Urban Poverty Alleviation’s (MHUPA) 2012 estimates, demand resulting from such housing shortages was around 18.78 million units in the entire country.

 

Ahmedabad

In the next five years (until 2018), new housing demand of 248,000 units is likely to arise in Ahmedabad, of which nearly 46 per cent is slated to be in the LIG, 42 per cent in the MIG and remaining 12 per cent in the HIG. Due to high growth in manufacturing setups in the peripheral regions of the city and presence of well-established trading activities, there is a phenomenal rise in housing demand from both current inhabitants and increasing migrant population.

Expected supply in the next five years seems to be highly skewed towards the MIG with 78 per cent offerings in this segment. Even with this kind of supply infusion, the demand-supply gap in the MIG is significant and Ahmedabad features in the list of top cities having a shortfall of housing units catering to the MIG. In addition, the LIG demand seems completely unattended with a massive cumulative gap of around 107,000 units.

 

Mumbai

Mumbai is expected to witness an additional demand of around 231,000 units across all segments by 2018-end while the supply is likely to be around 203,000 units. Of the total demand, majority (46 per cent) is likely to arise in the MIG, followed by 33 per cent in the LIG and 21 per cent in the HIG. However, the supply seems extremely skewed towards the HIG (63 per cent), and likely to exceed demand significantly. As a result, due to excess supply in one segment, the overall demand-supply gap seems reduced but a large portion of the MIG and LIG demand will remain unaddressed.

Scarcity of land in the island city has led to residential housing developments in the suburbs and peripheral locations of Mumbai. With increasing demand, land costs have risen sharply and the developers are finding it difficult to launch the LIG and MIG projects at many locations. Although the developers have launched projects targeting the MIG in far-off and peripheral locations, the overall physical and social infrastructure at these places has not supported these residential developments and the demand has remained subdued.

 

Bengaluru

 

With 243,000 units expected supply in the next five years (until 2018), Bengaluru’s residential market is likely to remain highly active in the future periods as well. The city being a prominent IT-ITeS hub of South India attracts workforce from India as well as abroad, leading to massive housing needs. As per supply projections, nearly 56 per cent of new units may cater to the MIG, 29 per cent to the LIG and remaining 15 per cent to the HIG. The cumulative demand for residential housing (until 2018) is projected to be 438,600 units with 44 per cent in the MIG and 31 per cent in the LIG. Considering the high requirements, demand is likely to remain unmet in all segments with a total demand-supply gap of around 196,000 units with a high paucity (38 per cent of total shortfall) in the HIG. Bengaluru has remained focused on the MIG, primarily due to the large-scale mid-level IT workforce in the city. However, as the city attracts larger global corporations with headquarters of many companies being located in Bengaluru and incomes rise, the need for the HIG housing is likely to rise significantly. Exclusive residential housing options targeted at the CXOs will also be in high demand during the future periods.
 

Chennai

With cumulative requirement of around 334,000 housing units until 2018, Chennai is the third-highest demand generator amongst the top eight cities of India. Chennai’s traditional importance as a port city and educational centre of the south remains unchanged. In addition, the increase in IT-ITeS activities and establishment of large manufacturing set-ups is driving residential housing demand across various locations. Of the total cumulative demand, nearly 43 per cent is likely to arise in the LIG and an additional 38 per cent in the MIG.

As per the estimates, nearly 87 per cent of planned supply is likely to cater to the MIG only, creating a large demand-supply gap in the LIG and HIG. Overall, with a gap of around 233,000 units, Chennai ranks amongst the top cities having a housing shortfall during the next five years (until 2018). High gap is primarily due to a significantly low supply (around 102,000 units) in the next five years, primarily due to stretched timelines because of delays in securing necessary approvals for new projects.

 

Delhi-NCR

Delhi-NCR is expected to witness the highest demand of around 818,600 units across all segments during 2014-2018. Delhi-NCR’s economy thrives on a plethora of activities such as the services including IT-ITeS and BFSI, the public sector undertakings and government administrative units and manufacturing units of varied scale. Good employment opportunities along with a large geographical spread leads to massive housing demand in Delhi-NCR. Nearly 81percent demand is likely to arise from the LIG and MIG, with an equal contribution from both segments.

Delhi-NCR is likely to have the highest supply of around 516,000 units slated to be delivered in the next five years. Around 60 per cent of the supply will cater to the MIG and an additional 30 percent to the LIG. With increasing population, rapid urbanization and increasing industrialization, the demand for the LIG housing units is likely to grow higher in the future periods.

 

Hyderabad

 

With an estimated overall demand-supply gap of around 231,000 units (until 2018), Hyderabad is likely to witness one of the highest shortfall due to the comparatively low supply scheduled to be delivered in the next five years. Until 2018, Hyderabad is expected to witness an additional demand of around 291,000 units across all segments. Of this total demand, the LIG is expected to be 42 per cent and the MIG around 36 per cent. Steady growth in the services sector, mostly driven by IT-ITeS sector has been responsible for migration of people from across the country to the city. With the political uncertainty (over the Telangana issue) being sorted and considering that the city already possesses ready physical and social infrastructure, Hyderabad is poised for higher growth in the future periods. As companies begin expanding their operations in the city, housing demand is likely to increase significantly.

Low levels of supply (61,000 units) is likely to be infused in the next five years in Hyderabad. Majority of this supply (63 per cent) is expected to be in the MIG, 21 percent in the HIG and remaining 17 per cent in the LIG. Hyderabad will witness significant shortfall, of around 111,000 units, in the LIG residential housing units.

 

Kolkata

Kolkata is expected to witness the lowest demand at around 97,300 units across segments compared to all other metros. Majority of the demand (53 per cent) is likely to emanate from the LIG, followed by 34 per cent from the MIG and 13 per cent from the HIG.

Supply of around 66,000 units is likely to be infused in Kolkata until 2018. However, though the LIG demand is significantly high, majority of the supply is targeted at the MIG and HIG. Thus, this mismatch in demand-supply leads to sluggish sales and inventory pile-up in the markets.

 

Pune

With flourishing IT-ITeS businesses and manufacturing activities, Pune has been witnessing an unprecedented growth in population, primarily due to a large increase in migrant population. Due to this, the demand for residential housing units has been on a rise and by 2018 end; around 191,000 units will be required in the city. Pune is likely to witness maximum requirement in the LIG and MIG, together accounting for around 82 per cent of the demand and equally distributed amongst the two categories.

The supply projected until 2018 end is only to the tune of 78,000 units, translating into a significant housing shortfall in the city. Although majority of the supply (72 per cent) is planned in the MIG, the demand for these units will remain unfulfilled. However, there is likely to be a significant demand-supply gap (60 per cent shortfall) for the LIG, which needs to be addressed by developing relevant housing units. With large global corporations deputing their top executives in the city, the demand in the HIG also seems to be on a rise and shortfall in this category also has to be addressed. Moreover, there is also a huge requirement by NRIs and buyers/investors from Mumbai looking to purchase an apartment in Pune as their second / retirement home.

 

City Wise-Category Wise

No. of Units

Estimated Demand (2014-18)

Estimated Supply (2014-18)

LIG

MIG

HIG

LIG

MIG

HIG

Mumbai

75,700

107,300

48,400

2,400

73,400

127,600

Ahmedabad

114,300

104,500

29,200

6,900

34,300

3,000

Bengaluru

134,500

194,100

110,000

70,100

136,800

35,600

Chennai

142,900

127,900

63,600

7,700

88,600

5,400

Delhi-NCR

328,700

333,700

156,100

153,300

315,900

46,300

Hyderabad

121,600

105,700

64,100

10,200

38,000

12,600

Kolkata

51,200

33,500

12,600

16,000

35,300

14,300

Pune

80,700

76,200

34,300

12,100

55,600

9,800

TOTAL

1,049,600

1,082,900

518,300

278,700

777,900

254,600

Note: Differences, if any, are due to round-off

 

 

VITAL STATS

Middle Income Group (MIG), highest demand generator, 1.08 million units by 2018

  • Mumbai to witness an additional demand of around 231,000 units across all segments by 2018-end while the supply is likely to be around 203,000 units
  • Delhi-NCR to witness maximum estimated demand of 818,600 housing units across all segments
  • Kolkata to witness lowest demand of less than a lakh units in the next 5 years across all segments
  • Around 23 per cent of urban housing demand in India is likely to be concentrated across the top eight cities. Top 8 cities to witness demand for nearly 520,000 High Income Group (HIG) units during 2014-2018

 




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