Thursday, May 11, 2017

India’s economy is set for a $1.3 trillion bonanza from 60 million new homes

Prime minister Narendra Modi’s ambitious plan to build homes for all Indians by 2022 could spark an economic revolution worth $1.3 trillion, which is a little more than Mexico’s GDP.

Between 2018 and 2024, some 60 million new homes are set to be built, mostly under the government’s affordable housing programme, as Asia’s third-largest economy looks to upgrade its people’s quality of life.


This is expected to create over 2 million jobs annually and add up to 75 basis points to India’s GDP, brokerage firm CLSA said in a report last week.
“The housing sector is at a tipping point and will be the economy’s next big growth driver,” the report said. “The catalyst is the government’s big push for an ambitious housing program.”

Since coming to power in 2014, Modi has focussed on expanding affordable housing. In June 2015, he announced his mission to construct 20 million homes across the country by 2022. In February 2017, for the first time, India gave the affordable housing sector infrastructure status, which will incentivise and subsidise it, besides ensuring tax benefits and institutional funding.

Last December, as Indian banks’ coffers filled up with cash following the demonetisation of high-value currency notes, the government launched two schemes to make it easier for the poor to access housing. First, it offered a discount of 4% on the interest rate for loans of up to Rs9 lakh for low-income individuals building homes. For loans worth up to Rs12 lakh, the interest rate was to be discounted by 3%. Secondly, in rural India, Modi promised a 3% interest waiver on loans up to Rs2 lakh to modify a house.

The report came shortly before India put into effect a new law aimed at regulating the real estate sector. Under the new law, each state and union territory in India will have its own regulator. It also requires companies to create an escrow account, where 70% of the money collected from the buyers of under-construction homes will have to be deposited. This money can only be used for the construction of the project.

Overall, things have been looking stable for the industry for a while. “In the past five years, mortgage rates have dropped 250 basis points, property prices have remained broadly stable and per capita incomes have posted a 10% CAGR,” the CLSA report said.

Now, the stage seems set for a real takeoff for realty.

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