The Residential segment, the largest in the real estate sector in India, involves development of properties for housing and includes apartments, villas, row houses and bungalows. India continues to face an acute shortage of housing units. Based on the 2001 census, the housing shortage is estimated at 12.7mn units in urban area alone and according to tenth five year plan, it has grown to 24.7mn units (combined rural and urban) in 2007. Construction forms an important component of the economy, accounting for 5.1% of GDP at constant prices and 6.2% at current prices. Besides, it also ranks high in terms of linkages to the rest of the economy. It has a high employment-generating potential and has a high income-multiplier effect. In India, the share of housing construction as a part of GDP was at 3.13% in 2003-04. This share has risen from a low 2.24% in 1995-96. According to RBI, housing construction has grown from Rs.437 bn in 1993-94 to Rs. l,024bn in 2003-04 at a compounded annual growth rate (CAGR) of 8.06% at constant cost.
In volume terms, the total stock of occupied houses in the new middle and higher income housing category is estimated at 39.4 mn in 2003-04. In 2004-05, 1.64 mn houses were added to the stock of occupied houses. The figure of new house additions is expected to rise at a CAGR of 4.1% over the next 5 years to reach 1.93 mn by 2009-10. The strong demand for residential houses is driven by following factors.
Growth in population and urbanization
India's population is expected to grow from an estimated l,095mn in 2005 to l,184mn by 2010. Urban centers are expected to grow at a faster rate, driven by attractive employment opportunities and better social infrastructure. The urban population is expected to grow at a CAGR of 2.6% over 2005-06 to 2009-10.
Reduction in average size of household
It has been observed that the average size of the Indian household has been falling since the past few years. This results in the number of households growing at a pace faster than the growth in the population itself. It is expected that the average size of a household will continue to decline over the next 5 years. Given this decline, the number of households in the urban segment is expected to grow at a CAGR of 2.9% between 2004-05 and 2009-10. The declared spending on new houses is estimated at Rs. 1,718 bn in 2004-05 in the middle and higher income housing category and is expected to grow at a CAGR of 18.6% over the next 5 years to Rs. 4,034bn in 2009-10. In real terms, after eliminating the effects of inflation and the rising proportion of declared housing expenditures versus undeclared expenditures, the spending on new houses is estimated at 9.1%. The overall housing spending in the middle and higher income housing category segment is a function of the housing budgets and the number of new houses being constructed every year in that segment. The housing budgets themselves are influenced by housing finance, inflation and upgrading of lifestyles. Households with higher income spend more on housing.
As the Indian economy continues its growth, the middle class is also growing, with increased disposable income. A high proportion of the population has moved, and is expected to continue to move, into higher income brackets in the years to come. In particular, the higher income groups have grown at a greater rate in urban centers than in rural areas.
The Great Indian Middle Class
| Classification |
Income Class |
No of households in'000 |
Annual Growth |
| |
Rs. '000 pa |
Rs. '000 pa |
2009-10 |
2005-06 to 2009-10 |
| |
|
Urban |
Rural |
Urban |
Rural |
Urban |
Rural |
| Deprived |
< 90 |
23,156 |
109,093 |
18,019 |
96,345 |
-6.0 |
-3.0 |
| Aspires |
90-200 |
25,158 |
28,118 |
29,249 |
46055 |
3.8 |
13.1 |
| Seekers. |
200-500 |
8 889 |
28,118 |
14,313 |
7,955 |
12.6 |
13.1 |
| Strivers |
500-1000 |
2,301 |
911 |
4,629 |
1,544 |
19.1 |
14.1 |
| Near Rich |
1000-2000 |
842 |
280 |
1,793 |
581 |
20.S |
19.9 |
| Clear Rich |
2000-5000 |
360 |
94 |
825 |
212 |
23.0 |
22.5 |
| Sheer Rich |
5000-10000 |
87 |
16 |
219 |
37 |
25.7 |
23.7 |
| Super Rich |
>10000 |
46 |
6 |
126 |
16 |
28.2 |
27.4 |
| Total |
|
60,839 |
143,441 |
69,173 |
152,745 |
|
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The overall improvement in income levels is driving a reduction in the number of deprived households, annual household income less than Rs 90,000, while the number of rich households, annual household income greater than Rs 2m, is increasing at a CAGR of 22.5%. During the period of FY 06-10, 2.96mn new households will enter the Rs 5,00,000 - 10,00,000 per year income bracket. This growth in middle income group of population will add to the growth momentum of the real estate development in India. The growth of the Indian economy and the growth of the Indian middle class have contributed to increased demand for housing units. As a result, growth of the Indian economy has been the primary growth driver for the overall real estate sector in India.
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