That Dream House...

Business Standard     5th June 2021     Save    

Context: The new Model Tenancy Act could fundamentally change the rental business and housing itself.

Housing sector in India:

  • House-building was marginal to the economy three decades ago. In most towns and cities, it was a state monopoly.
  • As the mortgage business came into its own, housing finance rose quite sharply from 1% in 1991 to over 7% of GDP by about 2005 and now about 10%.
  • With very low delinquency rates, it is one of the safest forms of lending.

Issues in the housing sector:

  • Real estate costs are far too high because of artificially inflated land prices.
    • So two-thirds of homes have just one or two rooms and yet cost many years’ salary for the house buyer.
    • Inevitably, rental incomes are low in relation to housing cost — barely 2% in most cases.
    • The small pockets of land that are released into the housing market create artificial scarcities that the sharp-eyed know how to exploit (Robert Vadra providing a good example).
  • Fear of renting: An estimated 10 million homes lie vacant today because landlords don’t want to take the risk of renting for fear of not getting back their property.
    • Compare this to Germany, where 605 rent their homes and don’t feel the need to lock up savings in real estate.
  • Bad condition: The 2011 Census declared barely half of 230 million housing units to be in “good” condition.

Measures taken by the government:

  • The Pradhan Mantri Awas Yojana scheme has helped build over 12 million rural homes.
  • The new programme for providing housing clusters for rent to migrants and workers in the informal economy could transform the housing market for a vast swathe of people who now live in sub-standard conditions.
  • The Real Estate (Regulation and Development) Act has changed the rules for the construction business, giving much greater protection to apartment buyers. The model rental law now adds to the list.

Conclusion: If the housing sector is properly managed, it could become the bedrock of the economy — driving not just finance but demand a range of products and services.