1.2 crore vacant homes – This one number tells us all that is wrong with Indian real estate



Vivek Kaul

Anshuman Magazine, chairman and managing director of CBRE South Asia Pvt. Ltd., in a recent article writes that “around 1.2 crore completed houses” are “lying vacant across urban India”. This one number tells us all that is wrong with Indian real estate.
Even though there is a huge housing shortage in urban India, 1.2 crore completed homes are lying vacant. As the latest Economic Survey points out: “At present urban housing shortage is 1.88 crore units.”
So, we have this situation where 1.2 crore completed homes are lying vacant even though there is a housing shortage of 1.88 crore in urban India. What explains this discrepancy? “95.6 per cent [of housing shortage] is in economically weaker sections (EWS) / low income group (LIG) segments,” the Economic Survey points out.
What the huge number of vacant homes also tells us is that real estate companies have been building and selling homes at price points at which there are few takers. Why is that? The answer for that lies in the fact that homes are being built essentially for those who want to invest and speculate.
Hence, investors control the real estate market in India instead of those who want to buy and live in homes. These investors are more comfortable keeping the homes empty and not put them on the rental market. The rental yield (i.e. annual rent dividend by the market price of the home) currently varies between 2-4% depending on which part of the country you live in. Hence, the return is not good enough to compensate for the risks involved in letting the house out on rent. Given this, a lot of homes are bought and then stay locked.
The next question that crops up is why is there so much investment demand for homes? The simple answer is that the amount of black money that is being generated has gone up tremendously over the years. Global Financial Integrity estimates that between 2003 and 2012, the total amount of black money leaving the country jumped from $10.1 billion to $94.8 billion, a jump of more than 9 times.
No reliable estimates are available for the total amount of black money that would have been generated during the same period.
But what this tells us is that the amount of black money being generated has grown up manifold over the years. It is safe to say that a lot of this black money has found its way into real estate, where it is very easy to park black money. And this has pushed up real estate prices to levels at which most people cannot afford to buy a home to live in. The buying and selling of real estate is now a game played majorly between the black money wallahs.
As a recent study by the business lobby FICCI titled A Study On Widening Of Tax Base And Tackling Black Money published in February 2015 points out: “The Real Estate sector in India constitutes for about 11 % of the GDP15 of Indian Economy, as these transactions involve high transaction value. In the year 2012-13, Real Estate sector has been considered as the highest parking space for black money.”
And this has led to a situation where we have more than a crore homes where no one is living. AkhileshTilotia, makes a similar point in his book The Making of India—Gamechanging Transitions. As he writes: “Thanks to its love for real estate investments, India is in a curious position of having more houses than it has households.”
This becomes clear from the Census 2011 data. “India’s households increased by 60 million to 247 million from 187 million between 2001-2011. Reflecting India’s higher ‘physical’ savings, the number of houses went up by 81 million to 331 million from 250 million. The urban increases is telling: 38 million new houses for 24 million new households,” writes Tilotia.
Unless the black money menace is brought under control, homes will continue to remain locked and unaffordable for most Indians. Further, renting has to be made an attractive option for those owning homes. As Magazine of CBRE points out: “The Rent Control Act 1992 is slightly skewed towards tenant protection, and is aimed at controlling rent. It tries to protect tenants from eviction and from having to pay more than a fair/standard rent amount. The Act may need to be revisited to make rental housing attractive enough for landlords as well.”
If more homes at affordable price points do not become available in the years to come, more and more of our cities will become slums. As the Economic Survey points out: “Nearly 30 per cent of the country’s population lives in cities and urban areas and this figure is projected to reach 50 per cent in 2030.”
Now that is something worth worrying about.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on Firstpost on Apr 30, 2015 

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About vivekkaul
Vivek Kaul is a writer who has worked at senior positions with the Daily News and Analysis(DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System , the latest book in the trilogy has just been published. The first two books in the trilogy were published in November 2013 and July 2014 respectively. Both the books were bestsellers on Amazon.com and Amazon.in. Currently he works as an economic commentator and writes regular columns for www.firstpost.com. He is also the India editor of The Daily Reckoning newsletter published by www.equitymaster.com. His writing has appeared across various other publications in India. These include The Times of India, Business Standard,Business Today, Business World, The Hindu, The Hindu Business Line, Indian Management, The Asian Age, Deccan Chronicle, Forbes India, Mutual Fund Insight, The Free Press Journal, Quartz.com, DailyO.in, Business World, Huffington Post and Wealth Insight. In the past he has also been a regular columnist for www.rediff.com. He has lectured at IIM Bangalore, IIM Indore, TA PAI Institute of Management and the Alliance University (Bangalore). He has also taught a course titled Indian Economy to the PGPMX batch of IIM Indore. His areas of interest are the intersection between politics and economics, the international financial crisis, personal finance, marketing and branding, and anything to do with cinema and music. He can be reached at vivek.kaul@gmail.com

5 Responses to 1.2 crore vacant homes – This one number tells us all that is wrong with Indian real estate

  1. krishnamurthy. V says:

    I complwtely agree with the sentence that ” great parking place for black money is investing at real estate ”

    Hence most of politicians are investing their black money at real estate

  2. Srihari Kulkarni says:

    To open a savings bank account with Rs.1000/- as balance, you will need a lot of documents – address proof, age proof, PAN card and what not. However, you can buy a Rs. 1 crore house just like that ! You’ll need all the documents only if you have to take a loan. If you have the cash, any goddamn “xerox copy” will do

    • murtaza m says:

      You are so right. This problem is tackles beautifully in the western world. Any RE transaction is greatly scrutinized and data is available (at a price) for all to see as to who owns what. This makes things transparent. You also know how much your neighbour has paid and this keeps pricing fair. This can only work with proper government intervention and controls. But that will never happen as our ministers will be the first to be part of the limelight and so they will always want the system to be as opaque as possible.

  3. narendra rathod says:

    whole realestate industry is going in diffcuilt time there so many regulation governing this industry so after investing crores rupees if gets stuck in govt regulations or any land problem

  4. Ashutosh Shinde says:

    The problem lies in the inflated prises of the realestate, the house which could be bought in 40 to 50 lacs has sky rocketed to 1 and 2 crores which is beyond the reach of normal person, with more and more people pouring in the job market, there has been an enormous spike in the competition which in turn has affected the pay package and adding fuel to the fire is that the daily needed commodities prises are sky high and there is hardly surplus left at the end of the month.

    Have u noticed that when there is rises in the fuel prises everything gets increased but from last couple of months the fuel prises have dropped but there is not a single item whose price have dropped, there is need for regulatory body to track the prises of essential items.

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