Impact of Housing on Indian Economy

The housing and construction sector of each and every country is closely linked with its economy and the overall social health of that country. Apart from being a key growth driver of the economy, housing is the basic need of mankind. The improvement in the social capital of a nation is another major contribution of housing development other than GDP.

Impact of housing on GDP of India

According to several academic and business studies, real estate investments are the important elements that contribute to the overall economic growth of a country. The consistent housing construction investments is a bulk of all real estate activity and proven to have good short term and long term effects on any country's GDP growth.

CHB (Chandigarh Housing Board) to Launch New 1700 Flats under affordable housing scheme Oct 2015

 It works like this, when new houses are build, new basic facilities are required around those such as shopping, entertainment, transport, lifestyle facilities, health care, education and other utilities. These facilities also require investment and creates new employment opportunities which in itself a contribution to the economy. According to the Economic Survey of India, 2012-13, the real estate sector contributed 5.9% of the India's total GDP in 2011-12, registering a growth of 7.2% from the previous year. However India lacks Brazil and China in terms of amount of real estate production and contribution to the GDP. Despite of small difference in population of India and China, the variation in per capita real estate production is more than 3.5 times. The per capita real estate production in China is approximately USD 5,418 whereas it is USD 1,486 in India.

Impact of housing on employment

In India, housing and construction sector is the 2nd largest employment generator after agriculture out of which a 20-30% employment is shared by the real estate sector alone. In the last decade from 1999-2000 to 2009-2010 the employment levels in the construction sector increased from 17.54 million to 52.16 million as per the estimates of Planning Commission. In the real estate, there were around 7.6 people employed and the number is expected to grow more than double up to 17 million in 2015.

Impact on foreign direct investments (FDI)

During April 2000 and September 2013, Indian real estate sector attracted a total FDI equity inflow of INR 1,052 bn (USD 22.8 bn), according to the Department of Industrial Policy & Promotion 2 (DIPP). Real estate FDI equity inflow is the second highest amongst all sectors and this amount was the 11.1% of the total FDI inflow in the country in all sectors. These numbers outline the importance of the sector in attracting valuable foreign capital to the country. However, in the past few years, FDI investors were stuck in complicated approval processes, which made the time lines of projects they invested in uncertain and their financial planning estimates went wrong and their ROI is affected badly. However, the newly elected NDA government in India is prioritizing the things and bringing more transparency in the whole FDI approval systems.

Impact of housing on banking and finance sector

India's middle class population which have greater access to the low interest rates mortgage loans and increased disposable income are putting their money into the residential developments/acquisition. Apart from the sentimental value attached to a house in India, people are taking it as an investment option. Most of the Indian's buy a home for themselves through savings not by the mortgage loans, which is why India has one of the lowest mortgages to GDP ratio globally.

The total housing credit outstanding in India stood at INR 7.59 billion by the end of March 2013. The RBI categorizes housing amongst the six priority sectors and has mandated that 40% of a bank's disbursals need to cater to it. Despite most banks in India reporting double digit growth in mortgage lending since the past few years, the ratio of outstanding mortgage debt to total outstanding debts at the end of Financial Year 2012-2013 stood at 9.2%, indicating the good quality of lending to the sector, unlike the sub-prime loans witnessed in the U.S.A., which resulted in the global financial meltdown of 2008. However, despite the priority sector tag, lending to the lower most segments of the society availing loans of up to INR 5 lakhs constituted just 22.75% of the total lending to housing sector in 2010 as per data from public sector banks.

The loan outstanding in the real estate sector is also lower compared to other countries that have recorded real estate loans outstanding as high as 30%. The real estate market in India faces liquidity issues due to the cyclical nature of the sector and erratic supply.

Multiplier effect on other sectors

Apart from its direct contribution to the GDP, FDI, employment and finance sector, the housing development also has a positive impact on the other sectors in the economy. As per LIC Housing Finance Limited (LICHFL), 78% of the sum spent on construction of a housing unit in India gets added back directly to the India's GDP by the virtue of spending on building material, architectural and interior designing, landscaping and even financing institutions.

Housing industry in terms of linkage to other industries ranks 4 in the whole economy with over 300 ancillary industries are linked to it either through forward or backward linkage. This huge linkage promotes the investment and employment at several levels in these industries as well.

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