Do we really need more houses?

A recent book says that houses grew faster than households. So, who is buying the high-cost properties in cities and how many of them?

It is a curious situation. Buying a property in the prime areas of the country is almost impossible for the salaried, leading to high inventory levels all across the country. But despite being unable to sell, builders continue to build new properties and price them exorbitantly. In sub-urban Mumbai, builders are launching properties starting at Rs 3-10 crore (even Rs 15 crore plus) for three bedroom-hall-kitchen flats. 

The question is that do our cities need more houses? Reports suggest that builders are sitting on over one lakh flats worth over a crore each in just Mumbai and Thane. Even in other cities, the inventories are simply growing. 

A recent book by Akhilesh Tilotia, research analyst with the Kotak Mahindra Group – The Making of India – Gamechanging Transitions -- makes an interesting observation. “Thanks to its love for real estate investments, India is in a curious position of having more houses than it has households.” Tilotia backs the comment up with the 2011 Census 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,” writes Tilotia. The urban numbers are telling: 38 million new houses for 24 million new households. 

The question: Who is buying these overpriced properties? To purchase such a property, the initial down payment of 20 per cent would translate into Rs 30-50 lakh. Then there is stamp duty, registration and so on and so forth – almost a crore of initial expenses. The salaried will have to raise this money plus to qualify to a loan of the rest of the amount, their salaries need to seriously high. 

For a loan of Rs 2 crore, the 20-year EMI works out to almost Rs 2 lakh a month. Given that banks would not lend more than 50 per cent of the take-home salary as home loan, the loan applicant’s monthly take-home and gross salary will have to be Rs 4 lakh and Rs 6 lakh (Rs 72 lakh annually), respectively. One wonders how many in Mumbai or Delhi earns these amounts on a monthly basis. Maybe, someone can do this research.

Another number should be taken into consideration. When former finance minister P Chidambaram introduced the super rich tax in 2013, a surcharge of 10 per cent on people who reported incomes of over Rs one crore, only 42,800 people qualified nationally, suggested reports.  According to data from the Standing Committee for Direct Taxes Code, there were just 0.41 million people taxpayers who came under the tax slab of above Rs 20 lakh in 2011-12.  

So, how does one explain this huge discrepancy when it seems that less than half-a-million taxpayers (considering that the recent stock market boom and increasing salaries has pushed the crorepati or close-to-crorepati number substantially) are gobbling up multiple hugely-expensive properties or builders with huge inventories keep on building more? There aren’t many credible ones. 

Even if we get a real estate regulator, it won't solve this problem. Do we really need more houses or ensure that people are buying the existing ones?