India's $1.3 trln housing boom has a solid frame

Shankara Building Products

22/06/2017 04:37

(The author is a Reuters Breakingviews columnist.  The opinions 
expressed are her own.) 
    By Una Galani 
    MUMBAI, June 22 (Reuters Breakingviews) - Indian developers 
are going downmarket. Luxury homebuilders are shifting their 
attention to cheap housing. Demand is strong thanks to a raft of 
government incentives. A boom could provide a big fillip to the 
economy, creating demand for everything from cement to home 
furnishings. 
    Prime Minister Narendra Modi has promised "Housing for All" 
by 2022. The scheme aims to create 50 million new low-cost homes 
in a country where an estimated one quarter of urban dwellers 
live in slums and other informal housing. Demand for small homes 
is growing with the population, and as young families favour 
living as nuclear units, rather than with many of their 
relatives. 
    Graphic: India's real estate boom has a solid frame:  http://reut.rs/2sJhR58 
    Several initiatives have created a frenzy over the sector. 
India is offering subsidies to first-time buyers, which 
substantially lowers the effective interest on mortgages. 
Borrowers can effectively pay just 3.4 percent instead of 8.3 
percent on a 20-year loan worth 2.5 million rupees ($39,000).  
    Rising incomes and stable prices mean the affordability of a 
one or two-bedroom house is the best in almost two decades, 
according to CLSA analysts. They foresee a $1.3 
trillion industry-wide boom over the next seven years.  
    It gives lenders reliable borrowers just as corporate credit 
is contracting. Meanwhile, developers like Indiabulls Real 
Estate  INRL.NS  and Godrej Properties  GODR.NS  get tax 
benefits, which makes up for the lower margins from selling 
cheaper units. 
    New national laws increase accountability, too. These put 
the onus on developers to deliver projects and make them liable 
for criminal prosecution if things go wrong. Previously, it was 
too easy for unscrupulous outfits to take big deposits and 
dawdle for years before completion. That should make more people 
confident of investing their savings into real estate - and lead 
to consolidation of the country's 12,000-plus property 
development companies.  
    This all helps explain why the Thomson Reuters sector index 
is up almost 60 percent this year, more than three times the 
benchmark Nifty Index. And why Shankara Building Products 
 SHAB.NS , a newly listed midcap, is touted by one hedge fund as 
potentially India's answer to Home Depot, the $190 billion U.S. 
DIY giant. Politicians just need to play their part and keep the 
supply of land coming.  
 
    On Twitter https://twitter.com/ugalani 
     
    CONTEXT NEWS 
    - The Thomson Reuters India Real Estate Development and 
Operations Index has risen almost 60 percent in the year to 
date, more than three times the local benchmark Nifty Index. 
    - On June 7, the Reserve Bank of India reduced the 
loan-to-value ratios for some home loans and the risk weighting 
lenders must apply. 
    - India's Real Estate (Regulation and Development Act) came 
into effect on May 1. It aims to protect consumers by making 
real-estate developers more transparent and accountable. 
    - For previous columns by the author, Reuters customers can 
click on  GALANI/    
    - SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS: http://bit.ly/BVsubscribe 
 
    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ 
India's 'locked up' land is enough to build housing for all, 
experts say     urn:newsml:reuters.com:*:nL8N1HH0GJ 
RBI statement      https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NOTI3171E66547E9D0E49B4B616A8509EF84872.PDF 
BREAKINGVIEWS - India's Narendra Modi is a tiger with many 
stripes      urn:newsml:reuters.com:*:nL4N1IH0OJ 
Graphic: India's real estate boom has a solid frame     http://reut.rs/2sJhR58 
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 (Editing by Quentin Webb, Kathy Gao and Katrina Hamlin) 
 ((una.galani@thomsonreuters.com;  Reuters Messaging: 
una.galani.thomsonreuters.com@reuters.net)) 
 
Keywords: INDIA LANDRIGHTS/HOUSING BREAKINGVIEWS