Why More People in India Live in Slums

8/9/2019 Why More People in India Live in Slums

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WHY INDIA HAS SLUMS? CAN WEDO SOMETHING ABOUT IT

the solution is not affordability but somewhere else

D Joel K Pandian


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Why India has More Slums? Can We do Something about It

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Changes in the national economies, liberalization of markets, growing population and urbanization rates have

changed the dynamics of the housing sectors in many developing countries. Housing sectors in India, China and

Vietnam have been liberalized and restructured, in part due changes in the economy and in part to attract

investments from foreign developers.

The Indian housing sector has experienced the repealing of some restrictive land laws, rising income and falling

interest rates a huge demand due to fast urbanization. In China and Vietnam, changes in housing provision from

state to private led and increasing investment by foreigners has increased demand for housing.

These changes have created opportunities for the participation of foreign developers in these markets. These

opportunities arise from the need of local developers to develop townships and developments that are world class

and also partly to learn from technical expertise and development know-how possessed by these foreign

developers. Foreign developers from Hong Kong, Singapore, Malaysia and Indonesia have been active in

internationalizing into these three countries.

Housing Sale and Rental in Asian Markets

Asia is home to the largest and fastest growing countries in the world, both in terms of population and economic

size. With its current size and anticipated rapid economic transformation and growth, the highest rural-to-urban

shift is expected to occur in Asia.

As the population and urbanization increases, demand for housing for owner-occupancy and rental increases.

Resources already devoted to housing become strained due to limited supply of land in cities. The inadequate

supply of housing in the region can be seen in the high house-price-to income ratios (Table 1) and high share of

slum dwellers (Fig-1) in the urban population.

A decent 35 sq. m. condominium unit in the city centre costs around six to thirty times the annual average income.

Table 2 below shows that there are serious affordability issues in Asian cities, especially in Seoul, Manila, Jakartaand Shanghai.

TABLE 1 AFFORDABILITY OF HOUSES IN SELECT CITIES OF ASIA1

City Per capita Income

(US$)

Condominium Price

per Sq. Meter

(US$)2

Condominium

Prices (US$)

Price to Income

Ratio3

Kuala Lumpur 6,991 1,222 42,770 6.1

Tokyo 45,425 8,000 280,000 6.2

Singapore 28,578 6,700 234,500 8.2

1 Source: Global Property Guide2 Assuming a 35 sq. meter condominium price3 Higher the price to income ration lower the affordability


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Bangkok 6,317

Seoul 10,305

Manila 2,217

Jakarta 1,861

Shanghai 2,474

New Delhi4 735

Mumbai5 735

From the above table it can be seen tha

emerging economies of Asia such as Indi

market due to the very high and sudden

fast urbanization in these markets.About a third of Asia's urban population

Latin America and the Middle East. In S

Countries with serious slum problems incl

Korea (14 million), India (240 million) a

that have serious housing affordability c

FIGURE 1 PERCENTAGE SLUM DWELLERS TO THE UR

4 Cannaught Place, Jor Bagh, Glof Links, Gr5 Nepeansea Road, Malabar Hill, Cuffe Par

0

5

10

15

20

25

30

35

40

45

East Asiaexcl. China

South EastAsia excl

Indian

Indone

25.4

22 23.

Why India has More Slums? Can

1,667 58,345

3,300 115,500

1,300 45,500

1,250 43,750

2,200 77,000

1,973 69,066

10,110 353,850

t the price to income ratio is very high in Asia and is

a, China, Thailand and Indonesia. This is a clear sign

demand for housing units in these countries. This is th

lives in slums, a ratio that is higher than other middl

utheast Asia, one out of every four urban residents l

ude Indonesia (with 21 million slum dwellers), Philippi

d China (178 million) [UN Habitat 2003]. These are

onditions.

BAN POPULATION

ater Kailash average values-Global Property Guideade, Altamount Road, Breach Candy, Nariman Point aver

sia SouthKorea

China Philippines India

.1

37

29

44.1

28

e do Something about It

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9.2

11.2

20.5

23.5

31.1

93.9

481.42

highest in the

of overheating in the

e direct fallout of the

-income countries in

ives in slums.

ines (20 million), South

the same countries

age values


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There are many reasons to the high perc

this can be attributed to the price to inc

developing countries in Asia do not prov

control of corruption are also observed i

In the Philippines, only 10 million of the

rate of property titling in the Philippinesis achieved.

In China, the influx of foreign investment

The Ministry of Land and Resources rece

2006].

The Philippines and India top the countri

property, followed by Indonesia and So

Transaction Cost in Asia

The sale and purchase of property invol

sales and transfer taxes. Registration co

Asia registration costs are low.

Countries with less transparent markets

particularly the India, Philippines and In

To analyze the transaction costs more cl

country purchases a property that is wo

case as simple as possible, the property

property was used by the seller as his p

FIGURE 2 TRANSACTION COST IN ASIA

0% 5% 10%

Hong Kong

China

India

Indonesia

Malaysia

Philipines

Singapore

South Korea

Srilanka

Taiwan

Thailand

Vietnam

Why India has More Slums? Can

entage of urban population living in the slums. But th

me i.e. the affordability criteria. The other reasons

ide sufficient protection of property rights. Poor gov

in China, Indonesia and the Philippines.

stimated 25 million (40%) parcels were registered.

, it is estimated that it will take 75 years before com

in the real estate industry has led to illegal land gr

ntly reported that about to 60 to 90% of land acqui

es that have the most number of procedures involved

uth Korea.

ve many costs: registration costs, real estate agent f

sts include stamp duties, deed taxes and notary fees

nd more registration procedures have higher estate

onesia.

arly, a hypothetical case is adopted where a resid

th ten times the country's gross national income per c

is paid in cash. The unit is a condominium located in

rincipal residence for the past ten years.

15% 20% 25% 30%

Deed T

Transfe

Stamp

Legal F

e do Something about It

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e main reason behind

eing many of the

ernance and weak

Further, at the current

plete titling coverage

bbing in rural areas.

isitions are illegal [BBC

in registering

es, legal fees, and

. In most countries in

agent fees,

nt citizen of the

apita. To make the

a major city. The

x

Fee

uty

e


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As may be seen from Figure 2 and Figure 1, the countries with high transactions cost has high slum dwellers

and when seen from table 1, the countries with high slum dwellers have low affordability for housing. Hence, it

may be concluded that apart from many other factors the government tax and the transparency in the

markets affect the affordability for houses in the middle income countries and particularly in Asia.

A Bottom of the Pyramid Approach

Housing is the biggest Bottom of Pyramid (BOP) market, a market which is larger than transportation and a

bit smaller than energy. The market encompasses major spending itemsrent, mortgage payments (or

imputed rents), and repairs and other services. But the BOP housing market is perhaps uniquely handicapped

by informality. This is true in Asia especially, where mortgage markets are undeveloped and land prices high

relative to income, the market potential and the need is huge.

How large is the Market

The measured BOP market for housing in Africa (12 countries), Asia (9), Eastern Europe (6), and Latin America

and the Caribbean (9) is $331.8 billion. The total BOP housing market in Asia (including the Middle East) is

estimated to be $171.4 billion, representing the spending of 2.9 billion people. In Asia one extreme is

represented by Sri Lanka, Pakistan, and Bangladesh, where the BOP accounts for more than 90% of the

spending on housingthe other by Thailand and India, where despite the substantial BOP population, the

recorded share is only 47% and 48%, respectively. This explains the reason why the demand of 22 million

housing demand is keep increasing as a major portion of the same is low income group housing requirements.

The major challenge in India and Thailand is to develop low income group houses but the developers are as

of now focusing on high and middle income group houses.

In Asia, India has the largest measured BOP housing market at $62.1 billion; BOP spending accounts for 48%

of the national housing market and averages $164 per household a year. With all the huge spending by thelow income group on housing the demand is still increasing and the affordability of the BOP segment is falling.

The main reasons for the same are as below

1. High transaction cost of housing and land units in Asia and in particular India.2. Unclear land titles3. High interest rates for the Low Income Group due to the high risk rating given to such population4. Outdated Land laws

Recommendations

1. Reduce or abolish excessive taxation of property transactions.2. Harness cooperatives and micro financing institutions to promote cooperative-based rental housing

units.

3. Increase the Transparency in housing transaction Market4. Establish a one-stop shop for property purchase registration and tax payment.

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Why More People in India Live in Slums