Why You Should Invest In A Housing Fund

Roti, Kapda aur Makaan (Food, clothing and Shelter) are the basic needs of life. Over the years, post-independence, India has become self-reliant in terms of food availability and has also emerged as one of the world's largest textile producers which not only fulfils the domestic needs but plays a dominant role in the international market as well. Despite having a burgeoning population, the country has continued to be on the strong footing in food and clothing sector.

However, when it comes to 'shelter' - the third most important basic necessity, the country lags far behind in the global arena. With estimates suggesting population to surpass the 1.6 billion mark by 2050 amid rising trend of nuclear families, it is expected that India would see a boom in the housing sector – early signs of which are already visible. 

As per the projections, by 2030, the real estate sector in India may reach a size of USD 1 trillion while its contribution to the country's GDP may stand at 13%. Recent trends show that housing sales volume in the country's seven major cities has surged a whopping 113% on a year-on-year basis, signifying a healthy recovery post the 2020 pandemic induced lockdowns.

Factors aiding housing

The government's continuous impetus on the residential sector under the ambitious Pradhan Mantri Awas Yojana (PMAY) scheme is likely to be a booster. Measures like raising budgetary allocation towards affordable housing to Rs 480 Bn in FY23, allowing 100% FDI in townships, RBI's accommodative stance with unchanged interest rate at 4% and cuts in stamp duty will prove helpful in stoking growth of the housing sector.

Currently, 35% of the overall population reside in India's urban centres, compared with the global average of 54%. It is likely that the trend of urbanisation will increase at a rapid pace in the years ahead. This can be gauged from the fact that over the last one decade, India witnessed a 3.4x growth in urban population compared to its rural population. In the decade ahead, this is likely to go beyond 5x. Rapid urbanization is expected to see urban population touch 525 million by 2025 and 600 million by 2035 against the current 490 million. This would simply mean that India needs more houses in its cities.

Over the last five years since 2017, demand has steadily been outpacing the supply. In the meanwhile, the oversupply in the real estate sector among the Indian cities has largely been absorbed. As a result, there has been a substantial reduction in pricing pressure in the real estate space. 

Another positive factor is India's strong demographic dividend. It is worth highlighting that our country is among the few nations expected to enjoy a higher working population and lower dependent population for the next three decades. The ratio of dependent population to working-age population size is set to further fall, which implies rising household incomes. With a median age of 30 even in 2030, the country would have a young population. This demographic advantage is likely to give a strong impetus to the housing sector in the coming years.

On top of it, historical low home loan rates in recent years is making finance an easy and affordable option for home buyers. Significantly low penetration of the mortgage loan segment in India, compared with developed economies, offers a tremendous growth potential from here on. Mortgages as a percentage of nominal GDP stands at about 10% for India. while it stands in the range of 15-40% for Asian economies like China, Thailand and Malaysia.

The resultant impact of all the above mentioned factors and projections are likely to culminate in a strong boom in the housing space over the next few decades. Since, housing is quite a broad theme, the need for more homes would not only push the demand for building materials like cement, steel, tiles and paints but act like a catalyst for growth of allied sectors like power, electrical goods, roads, banking, gas and hospitals, among several others. The theme, which is the way forward, does present a compelling investment opportunity from a long-term perspective as it reflects India's overall growth story.