Enzio's Clock

Summary

In our recent Money Thoughts introducing the updated Economic Clock for India, we alluded to high end property transactions plunging: prices have got out of reach of the one million families earning US$ 25,000 - $50,000 per year. But, within residential, another sector is thriving...

Topics Covered

According to the South China Morning Post of 12th September 2007, developers are leaving the high-end residential property market and are now targeting low class housing, because:

• In India, there are 53 million families earning US$ 2,500 - $5,000 per year;
• For these people, there is a shortfall of 20 million homes;
• By 2010, an additional 22 million families should enter this income bracket by 2010, providing further demand for inexpensive housing, and
  
• Gross margins for such housing are 20% (vs. 30% for the high-end homes), but developers can make up the shortfall by pushing the turnover chunk of the profits equation - by building large townships on non-prime land.
  

Of course, if people buy such homes, they need mortgages. According to the same newspaper article, bank exposure to mortgages has tripled in the last three years - to US$ 60 billion; however, this equates only to six percent of GDP, vs an equivalent of 50% in the UK and the USA. This means that in India, there is plenty of room for the mortgage business to grow.