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Houses That No One Wants

Why does Indian real estate seem immune to the basic laws of economics?

According to data from a research firm, there are 6.6 lakh completed and unsold housing units in just five large cities in India. Across the country, the number could be much higher--estimates range from 30 lakh to more than a crore. Then there are those units which are languishing unfinished at various stages. It's unlikely that anyone would have a precise number for the total but the number is surely humongous.

At the same time, there is undeniably a housing shortage in the country. In the very towns and cities where the largest unsold stocks of housing exist, there are lakhs of families who'd like to buy a house but can't find one. These are not people who have a desire to own a house without any resources to acquire it. They are serious buyers who have the capability to pay for an apartment but just not of the kind that have been built.

On the face of it, this seems strange, flying in the face of basic economic logic. It's as if the car industry would try to sell nothing but large BMWs, Mercedes and Jaguars while most of the country yearned for cheaper cars. Sooner or later, businesses figure out where their market lies and if they want to make money, they try to serve that market. The question is, why don't builders figure this out?

Actually, there's no puzzle here. Real estate developers have tuned their products to their market. It's just that the market is not people who want houses to live in, but investors who need to sink black money and have it appreciate. From the locations of the housing to the designs to the manner their price appreciation is stage-managed, the manufacturer and the seller tune it all to for the investor. Of course, eventually, something has to give and real buyers have to appear--perhaps that is beginning to happen now. However, unless there is some miracle that 'whitens' this market, and the housing regulation law gets serious implementation, it's difficult to foresee substantive change.