Housing in Patna and Economy of Bihar


Real estate Patna
Real estate Patna

 

 

Real estate investments in Patna have been one of the important growth drivers in economic growth of Bihar; a number of academic and business studies have established the correlation very strongly. Some of the studies have empirically proven the short term and long term effect of consistent housing investments on any state’s GDP growth. Housing construction investments in Patna, which comprise the bulk of all real estate Patna activity, contributes directly to the economy of Bihar.

Moreover, though personal consumption expenditure by individual and households in Patna contributes substantially to the economy of Bihar, it contains a size able mix of expenses incurred on rent, utilities, related taxes, etc, all of which are also contributions of the housing sector in Patna to the SGDP of Bihar’s economy.

As per as India is concerned according to the Economic Survey of India, 2012-13, the real estate sector contributed 5.9% of the India’s total GDP in 2011-12, registering a growth of 7.2% from the previous year. Though this share is currently amongst the highest, considering the current state of the infrastructure and shortage of real estate assets visa- Vis the population in India, it is still grossly inadequate. As, besides contributing substantially to the GDP, the sector needs to increase its real estate production and investment immensely to compare to those in countries such as Brazil and China. It is important to note that though population levels of China and India are not too different; the variation in per capita real estate production is more than 3.5 times. The per capita real estate production in China is approximately USD 5,418 whereas it is USD 1,486 in India.

  High Correlation of SGDP and Real Estate Activities in Patna

 

Statistics over the last five years depict high correlation of SGDP and real estate in Patna. For most countries in the world, the correlation is over 0.9 stressing on the importance of the sector in the economic growth of the state. Housing being the key segment in real estate sector in Patna, it becomes imperative for the State Government to focus on and adopt policy measures that accelerate housing in Patna, in turn boosting economic activity through direct and indirect means.

China, with a very high correlation of 0.98 has seen consistent increase in real estate investments in last five years with a CAGR of 13%, which is around 6% of the GDP each year. On the other hand, in the U.K. where real estate investments is only 1% of the GDP, the correlation is also as high as 0.91. For Bihar, the correlation is difficult to calculate since Real Estate production has been historically clubbed with other sectors and its individual total production/investment numbers are difficult to ascertain. However, one can reasonably assume that the correlation would be at least as high as 0.78.

 Case Studies

a) China

Government policies have played a major role in aiding housing developments in China. One of reasons for unusual growth rate achieved by the Chinese economy in view of weak economic growth across the world is the aggregate investments aided by Government policies. Among other investments, increase in housing investments owing to the housing reform policy reform in 1998 resulted in huge demand for housing and encouraged real estate developers to construct more units. Additionally, the Government encouraged housing construction by improving the approvals and regulatory processes and providing easy credit for housing development projects. It is estimated that the real estate investment in 2012 accounted for 12.5% of China’s GDP and 14% of total urban employment. However, real estate in Patna is not enjoying any such support by the state government. Bihar government should learn from China’s case.

b) United States of America (U.S.A.)

The housing policy in the U.S.A. has brought about significant changes in the economy by focused efforts of the Government. The tax code has been the most important policy tool for the housing sector, which subsidizes imputed rents and allows deductions for mortgage interest payments. The Government also offers a variety of programs in public policy to support home purchase wherein certain class of individuals can borrow below the market rates. In addition, there are a number of federal and state programs that assist low-income households to own a home. It is estimated that housing construction investments and housing services contribute 15.5% of the real GDP in the U.S.A., more than 2.6 times India’s contribution, even when it is a developed country where housing needs are substantially satisfied. Hence, it is safe to assume that for a housing deficit state like Bihar, the SGDP contribution from housing should be multifold. If we need to satisfy the deficit in housing in Patna it will take investment of billions.

Will the state government throw its energy to get SPECIAL STATUS or special policies to spur growth in real estate sector in Bihar!!!!!

 


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