Most of us are desirous of buying a dream home, but the rising property prices are making this dream rather far-fetched and for some, even impossible. Although home loans are available in today’s times, the stiff interest cost has been a deterrent for many property buyers - be it in the residential segment or commercial segment. Moreover, the situation of sky high reality prices at present has been heightened by real estate developers by sitting on huge inventories (unsold flats), and as a consequence there has been a slack in the realty sector.
In order to address to this situation, the Finance Minister - Mr P. Chidambaram has urged the Government owned banks to put pressure on real estate developers to lower property prices in order to get the economy moving. The FM told bankers to make builders realise the need to complete projects according to schedule and lower the prices of apartments that are ready for possession but which are left unsold. According to the FM around 5 lakh flats are lying vacant. Moreover, banks have lent close to Rs 1.2 lakh crore to builders while their home loan portfolio came to Rs 2.5 lakh crore in the last week of March 2012, according to the RBI data.
But property builders on the other hand, feel that the rise in input and interest cost have proved to be detrimental for them, and thus they are unable to reduce rates. They are of the view that price rationalisation can be achieved by enhancing availability of funds for projects and single window clearance for real estate projects. Furthermore, the single window clearance could result in the cost reduction for property developers to the tune of 10% to 12%.
We are of the view that, yes indeed property prices have been quite high - especially in the metropolitan cities, which in turn has led to the lull for the realty sector (as buyers have refrained from buying in a stiff interest rate scenario and sky high prices). But the suggestion from FM may not have mass impact on banks to persuade builders to reduce property prices. This is because banks may have a little leverage over builders who are regular in their loan obligation; but for those builders who are opting for loan restructuring could be more amendable. We think it is high time that we have a real estate regulator, whereby:
- Malpractices can be tackled; and
- Transparency can be infused (about the size of the property, time of completion of project, means adopted to finance the project and charges for common areas amongst host of other initiatives).
Moreover, Government should not forget their part and must expeditiously undertake reforms to clear real estate projects after thorough checks. Also affordable housing should be given more incentives in order to push low cost housing and discourage high end luxurious flats in densely populated cities.