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.

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Comments
rjganesh@gmail.com Aug 22, 2012 For the time being I believe that the comments by the Finance Minister will not have nay positive impact on the price of real estate companies.  The companies have sat through their inventories even though they have to pay interest for a pretty long time.  The reduction of price should have been undertaken as soon as the slack in the demand was seen in the sector.
kejariwalar@hotmail.com Aug 26, 2012 DOUBTFUL TO NO
bsudhakar01@yahoo.co.in Aug 26, 2012 I do not expect any dramatic change in real estate prices due to FM's announcement either immediately or in long term. Neither Banks can influence builders to lower prices,even if they approach for loan restructuring- at the most 2-3% you can expect.Not that Government does not know the efficacy of these suggestions-they just do not want to implement,which will harm their political/personal interests. FMs come and FMs go but the real estate price can go in one way -that is up. It is the story for the past 75 years of independence and it will be so in future too.

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