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Housing sector losing trust; prices be linked to incomes; not interest rates; save banks from losses


High unaffordable prices, endless wait, incomplete houses and unprofessional attitude is leading the Indian real estate losing people’s trust. It is affecting the economy in many ways. The worst sufferers are public sector banks as its Rs 61,500 crore loans to 25 real estate companies have turned in to bad debt.

There are many other smaller groups who also together owe at least another Rs 20,000 crore. CRISIL director Sushmita Mazumdar says that the 25 developers account for half of the bank lending to the real estate sector.

As now private equities are rising in this area, it is likely to make projects more expensive.

The World Bank in a 2012 study mentioned that improprieties in the Indian land and housing sector caused losses of $ 700 million to its people.

The common man is finding the sector an unending pit where their savings are dumped. They neither get the house nor their money back. Litigation is common and regulations none.

In 2006, RBI director of Monetary Policy Department, Himanshu Joshi, published a paper which raised concerns about the rapid growth of the housing market and its sustainability. The paper said that the house prices in India were correlated more with interest rates and credit growth, and very little with the growth of real income

This has caused many convolutions. It leads the housing sector to fix arbitrary prices. People are exposed to debt value of at least 36 times their income and when projects are delayed their interest costs increase.

But the builder is stated to make a fast buck by pledging the same money somewhere else at higher interest rates. So even if houses remain incomplete, it does not break the builders. In October 2013, the RBI issued an advisory to buyers and banks. It asked banks to release sanctioned individual housing loan amounts in phases linked to construction stages, instead of releasing the funds as a lump sum. The unlinked loans used to act as free credit for builders.

Instead builders on flimsy grounds – that their inventory cost is increasing – fleece more from the prospective buyers. It is leading to severe impoverishment of the salaried class.

It is a misnomer that debt-laden developers in the country’s key property markets—Mumbai, Bengaluru, Chennai and the National Capital Region (NCR centred on Delhi) — is struggling with slow sales. Their high unsold inventory, delayed construction and stalled projects may bother the bankers but not the real estate business. Its profits are growing and bank finances are being used for purposes in many cases other than the core business.

It also calls for a probe as to why the banking sector lent to projects in far off, inaccessible areas, in many cases without a metalled road, public transport or even a proper access.

Another improper decision has been expansion of the metro rapid transit system to places like Greater Noida, which has developed into Asia’s largest uninhabited township. The metro project needs to be cancelled forthwith. It is only meant to help the largest real estate group which has not repaid Rs 95,000 crore of loans to public sector banks since 2008.

The extension of metro again built with public finance and bank loans even in cities like Bengaluru have turned into severe loss-making business. It seems decisions are not being taken in a prudent manner.

In reality it is not the loss of the banks. People are losing their deposits and the government is struggling to make those losses through what is called recapitalization. Both ways people’s money is being utilized to help improper planners if not wrong-doers.

A KPMG study says there was a housing shortage of 18.7 million unit in 2012 and India needs to develop almost 45-50 million units by 2028. It says that weaker sections need about 90 per cent of it. Another seven per cent is needed by the middle class.

But the way the sector is functioning it seems difficult. In July 2013, the SBI took ownership of a condominium project called Teen Kanya in Kolkata after the builder, Bengal Shelter, defaulted on₹ Rs 177 crore. About 400 people, who had paid up to 90 percent of the prices, found themselves in legal complications.

In July 2015, LIC Housing Finance put up the Orbit Residency Park project of Orbit Corporation, in Mumbai, for auction for Rs 125 crore default.

These are only few of the known cases. The National Housing Bank in 2013 stated that 22 of 26 indexed cities were seeing a fall in prices but the builders were not selling their units hoping they could sell it at enhanced prices in future.

In September 2013, it was reported that about 650 million square feet of assets or about six lakh housing units remained unsold at the end of June 2013, according to the research firm Liases Foras. It has now increased to seven lakh units. Of this, 1.9 lakh units are in the NCR alone.

The NCR region is unlikely to see any improvement in demand for many reasons including the states of Haryana, UP and Delhi fighting constantly over levying more and more toll, green taxes on NCR residents, poor infrastructure as well as public transport, choking roads and law and order issues.

Knight Frank India CMD Shishir Baijal says, “We do not see any improvement in the residential market across the top eight cities until the end of 2015 in terms of sales”.

One reason for the slowdown in the housing sector is credited to tough anti-black money measures of the NDA government. At least 50 per cent sales were for speculation and parking black money.

It is one sector which despite demand is sagging for its lack of transparency, regulation and not adhering to time.

The sector has potential to boom, create jobs, add better living conditions as per prime minister Narendra Modi’s dreams. The slowdown is an opportunity to reform the real estate and change its game plan. It has to be linked to incomes and not the so-called investments or bank lending. The prices would automatically come down. It has to be made ethical and not profit-oriented. If the housing sector stabilizes many of the economic woes would be remedied and banks would not have to bother about high NPAs.


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