Economic Highlights
New Delhi, 23 November 2015
Housing
Sector
UNAFFORDABLE,
LOSING TRUST
By Shivaji
Sarkar
High unaffordable prices, endless
wait, incomplete houses and an unprofessional attitude is leading to the Indian
real estate losing the people’s trust. Further, 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 into 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. Additionally, as private equities are now
rising in this area, it is likely to make projects more expensive. The World
Bank in a 2012 study noted 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. Way back 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. It 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. On the other hand, 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.
Importantly, 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. This 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 the
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 such as Bengaluru have turned
into severe loss-making business. It seems decisions are not being taken in a
prudent manner.
And, 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 per cent
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 a 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, Uttar
Pradesh 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.---INFA
(Copyright, India News and Feature Alliance)
New Delhi, 20
November 2015
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