-1.jpg "Deepak Parekh")
Two years ago, I had predicted that the property bubble would burst any time. I was off the mark by two years. The prediction that has come true is that the unsustainably high prices have crashed. Such high prices are not good for the housing sector or for the country’s economy. By keeping the prices at such levels, you take so many people out of the market. Also, where would they live? Housing is a necessity. We need a property-owning democracy in India, and for that, housing should be within the reach of the common man. Otherwise, it belies the principals of democracy.
Affordable housing is not about box-sized, budget homes in far-flung places, where there is no connectivity to work places and little surrounding infrastructure. Affordable housing has to be able to cut across all income segments and has to make economic sense in terms of proximity to work place. The agenda for affordable housing requires a combined public-private collaboration and a strong political will to enforce change.
There is need to simplify the land acquisition process and conversion of agricultural land for urban use. The government also needs to take a hard look at the role of housing boards. Their profits should be fenced and used only for affordable housing.
The real estate sector has suffered because of the economic situation. It took two to three years to bring in $25 billion investment to the Indian real estate sector. However, it took just six months to incur a loss of nearly $10 billion. This was largely due to the commercial real estate sector, where developers continued their fast and furious pace of land acquisition at exorbitant prices.
In the mayhem that followed in the second half of 2008, investors could have lost close to one-third of the value of their investments. Things were no better in the residential sector, where many developers entered into arrangements with customers and received upfront payments. This was a cleverly disguised ploy to get hold of cheap funding without bearing any cost for the high risk involved.
However, the developers do not seem to have learnt any lessons from the slump. In fact, some top-rung ones have already started increasing prices, especially in the mid-income projects following the recent increase in sales. Besides, with liquidity no longer a constraint, some developers are seeking to increase their margins once again. It would be extremely unfortunate if the developers were to increase home prices at this juncture.
It’s not just greedy developers; lending institutions have to share a part of the blame for not warning investors about the implications of interest rate reversal. Right now, I don’t see interest rates going up. They might go down by another 50–100 basis points. Maybe two or three years later, when infrastructure projects take off, and there is demand and money, interest rates may inch upwards, but till then, rates are unlikely to shoot up.
For the people who are planning to take housing loans, low interest rates seem attractive, but are they being made aware of the future implications? Are the lending institutions providing ‘what if’ scenarios to their customers? If not, it is a clarion call for caveat emptor.
Deepak Parekh is Chairman, HDFC
