BRP Bhaskar
Gulf Today
India’s real estate sector is headed for a crash, the US way, a business journalist warned a few months ago. Crazy as it is, the real estate bubble is not going to burst any time soon, a market watcher countered. Real estate is overpriced and if the property market were to function as efficiently as the stock market, prices must crash, an experienced analyst opined. All three advanced seemingly convincing arguments in support of their conflicting viewpoints.
There has been no crash but there are signs of stagnation on the housing front which presents a paradox with widespread homelessness on one side and proliferation of unoccupied residential units on the other.
In the cities, where big real estate companies are engaged in feverish building activity to cater primarily to the upmarket, a large number of flats are lying unsold. According to a property research firm, in the Mumbai metropolitan region alone there were about 226,000 unsold apartments at the beginning of the year. This was 31 per cent more than a year ago.
In the real estate business, a fall in demand does not lead to a fall in prices because builders have the capacity to hold on until they get the desired prices. The conventional explanation for this is that the industry has access to black money. The government indulgently looks on at the flow of black money into construction as it brings hoarded wealth back into circulation.
Urban housing costs remain high as land is scarce and, therefore expensive. There is also mismatch in the market between supply and demand. The big builders are offering villas and luxury apartments costing upwards of Rs 10 million. Most buyers are looking for flats priced not more than Rs 5 million.
A recent official report estimates that the number of homeless persons is about 78 million. They need affordable housing. Prime Minister Narendra Modi has set for the country the goal of “housing for all”. However, he has not formulated an action plan for the purpose. Instead, he is continuing with the decades-old scheme under which states take up housing projects for the poor with Central assistance. It cannot end homelessness in the foreseeable future.
Last November, in a bid to give a fillip to the industry, the government removed all restrictions on foreign direct investment in the real estate and construction sector except for a three-year lock-in period for select projects. An industry spokesman claimed the step would have a huge positive impact on the housing sector as a whole, especially the affordable housing segment. However, there is no indication so far that foreign investors are interested in that segment.
Chinese and Japanese developers have shown interest in industrial projects. A leading Chinese firm has signed a memorandum of understanding with the Haryana government to develop a new industrial city in that state at a cost of $10 billion over a period of 10 years. Japanese firms, which are ready to invest up to $2 billion in industrial projects in the next two or three years, are said to be seeking strategic partnerships with Indian builders.
Much of the recent urban construction activity has been carried out flouting regulations with the connivance of corrupt politicians and bureaucrats, posing a grave threat to the environment. The floods that played havoc in the newly developed suburbs of Chennai city recently were the result of reckless construction blocking natural drainage. Governmental agencies were as much to blame as private operators.
The Judiciary is seized of many instances of construction in violation of regulations. Last April the Bombay High Court ordered demolition of a 31-storey apartment complex in the city which has become a national symbol of political corruption. An appeal against the judgement is pending before the Supreme Court.
Last week the Madras High Court directed the Tamil Nadu government not to register plots and buildings if there was violation of regulations. According to officials, the judgement may adversely affect those who bought plots in more than 300,000 housing colonies in the state.
Both the judgements indicate a hardening in the stand of the courts. Earlier when faced with fait accompli, they were generally inclined to take a lenient view, considering the cost incurred and the hardship that would be caused to the buyers. It remains to be seen whether the Supreme Court will also take an equally tough position. --Gulf Today, September 13, 2016.
Gulf Today
India’s real estate sector is headed for a crash, the US way, a business journalist warned a few months ago. Crazy as it is, the real estate bubble is not going to burst any time soon, a market watcher countered. Real estate is overpriced and if the property market were to function as efficiently as the stock market, prices must crash, an experienced analyst opined. All three advanced seemingly convincing arguments in support of their conflicting viewpoints.
There has been no crash but there are signs of stagnation on the housing front which presents a paradox with widespread homelessness on one side and proliferation of unoccupied residential units on the other.
In the cities, where big real estate companies are engaged in feverish building activity to cater primarily to the upmarket, a large number of flats are lying unsold. According to a property research firm, in the Mumbai metropolitan region alone there were about 226,000 unsold apartments at the beginning of the year. This was 31 per cent more than a year ago.
In the real estate business, a fall in demand does not lead to a fall in prices because builders have the capacity to hold on until they get the desired prices. The conventional explanation for this is that the industry has access to black money. The government indulgently looks on at the flow of black money into construction as it brings hoarded wealth back into circulation.
Urban housing costs remain high as land is scarce and, therefore expensive. There is also mismatch in the market between supply and demand. The big builders are offering villas and luxury apartments costing upwards of Rs 10 million. Most buyers are looking for flats priced not more than Rs 5 million.
A recent official report estimates that the number of homeless persons is about 78 million. They need affordable housing. Prime Minister Narendra Modi has set for the country the goal of “housing for all”. However, he has not formulated an action plan for the purpose. Instead, he is continuing with the decades-old scheme under which states take up housing projects for the poor with Central assistance. It cannot end homelessness in the foreseeable future.
Last November, in a bid to give a fillip to the industry, the government removed all restrictions on foreign direct investment in the real estate and construction sector except for a three-year lock-in period for select projects. An industry spokesman claimed the step would have a huge positive impact on the housing sector as a whole, especially the affordable housing segment. However, there is no indication so far that foreign investors are interested in that segment.
Chinese and Japanese developers have shown interest in industrial projects. A leading Chinese firm has signed a memorandum of understanding with the Haryana government to develop a new industrial city in that state at a cost of $10 billion over a period of 10 years. Japanese firms, which are ready to invest up to $2 billion in industrial projects in the next two or three years, are said to be seeking strategic partnerships with Indian builders.
Much of the recent urban construction activity has been carried out flouting regulations with the connivance of corrupt politicians and bureaucrats, posing a grave threat to the environment. The floods that played havoc in the newly developed suburbs of Chennai city recently were the result of reckless construction blocking natural drainage. Governmental agencies were as much to blame as private operators.
The Judiciary is seized of many instances of construction in violation of regulations. Last April the Bombay High Court ordered demolition of a 31-storey apartment complex in the city which has become a national symbol of political corruption. An appeal against the judgement is pending before the Supreme Court.
Last week the Madras High Court directed the Tamil Nadu government not to register plots and buildings if there was violation of regulations. According to officials, the judgement may adversely affect those who bought plots in more than 300,000 housing colonies in the state.
Both the judgements indicate a hardening in the stand of the courts. Earlier when faced with fait accompli, they were generally inclined to take a lenient view, considering the cost incurred and the hardship that would be caused to the buyers. It remains to be seen whether the Supreme Court will also take an equally tough position. --Gulf Today, September 13, 2016.
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