Market just cannot absorb so much of expensive housing

Some of the reasons for the current situation are as follows: a) Excessive dependence on NRI portfolios,b) Complete lack of addressal of affordable options,c) Excessive dependence on IT/ITES sector,d) Misplaced focus on global retail,e) Inappropriate/skewed risk allocation,f) Absence of a national real estate regulator,g) Inappropriate state level real estate policies,h) Lack of incentives for right sizing the market,i) Orthodox urban planning systems,and, j) Primitive real estate investment avenues.

Above all,the sector needs to be declared as an industry and reforms at many levels are needed to streamline and improve the situation.

•Are realtors being squeezed by both a fall in new demand and few takers for built properties?

Real estate,particularly housing,has taken a serious beating in the recent past,thanks to the global meltdown. Many factors have come to play in the process but the most important of them is the sub-prime lending that happened in the US in a rampant manner. Lending for homes was done in the US,in an unregulated and indiscriminate manner,to people who did not have the capacity to repay on the one hand and by companies who were not required to maintain adequate ratios such as CRR (Cash Reserve Ratio). All this led to a situation of housing finance companies in the US going bust when the global employment scenario went bust; people started losing jobs,meaning losing incomes and the obvious outcome is that they cannot pay their EMIs (equated monthly installments) to the housing finance companies. The vicious circle was at play and the down ward trend did not take much time.

Thanks to the neo-liberal policies of the government,many domestic companies had exposure to international companies. Further,foreign capital inflow into India also got hit. The employment slowdown and layoffs in the US have led to a drying up of the NRI inflows,thereby leading to a slow down in demand for luxury housing in various cities. The result has been that there are huge stocks of unsold luxury homes,large number of on hold projects due to lack of demand and a gross loss of valuation of realty companies. In India,demand for new property purchases has dried up and at the same time,old bookings are also becoming difficult to be serviced. Developers are finding it difficult to keep up commitments.

•Will prices fall further? Are there markets where there is an over-supply?

Prices have already fallen by about 20 per cent on an average. There could be a marginal fall by another 5 per cent but not more than that. Unfortunately,developers have made commitments to make expensive products. Changing that would be rather difficult midway,thereby making it difficult to reduce prices further. Some developers whose projects are yet to begin have changed strategy and have gone in for affordable projects. In the NCR and suburbs of various tier I cities,it is more of inappropriate product rather than over supply which is the problem. The market just cannot absorb so much of expensive housing that is being contemplated.

•Doesnt the industry need a regulator to check malpractices?

Whilst real estate is a state subject,it has implications which cut across national,state and local levels as the stakeholders which directly or indirectly intervene in the system of production,sale,management,etc. are at all the levels. The policies of each of the stakeholders get created independently and there is often little coordination or understanding of implications. Taxation and valuation issues at national,state as well as local levels often lead to the generation and transaction of huge quantities of unaccounted for money which is often at the root of the problem.

In such a complex situation of the industry,it is necessary that an apex national level regulator is created at the national level.