Like millions of middle-class Indians, I woke up at 6 am today and dragged myself through the living room of my rented studio apartment to reach out for the newspaper. Suddenly my eyes light up as I read the front page advertisement, “Budget Luxury Apartments all Set to Inspire Your Senses” as my eyes crawl down to the bottom of the page desperately searching for some ‘really affordable' pre-launch offer; reality hits me yet again as the bottom of the page reads, “price starting from as low as Rs. 70 Lakhs”!. I decide to move on to the sports page with a disheartened sigh and by-then an empty cup of tea.
I am just another of those random Indian ‘Aam Aadmi’’ whose morning newspaper comes wrapped in a familiar dream, sold in countless real estate ads spread across billboards, magazines and newspapers. The Indian realty sector has seen property prices skyrocket in recent years, so much that majority of the builders are managing to stay afloat by purely selling in the international market these days. NRI investments have now become the major source of income for the industry which is struggling to find buyers in the domestic market. The ‘still denied’ Indian property bubble is purported to be in existence since March 2005, when the current UPA government decided to liberalize foreign direct investment norms in real estate in Feb, 2005, introduced the SEZ Act in 2005, and allowed private equity funds into real estate.
Today, if one looks at the real estate market in terms of pricing alone, it would seem that demand is growing. But on the ground, the demand in six major real estate markets - Delhi, Mumbai, Kolkata, Chennai, Pune and Bengaluru has declined by around 40% in the past one year. New project launches have seen a drop of nearly 50 %. We have a situation where on one hand there are 11% vacant houses while on the other we have a shortage of 18.5 million houses. Vacant houses are a bubble that can burst at any time. Economists expect this time to come by November 2014.
As for the country, the problem of course is that wealth 'created' on the back of housing bubbles is largely illusionary. Buying property because its value will go up so you can then sell it for profit, or perhaps borrow against the value of the first house to buy another, sounds nice when you're reading a “Get rich-quick in real estate" book, but it is not something you want your personal finances to be built on – especially if your banking system acts as though such a situation is risk-free. Dubai is an example too famous!
The Finance Minister, in an effort to strike balance, is looking to tweak the lending policy of banks to housing projects. To mark the launch of the operations of the scheme, three major lending agencies in the retail housing market - State Bank of India, Central Bank of India and HDFC entered into agreement with the National Housing Bank (NHB). Another fact is that real-estate market does not always work according to demand and supply, because many builders — who have taken loans to purchase land — continue to sell it at a high price. So, there is no threat to investors. Nonetheless the previous pace of progress no longer seems possible unless one believes in miracles!
Low cost housing projects are expected to bring out the true potential of the market in future and might as well turn out to be the very miracle we need!
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