'Property prices are down in real terms'
The value of real estate will increase in a growing economy, but the housing data suggests that with 7-8% inflation, prices are coming down in real terms
Oct 02, 2014
Source : The Times of India
Raghuram Rajan, RBI Governor


NEW DELHI: Property prices in real terms - that is, after adjusting for inflation - are coming down, RBI governor Raghuram Rajan said on Tuesday. "The value of real estate will increase in a growing economy, but the housing data suggests that with 7-8% inflation, prices are coming down in real terms and become more affordable as wages are going up," the governor said.

The central bank has not cut its benchmark interest rates, signalling banks to continue with tight liquidity policy to contain retail inflation at around 6%.

The real estate sector has been pushing for a rate cut so that consumers' affordability to buy a house improves.

Rajan, however, is not overtly concerned about the high property prices. Leaving aside Delhi's Aurangzeb Road and Mumbai's Malabar Hill, property prices are not alarmingly high, the governor said. Besides, banks enjoy a cushion as buyers shell out 20% cash as down payment while purchasing a residential unit. He said he was not concerned from the lenders' perspective in the real estate sector as appreciation in property rates is in tandem with the inflation, in a majority of cases.

In case of Aurangzeb Road, there are few houses which are sold or purchased and in some cases property prices are as high as Rs 500 crore, which means there is hardly any bank funding involved. Aurangzeb Road is home to billionaires such as Arcelor Mittal's LN Mittal, DLF's KP Singh, and Max India's Analjit Singh.

Similarly, South Mumbai's Malabar Hill is home of several business tycoons. Billionaire investor Rakesh Jhunjhunwala has bought sea-facing apartments in Malabar Hill last year. Prices in this area are around Rs 1.25 lakh per square feet.

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