International Monetary Fund
Though there is nothing particularly alarming about the steep fall in Indian property prices, a price correction in the high-end segment should be welcome.
Report from the International Monetary Fund has shown that property prices in India underwent the steepest decline among 52 countries. This, however, is not cause for dismay but rather a welcome development. The IMF report has supposedly linked the price reduction to high interest rates and slower GDP growth. This might to an extent — though not fully — explain the fall in prices.
The reasons are multiple. First, the apparent price reduction could be attributed to the kind of properties which are factored into the IMF study. If the prices of high value homes and commercial properties have been given high weightage, the fall could be linked to the prevailing high interest rates and slower overall economic growth. Had the overall price index of real estate in India taken into account the homes of lower and middle income groups, the price reduction could have been lower. In a country facing such acute shortage of housing for the lower and middle classes, a fall in property prices is an absurdity in itself.
Especially because housing even today is mostly beyond the reach of people with meagre resources. In this context, one may take into account the plans of the Rural Development Ministry to build affordable houses for the poorer sections. It is planning to build over 30 million dwelling houses for the poor on the present budget of Rs3,45,000 crore, in the next seven years. Take each budget speech of every finance minister in the last 10 years and you will find fairly large financial sums earmarked for houses for the poor. And yet the problem of the homeless continues.
And that’s not all. With the launching of the “Swachh Bharat” programme we are now realising the huge sanitation deficit in the country. When there is so much demand for housing — including those with toilets — for ordinary people, where is the scope for prices plummeting in this sector?
There might be some price correction in the high value and upper-end housing and realty prices. The prevailing tenancy laws put curbs on the sale of shopping malls. Skewed heavily in favour of tenants, these laws prevent commercial housing and real estate market from taking off. In many cities, a tenant after renting a property, continues to occupy it for decades. The owners have no right to evict tenants with court cases dragging on for two decades and even after they appealed in higher courts. The Life Insurance Corporation (LIC) which owns prime properties in many cities is currently facing this problem of reclaiming rented properties.
One of the consequences of prolonged litigation is the shortage of commercial/rented accommodation. The only way of owning and retaining ownership of commercial properties is to deploy a posse of local goons who can evict unwanted or defaulting tenants. Thus, in many cases high value properties have few takers unless the buyers have plans for their use.
Finally, some fall in property prices might not cause too much alarm in this country. We are not exactly having a sub-prime property loan phenomenon here. Banks are not too eager to offer loans for property purchase to applicants who have little by way of steady income. Nor are mortgages executed at anywhere close to the market value of the property. A fall in property value, therefore, need not result in large-scale default. In the prevailing context, some price correction in high-end properties could indeed be welcome.