India’s residential property market is a total speculators’ playground. As big-time investors play the wait-and-watch game, end-users are left in a quandary. VIVEK SINHA reports
THEY ARE calling it the residential reality. Rates of apartments, once zooming across the country, are now falling down. You will miss it if you do an instant Google check because on the screen will surface mushrooming condominiums, luxury penthouses and high-rise apartments. But in reality, that’s the mistaken saga of real estate growth in India. DLF chairman KP Singh criticised it at a recent ASSOCHAM meeting, acccepting the fact that the realty market is currently subdued. Singh went on to explain reasons for slowdown and demanded immediate reforms in the realty sector.
Singh should know. A year ago, the price of a two-bedroom flat in Delhi hovered around Rs 50-65 lakh. Today, it is being quoted at Rs 40-55 lakh, a drop of 20 percent. In Mumbai, however, it commands a Rs 55-70 lakh rate but that’s still a steep drop. The prices had, undeniably, reached such high levels that even with a dip it’s still being perceived as extremely expensive. Major General Jayant Varma, executive director (north) of Knight Frank India, a real estate consultancy firm, told TEHELKA: “There is a lull in the property market with few takers for the residential units at present. The buyers are desisting from making transactions at the moment.” Agrees Ramesh Kumar Singh, a top Delhi broker: “Just six months ago business was brisk; we closed an average of five to six deals a week but now we hardly manage a couple of deals in the entire month.”
The root of the malaise lies deeper, though. Just a few months back real estate was lauded as the growth story of India Inc and much was made of the increased demand for quality housing, which was pushing the price northwards. Industry observers now admit that speculators — NRIs, high net worth individuals and brokers — are to be blamed for this rampant price hike forcing the end-users to keep away from the market. Speculation, hitherto prevalent in metropolitan cities like Delhi, Mumbai, Bangalore and Hyderabad has now spread to smaller towns like Zirakpur, Rudra-pur, Jaipur, Indore, Lucknow, Kochi, Pune, Meerut, Ahmedabad
and Ranchi, among others.
But what prompted this sudden interest among speculators in real estate? The answers are not difficult to fathom. “With stock markets becoming increasingly volatile, real estate has, of late, emerged as the safest bet to park your money,” says Manoj Agarwal, a Delhi broker who has invested in properties across north India. Speculators create artificial scarcity in the market thereby
selling houses at premium and smile back home with fat profits. “The speculators usually buy units in bulk by paying margin money thereby creating an artificial shortage,” says a recent report by ASSOCHAM.
As per a conservative estimate, around 45-60 percent of residential units are held by speculators, putting an upward pressure on
the prices. In this entire gambit, the loser is the end-user who is forced to pay more than the prevailing market rates. Mature markets like Japan, Australia and South Korea discourage speculation by higher capital gains tax on properties held for shorter
periods of time —say, for a period of less than one year. Realty consultants, however, do not favour taxation as the mode to control speculation. Says Sanjay Verma, executive MD, South Asia, Cushman & Wakefield: “Real estate is an emerging sector and a certain amount of speculation is bound to be there. Instead of resorting to higher taxation the government can provide incentives to the end-user, and the prevalent tax benefits for purchasing a second or third house should be done away with. Adequate amendments in the Rent Control Act, to make it a level playing field between owners and tenants, would ensure a steady supply of housing units and help contain the price hike.”
ALSO, THE absence of standardisation norms for builders and an abundance of shady brokers add to the woes of the common man, who, more often than not, is duped into purchasing a sub-standard and spurious property despite having paid an exorbitant amount. Developers have long been propounding the need to have a licencing mechanism to bring the much-needed transparency into the sector. But builders who profess various reforms for the real estate sector try to skirt the issue of an independent regulator and standardisation norms for the industry. The absence of any regulator implies that the end-user has no option to test the veracity o the claims made by the builders. “We maintain strict quality controls and buildings made by us meet all national and international norms,” says BP Dhaka, spokesperson of Delhi-based Parsvnath Developers.
Stressing upon the need for an independent regulator, Jayant Varma has a point: “An independent regulator in real estate on the lines of the telecom sector would enforce stadardisation norms and ensure quality. In the absence of any standardisation norms the consumer is left at the mercy of builders who deliver according to their whims. The leading realty firms should take the initiative to formulate a set of guidelines whereby an independent regulator should gauge the quality of their projects,” he adds. The government’s efforts to regulate and reform the real estate sector has largely been a non-starter as no standardisation and licencing
norms are available till date. And no one knows when the bureaucrats will move. Quip officials in the ministry of urban development — the nodal agency for realty reforms: “We are developing mechanisms to address the issue and would inform when ready.” That’s not good news, especially for first time investors who lack authentic real estate information and sadly, continue to rely on gut feel and fate while purchasing a house.
WRITER’S EMAIL:
vivek@tehelka.com
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