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Increasing emphasis on infrastructure is giving a fillip to the real estate boom. However, this fast-paced growth has resulted in high prices in the housing sector as the demand and supply mismatch continues.

Despite Reserve Bank of India’s initiatives over the past six to nine months, no perceptible changes have taken place at the ground level.

CREDAI (Confederation of Real Estate Developer’s Associations of India), the apex body of the organised real estate developers/builders across India, says the RBI’s measure has curbed easy flow of fund to the realty sector.

“There are curbs in the flow of funds to the realty sector resulting in developers putting on hold new projects and holding on to the land banks. This is resulting in increase in the prices of houses, contrary to what RBI had intended by these monetary curbs,” G.P. Savlani, Resident Director, CREDAI, says.

He says the government has further tightened the flow of fund to the realty sector by changing the rules of external commercial borrowings (ECBs).

As per National Housing Bank estimates the country would require 48 million houses during 2007-12 as against estimated requirement of 31.1 million during 1997-02.

It would require more than $25 billion during 2007-12, of which $22 billion would be for the construction of additional houses.

Salvani says RBI policies have affected the market sentiments and the brunt of it has been borne by the low cost-housing segment. He says there is a need for the government to make available land for the supply to meet the demand.

This would call for policy measures of metro redevelopment, slum development and allowing vertical growth even in tier II and III cities.

He says the presumption of over-heating of the realty sector is a fallacy as the input costs have gone up and there is no drop in demand amidst limited supply.

“When the input costs like cement and steel prices have gone up, how can one expect the prices of housing sector to fall,” he asks.

“Why the real estate sector is being singled out to control inflation. If it can play a crucial role in bringing down inflation, why is the government not granting industry status to it, so that the developers could get access to other benefits, which would flow down to the buyers and result in increase supply,” he says questioning the RBI’s move to squeeze the flow of funds to the realty sector for inflation control.

Source: The Tribune