News & Views on Indian Real Estate

Friday, September 12, 2008

Does India need a real estate regulator?

"Land is the riskiest form of speculative real estate, which is why there are huge swings in land value," said Deepak Parekh, Chairman, HDFC [Get Quote] in a key note address at a function organised by the Federation of Indian Chambers and Industry in Mumbai on Wednesday.

The ironic thing about land is that only when there is demand to develop the land does the value increase, thereby yielding huge profits. Similarly, when demand stalls, land can lose value really quickly because there are few other ways to generate that kind of income from land, said Parekh

For instance, in cases where land is purchased from farmers, it is done at fair value, but subsequently when project plans are announced, the value of that land escalates and then the original sellers feel cheated or disgruntled with their compensation. Not to mention, Singur imbroglio is all about land.

Stating that it is difficult to find outright solutions but experience shows that the need of the hour is transparency in such land dealings, Parekh said that it is high time India has a housing regulatory authority.

Amit Mitra, secretary-general FICCI said, housing regulator makes sense only when there is a market failure.

When asked to comment about Parekh's observation that developers often take investors and lenders for a ride, Mitra said, 'there are developers and developers'. Some might be indulging in unethical practices, but realty market in India is competitive enough to take care of such anomalies.

Niranjan Hiranandani, managing director of the Hiranandani group said high interest rates and high prices of real estate are not the only deterrents to the growth of the sector.

He said, price is determined by demand and supply. Inflation, high prices of steel and cement - the last two account for 60 per cent of any construction work � are adding to the difficulty that the industry is facing.

He, however, ruled out that in near term the country's real estate sector will witness a large correction and said in the absence of a steep increase in supply, no such thing is possible.

Junking the idea that developers can hold the market to ransom, Hiranandani said, "nobody can control the market, be it the stock market or the real estate market".

He expressed his happiness over Mumbai Metropolitan Region Development Authority's plan to build 500,000 affordable apartments over the next five years.

"This," he said, "is a good beginning for affordable housing."

Parekh on his part said, 'housing for all' is often wielded as political rhetoric, but we must not lose sight of the importance of building a property owning democracy.

Hitesh mamgain said...

great blog on the reality sector ...

Hitesh mamgain said...

another comment i have is on the irresponsible statement by Amit Mitra - That a housing regulatory is required only when there is a failure. This means we will have to wait till failure occurs? I agree that realty does not need a SEBI but a check on the dealings and artificial buoyancy that is being created has to be checked because in the end it will be home owners who will suffer

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Pawan said...

"He (Hiranandani), however, ruled out that in near term the country's real estate sector will witness a large correction and said in the absence of a steep increase in supply, no such thing is possible."

So is he saying developers will cut supply? And then he says market can not be held to ransom by anyone.

Will any developer ever say that prices will go down. So why trust what they say? Wait and Watch.

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